Have there been times when you as a shareholder wondered why your company's promoter gets paid the salary he receives? Being a shareholder holding lesser number of stocks, there is not much you could do about.
Well, all that is likely to change!
As reported by the Economic Times, India's capital market regulator - the Securities Exchange Board of India (SEBI) is considering a proposal to make it mandatory for companies to get remuneration packages of promoter directors approved by a majority of minority shareholders. In case of non promoter driven companies, the pay packages would be passed through special resolutions.
In addition, SEBI is planning to make the disclosure of compensation policy in annual reports compulsory. Further, it is also proposing that all listed companies form remuneration committees. The latter is currently not mandatory under a certain clause of the listing agreement. As per the clause, this committee needs to include three non-executive directors, with the chairman of committee being an independent member of the board. Considering that promoters get to vote for their own salary packages, this comes in as a good move from SEBI.
As reported by the business daily, the top five paid executives received salaries of Rs 562.5 m, Rs 562.4 m, Rs 549.8 m, Rs 328 m and Rs 327.3 m in FY13. Of this, the top two belonged to the same company - Sun TV; the case was the same with the fourth and fifth ranked executives which belonged to Hero MotoCorp.
Now, when one compares these to the average FY12 salary level of Rs 109 m of Managing Directors of the BSE-Sensex companies, the figures seem quite high. When compared to the average salaries of the top 100 and 500 BSE companies, which stood at Rs 62 m and Rs 36 m respectively, they seem ridiculously high. This data is provided by IIAS, a proxy advisory firm. It must be noted that these payments do not include dividends.
Given that majority vote would be required to pass an ordinary resolution (75% in cases of special), this could be a powerful tool that minority investors could use to voice their views; in the process, if effective, it could possibly help companies improve profitability and possibly bring some sanity in the minds of the highflying promoters.
It must be noted that looking at these figures in isolation could paint a skewed picture in certain cases. A good way to understand whether promoters are overpaid or not would be to compare their pay packages to revenues or profits.