The proposals relate to hike in remuneration for 3 executives

In a rare instance of activism, shareholders of Tata Motors have defeated three resolutions proposed by the company relating to remuneration of three of its top executives, including the late Karl Slym. Tata Motors, through a postal ballot, had sought shareholders’ consent on six special resolutions on May 22, 2014.

The shareholders rejected three resolutions relating to wages. However, they approved three others, including enhancing the company’s borrowing limits to Rs.30,000 crore.

The company had sought approval for minimum remuneration in case of inadequacy of profits and ratification of the excess remuneration paid for 2013-14 to Executive Directors Ravindra Pisharody (Rs.3.19 crore) and Satish Borwankar (Rs.2.44 crore), and (late) Karl Slym, MD/legal heirs(Rs.14.64 crore). But these resolutions were defeated.

Signs of times to come

“This is the first time that shareholders have voted against the proposals from a big company like Tata Motors. It is the sign of times to come. All companies have to be very careful in drafting resolutions before bringing them before shareholders,” said J. N. Gupta, Managing Director, Stakeholders Empowerment Services (SES), which had opposed these resolutions.

“There was nothing drastically wrong in Tata Motors’ proposals but the variable pay was not capped. In such a case, the minimum remuneration is indeterminable. That is why we had opposed these resolutions,” Mr. Gupta, formerly Executive Director with Securities and Exchange Board of India (SEBI), said.

Incidentally, another proxy advisory firm Institutional Investor Advisory Services (IISS) had recommended shareholders to approve these proposals.

According to Tata Motors officials, the remuneration packages were already approved by its Remuneration Committee but as per Companies Act, because of the inadequate profits for the fiscal year 2013-14, they needed a special shareholder approval for any compensation in excess of Rs.48 lakh for the year.

Metrics

“These proposals are consistent with market benchmarks and based on a series of metrics relating to the company’s overall performance and health, and aggressive implementation of strategies for future growth,” Tata Motors said in a statement.

“So far as the inadequacy of profits is concerned, this comes in a situation of unprecedented and prolonged economic slowdown in the national economy, weak consumer sentiment, and subdued infrastructure activity. This slowdown impacted demand for the entire auto industry in 2013-14,” Tata Motors said, adding these three resolutions secured 70 per cent approval of shareholders, marginally below the approval threshold of 75 per cent.

“The company takes cognisance of the shareholders’ views; at the same time, it is necessary to balance this with recruiting and retaining an industry-proven management team through the long-term.

“This involves ensuring that the company’s leadership and talent base is appropriately remunerated, notwithstanding cyclical phases,” the company said.

Tata Motors said it was considering its options, and would move ahead taking into account the best and most equitable interests of all stakeholders.

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