New Delhi: The salaries of Pawan Munjal, chairman of India’s largest two-wheeler maker Hero Motocorp Ltd, and his brother Sunil Munjal rose the sharpest from among executives in India who also don the promoter’s hat in their respective companies.
The total salary, including commission as a percentage of net profit, increased 28.6% to Rs.57.40 crore for Pawan Munjal, who is also the managing director of Hero, during the year ended 31 March. Sunil Munjal, who resigned from the company as its joint managing director on 16 August, drew Rs.54.37 crore, an increase of 28% from a year ago, according to the company’s annual report for 2015-16.
Interestingly, the median salary of employees increased 7.5% to Rs.7.6 lakh at Hero. In 2010-11, Pawan Munjal, who was then chief executive and managing director, drew Rs.26.47 crore. Sunil Munjal was just a board member then. The average net profit of the company for the past three years was Rs.2,909.05 crore.
However, both the brothers lagged Kalanithi Maran and his wife Kavery Kalanithi, promoters of Sun TV Network Ltd, who took home Rs.71.47 crore, an increase of 16.6%, and Rs.71.46 crore, up 16.65%, respectively, the highest paid executives in the country. The Marans are followed by A.M. Naik, group executive chairman of Larsen & Toubro, who received Rs.66.14 crore as salary, up 142% from the year-ago period. Naik, of course, is a professional manager and not a promoter of the company.
Apart from Naik, there are only three non-promoter executives in the top 10, according to a Mint analysis of the highest paid executives. They are Vishal Sikka, chief executive of Infosys Ltd; Kamal Sharma, vice-chairman of Lupin Ltd; and Guenter Butschek, chief executive of Tata Motors. The other promoter executives in the list are Desh Bandhu Gupta, chairman of Lupin Ltd and Sunil Bharti Mittal, chairman of Bharti Airtel Ltd.
Interestingly, the median salary of employees at these firms were between Rs.3.40 lakh and Rs.7.60 lakh, while the year-on-year increase in median salary of employees went up by 9.35%. India’s largest telco Bharti Airtel saw a 4.5% decline in median salary of employees.
According to the provisions of Section 197 of the Companies Act, the remuneration payable to any one managing director or whole-time director shall not exceed 5% of its profits as calculated under Section 198 of the Act and if there is more than one such director, the remuneration to them shall not exceed 10% of such profits. Companies that seek to pay a whole-time director more than 5% of its net profit are required by law to seek minority shareholders’ approval.
According to Shriram Subramanian, managing director of proxy advisory firm InGovern, it is alright for a professional CEO to get paid a higher salary, but a promoter director should take compensation in dividends.
“There are two distinctions that we make between promoter director and professional CEOs. For the former, it should be as high as the highest professional in the company. Second, salary increases are not commensurate with the performance of the companies,” Subramanian said.
“All I am saying that it (salaries of promoter directors) was already at a high base and it is not the right thing. They should take their compensation in terms of dividends as they are significant shareholders in the company,” he added.
Not long ago, proxy advisory firms had advised their shareholders to vote against the remuneration proposal of some of the senior directors. In July 2014, minority shareholders of Tata Motors rejected a proposal for the payment of remuneration to its former managing director, Karl Slym, who had died in January, and two other executives in excess of permissible limits—the first instance when shareholders successfully stalled the payment of excessive compensation to top executives in a company as large as the Tata group firm.