New Delhi: Activist investor advisory firm Stakeholders Empowerment Services Pvt. Ltd (SES) has questioned the multi-year compensation being offered to Prathap C. Reddy, executive chairman of Apollo Hospitals Enterprise Ltd.
In an advisory issued on Monday, SES has asked Apollo’s shareholders to vote against the company’s proposal to pay Reddy 5% of its annual net profit as compensation for the next five years.
“We strongly believe that multi-year guaranteed bonus/commission should not be paid to executive directors. It removes the link between the company’s performance and director’s remuneration,” the advisory report says. It adds that a multi-year remuneration structure is a “poor corporate governance practice”.
Krishnan Akhileswaran, chief financial officer of Apollo Hospitals, said in a text message, “The remuneration of the chairman is well within the prescribed regulatory limits. The same is as approved by the remuneration committee of the board and is in line with the company’s performance and growth in profits.”
The annual general meeting of Apollo Hospitals is scheduled for 9 August.
SES also questioned the difference between Reddy’s compensation and that of other senior executives. “The remuneration paid to Mr. Reddy is very high as compared to the remuneration paid to other executive directors in the company and compared to remuneration at peer companies. Therefore, we recommend that the shareholders vote against the proposal,” it said.
Compensation plan: Prathap C. Reddy, executive chairman of Apollo Hospitals Enterprise. In the past five years, Reddy’s remuneration has grown at a compounded annual growth rate of 27% while Apollo’s stand-alone net profit has grown by just 18%, according to Stakeholders Empowerment Services. Mint
At Rs 17.16 crore, the remuneration paid to Reddy in 2011-12 was “not aligned” to Apollo’s stand-alone net profit of Rs 230.99 crore for the year, SES said.
In the past five years, Reddy’s remuneration has grown at a compounded annual growth rate of 27% while Apollo’s stand-alone net profit has grown by just 18%, it said.
Reddy’s remuneration was 2.5 times that paid to the next highest-paid executive director and 10 times that paid to the lowest-paid executive, it said.
SES further raised concerns regarding the compensation Reddy’s family has paid itself.
“Family of Dr. Reddy (chairman) has five executive directors on the board of the company and the family has paid to itself a total sum of Rs 324.76 million (previous year Rs 253.67 million), a 28+% increase in y-o-y (year-on-year),” the advisory notes. “It appears that the distribution policy is to distribute maximum possible sums to family members (all other directors put together have been paid Rs 1.68 million only and will be paid (a) further sum of Rs 0.85 million each).”
A proxy advisory report by Stakeholders Empowerment Services on Monday has questioned the multi-year compensation being paid to Prathap C. Reddy, executive chairman of Apollo Hospitals. Mint’s Aman Malik and J N Gupta of Stakeholder Empowerment Services tell us more.
Other family members on Apollo’s executive board include managing director Preetha Reddy, joint managing director Suneeta Reddy, executive director, operations Sangita Reddy and executive director, special initiatives, Shobana Kamineni.
The advisory said that though the “hefty premium for ownership” the promoters are paying themselves is “legally permissible” it is “not in the best spirit of corporate governance as such high remuneration is available to family members alone.”
Perin Ali, an analyst with Mumbai-based Edelweiss Securities Ltd, however, said the total managerial compensation offered by Apollo Hospitals in the past five years was well within the guidelines stipulated by the market regulator, Securities and Exchange Board of India (Sebi).
“The managerial compensation has been at 10-12% of the company’s profit before tax, which is slightly higher. But in the year ahead, the company is likely to see a robust 25% growth in topline and 24% in bottomline,” Ali said.
In fact, according to SES’s own figures, the Apollo Hospitals stock has performed better in the past 10 years than the healthcare index of BSE. Moreover, the stock is trading at a price-to-equity (P/E) ratio of 37.59, higher than the industry average of 27.76.
J.N. Gupta, founder and managing director at SES, defended his firm’s advisory.
“Legally, there is no bar on their compensation structure. But corporate governance is an issue of ethics. All the five executive directors are family. They are using their holding in the company to their advantage,” Gupta said.
SES also asked shareholders to vote against the reappointments of N. Vaghul and T.K. Balaji, both independent directors on Apollo’s board.
It said, Vaghul, as the chairman of the company’s remuneration committee, was responsible for recommending “unaligned remuneration” to executive directors and the chairman. It also said Vaghul had completed 12 years on the board and had “low attendance” in board meetings in two of the last four years.
As for its recommendations against Balaji’s continuation on the board, SES again listed an 11-year tenure and low attendance in board meetings in the last four years as reasons.
SES also asked shareholders to vote against the reappointment of Apollo’s auditors, Chennai-based chartered accountants M/s S. Vishwanathan, on the ground that they had been with the company for about 16 years.