Shareholder dissatisfaction against spiralling remuneration of top executives is snowballing into revolts in several companies. The most recent case in point is Apollo Tyres Ltd. A 27% vote against the reappointment of Neeraj Kanwar, vice-chairman and managing director, is reckoned to be on grounds of high remuneration despite falling profits over the last couple of years.
A Mark-to-Market analysis of compensation packages across tyre firms shows that in FY18, Kanwar’s annual remuneration was ₹ 42.76 crore . That’s not all. The patriarch and founder Onkar S. Kanwar, chairman and MD of Apollo Tyres, took home a higher remuneration. Together, they grossed ₹ 87.74 crore as annual compensation during the year, which was a little over a tenth of the consolidated net profit for the year!
Data shows the compensation of promoters-cum-top executives of both Balkrishna Industries Ltd and MRF Ltd are the second and third-highest among listed tyre firms. Salaries of top brass of other companies are lower but they also rose in FY18 after declining in FY17.
What irked Apollo Tyres’ shareholders was high compensation in the face of profits running downhill. From FY17 to FY18, Neeraj Kanwar’s remuneration vaulted 38%, although it had declined marginally in the previous year. Between FY16 and FY18, Apollo Tyres’ consolidated net profit fell at a compound annual growth rate of about 20%.
On the whole, most tyre makers have had a rough run in the last couple of years due to rising input costs that have kept margins subdued. The forecast for the sector is weak on account of higher input costs and capex that may cap and weigh on margins. Barring Balkrishna Industries that follows a slightly different business model, the entire tyre sector posted a steep decline in net profits over the last three years.
Apollo Tyres’ earnings per share over the last three years has declined by 26%, even as the dividend per share has been stable. Overall, the erosion in price in the last three months and forecast of a challenging period ahead has taken the charm off the stock.
The decision on Kanwar’s reappointment is yet to be taken. With 27% of the shareholders voting against, it falls short of the three-fourths majority needed for the reappointment. Shareholders’ ire over high compensation during difficult times is understandable and also reinforces the trend towards a community of proactive and mindful minority shareholders.