One more company has come under fire for seeking an increase in compensation for its top brass at a time when economic uncertainties are seen impacting corporate profitability.
According to a report in the Economic Times today, Larsen & Toubro (L&T) is seeking to increase the variable component of its executive chairman AM Naik salary to up to 0.4 percent of net profit (excluding extraordinary items). At present, it is 0.3 percent.
At the outset, the proposed increase may look marginal. But, on a high base even a 10 basis point increase is huge.
In Naik’s case, the raise can be a whopping Rs 4.2 crore at FY13 profit level, the report says. His current variable pay is Rs 11.29 crore and in FY12 the fixed component amounted to Rs 2.68 crore, the report says citing the company’s documents.
Apart from Naik’s, there are proposals to increase pay packages for others like the CEO & MD, the deputy MD and full-time directors to 0.3 percent, 0.25 percent and 0.2 percent from 0.25 percent, 0.18 percent and 0.15 percent, respectively.
What has raised the hackles is that the proposal to increase the salaries comes at a time when the economy is not doing well and capital goods companies are seen taking a hit due to the prevailing uncertainties.
A research note by Kim Eng said it expected contractors such as Larsen & Toubro said Bhel to suffer the most as there are fewer announcements of new projects and execution of projects is also getting delayed continuously. It expect these companies to witness pressure on margins due to high raw material prices.
Citing the government’s data, the brokerage said that announcements of new projects had witnessed a 60 percent decline in FY13 to Rs 4.3 lakh crore. “We do not see this recovering soon as the gov’t and private expenditure on infrastructure/industries continue to remain weak. This will continue to affect contractors’ earnings through FY14,” it said.
So there are no chances of a revival in prospects for L&T this year.
“It makes no sense to hike salaries at a time when the economy is in a bad shape,” Anil Singhvi, shareholder activist, Founder Director of Institutional Investor Advisory Services and Chairman of ICAN Investment Advisors, has been quoted as saying in the ET report.
Singhvi is not ready to buy the argument by the company that a splitting of the various businesses has warranted the salary increase proposal.
Has the restructuring derived any additional accountability, responsibility, or value, he asks.
The prevailing stress in the economy renders all arguments in favour of a compensation hike for CEOs pointless.
For instance, in Naik’s case, one could say that he deserves it as his contributions to the company are priceless (and they are, truly). But why can’t he settle for a smaller increase or even shun it for one year?
Isn’t it the responsibility of the top brass, who are anyway drawing good salaries, to not push through for an increase in the salaries in times like these, especially when opposition to such salary hike proposals are on the rise.
Last month, loss-making Hindustan Construction Company had attracted shareholder activists’ ire for a proposal to keep the salary of its Chairman Ajit Gulabchand at a high 10.08 crore for the next three years.
“On the one hand, the company promoters propose to pump in Rs 64 crore under the CDR scheme while on the other, a promoter is seeking remuneration that is not in line with performance of the company,” proxy advisory firm Shareholders’ Empowerment Services had said in a note.