The board of directors of Eicher Motors is expected to meet shortly to resolve the crisis following the decision of shareholders to reject the reappointment of Siddharth Lal as managing director.
While no confirmation was available whether the board would review its earlier decision to increase Lal’s salary by 10 per cent, sources familiar with the developments said that looked a distinct possibility.
When contacted, a company spokesperson said the board would take a call on this soon. This comes after the shareholders of Eicher Motors voted down the proposals for reappointing Lal as managing director and increasing his salary by 10 per cent in a pandemic-hit year.
If the shareholders had cleared the proposal, Lal’s salary would have been Rs 23.23 crore for the current financial year, much ahead of other managing directors in the sector including Maruti Suzuki’s Kenichi Ayukawa (Rs 4.7 crore), M&M’s Anish Shah (Rs 9.41 crore), and Ashok Leyland’s Vipin Sondhi (Rs 2.2 crore), according to a report by Institutional Investor Advisory Services (IiAS).
The only industry executive who gets a higher package than Lal is Bajaj Auto’s Rajiv Bajaj, whose compensation is pegged at Rs 40.6 crore. Interestingly, among these, only Bajaj and Lal are the promoters of their respective companies.
Lal’s total salary increased from Rs 9.2 crore in 2016-17 to Rs 21.12 crore in 2020-21, a jump of about 130 per cent. His remuneration increased by 9.97 per cent in FY21, while median employee remuneration increased by just 1 per cent.
Experts indicated that the company would have to come up with a reworked proposal. “They should go back to shareholders and explain the rationale behind asking for such an increase. They should reduce the salary and if they come up with the same, they should explain transparently what is the proportion of variable, what will determine the variable component, and what are the parameters that the remuneration committee has set for itself,” said Amit Tandon, founder and managing director of IiAS.
There were reports that the company was working on resolving the issue by calling a board meeting as early as next week. However, the company remained tight-lipped about the date of the board meeting and whether the salary component would be re-looked at.
Lal’s current package includes a salary of Rs 7.38 crore, commission of Rs 6.7 crore, and perquisites of Rs 7.04 crore. In 2018-19 and 2019-20, his remuneration increased by 26 per cent and 51 per cent, respectively. On the other hand, the share of variable components in his package declined from 46 per cent in 2016-17 to 32 per cent in 2020-21.
In a similar instance, in 2018, Neeraj Kanwar, vice chairman and managing director of Apollo Tyres, had to go for a 30 per cent cut in his salary after institutional and private shareholders rejected a proposal to increase his package by 42 per cent. Guenter Butschek, former managing director of Tata Motors, had also faced a similar situation during his five-year tenure.
“There is a requirement of better communication between the management and shareholders to avoid such a situation. One should explain the rationale behind why the rise in salary is being proposed. This should be in tandem with performance and median salary of other employees of the company,” said Shriram Subramanian, managing director of proxy advisory firm InGovern.
Subramanian added that promoters should take compensation in dividend rather than as cash component as they should share the risk and reward.
During the first quarter of the financial year, Royal Enfield sold 122,170 motorcycles compared with 58,383 motorcycles sold in the same period last year.