INSTITUTIONAL EYE Promoters disregard investor dissent while voting their own salary 15 Jan, 2025

There has been steady and perceptible increase in compensation to promoters and their families. This can be seen in the both the absolute remuneration and in the ratio of remuneration paid to median pay.

IiAS’ analysis of 893 remuneration resolutions for promoters presented between 1 January 2023 and 30 September 2024 shows that only 10 resolutions were rejected over these 21 months. Had these resolutions been subject to a majority of minority vote an additional 216 resolutions - 24.5% of the total - would have been rejected.

This follows-up on IiAS’ 2022 analysis that highlighted that of the 201 resolutions regarding promoter remuneration evaluated for calendar year 2022, 68 (34%) were approved only because promoters voted on their own compensation.

The Companies Act 2013 has built-in checks on compensation. Nevertheless, individual promoters can be paid in excess of regulatory thresholds – of 5% of profits or the promoter group in excess of 10% of profits - after shareholder approval. However, these regulatory thresholds often fail to provide any meaningful checks on a promoter’s compensation - given the substantial promoter holding in companies. The promoters’ shareholding levels allow companies to disregard the regulatory thresholds entirely – allowing families to be paid at will. Their shareholding also explains why Nomination and Remuneration Committees (NRC) have been slow in setting up accountability of the remuneration structures.

The practice of promoters voting on their own compensation is an inherent conflict-of-interest, and one that is currently not addressed by regulators. Regulations have tackled the conflict-of-interest issue in related party transactions by requiring these transactions are approved only after a majority of minority vote: essentially the promoter group is not allowed to vote in support of a related party transaction. This ensures that outside shareholders alone decide if these transactions serve their long-term interests.

The voting data shows how the ‘controlling’ shareholders have used their ownership to vote their own compensation. As with related party transactions, regulations must bring promoter compensation under the ambit of needing a majority of minority vote, to curb the excesses.

A copy of our report ‘Promoters disregard investor dissent while voting their own salary’ is attached here.



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