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There were embarrassing moments at the Eicher AGM as shareholders rejected the special resolution to increase the salary of Siddharth Lal, and approve his reappointment for 5 years. It was the pay hike that was the real hurdle.
In the last few weeks, there have been a number of such cases of shareholder activism. Recently, Lupin shareholders rejected the ESOP plan for employees. In another instance, the shareholders of Vedanta rejected the proposal to induct UK Sinha into the board. In the case of Eicher, investors did not have objection to the reappointment of Siddharth Lal for 5 years but they had problems with a 10% hike in salary for the MD. That is where investors rejected the idea.
Shareholder activism was most visible in the case of institutional shareholders. In fact, 70% of the institutional investors voted against the special resolution and that resulted in just 73% favorable votes against the mandatory 75%. This led the proposal to fall through. In fact, shareholders had no problem with a 5-year term to Lal. The issue was with the 10% hike in salary in a pandemic year when most CEOs across India were either taking pay cuts or going for static pay. The 10% pay hike would have taken Siddharth Lal’s annual salary to above Rs.23 crore, in a tough year.
If you compare the salary package of Siddharth Lal with others in the auto industry, then the only auto company CEO earning above Lal is Rajiv Bajaj. Most of the other CEOs are earning under Rs.10 crore. Lal was earning Rs.9.76 crore in 2016 and in the last 4 years, his salary had more than doubled to Rs.21.3 crore. Institutional investors did not accept the logic of approving such a steep pay hike in the current macroeconomic conditions. In a way, this is a clear case of insufficient effort by the management to communicate the resolution to shareholders and to give a proper justification for the same.
What exactly riled the investors? In a way, it was less about the quantum of pay hike and more about stock returns. For example, Eicher is up 14% in the last 5 years. That is about 2.5% return per year, or less than what someone will have earned in a savings bank account. However, the approach is short-termism because it ignores the returns before that. Eicher gave 10-fold returns between 2008 and 2012 and 8-fold returns between 2012 and 2016. In short, Eicher was an 80-bagger between 2008 and 2016. If the argument was the pandemic, it is acceptable. However, if it is about investor returns in last 5 years, it surely reeks of short-termism among the institutional investors of Eicher!