Two proxy advisory firms have recommended Asian Paints’ shareholders to vote against the reappointment and remuneration of its CEO and managing director Amit Syngle, citing lack of disclosures on salary.
The advisories by Institutional Investor Advisory Services (IiAS) and InGovern Research Services comes ahead of Asian Paints annual general meeting (AGM) convened on June 29. Apart from other resolutions — declaring of final dividend and re-appointment of non-independent directors — the company is also seeking reappointment of Syngle for five years from April 1, 2023, with a modified pay structure.
Asian Paints has sought to modify Syngle’s pay structure by including stock options worth up to 0.75% of the net profit of the given fiscal, provided the value of the stock options do not exceed 35% of the total remuneration. The resolution was passed with an 82.8% overall majority. He was appointed as CEO and MD for three years from April 1, 2020.
“We estimate Amit Syngle’s FY23 and FY24 remuneration in the range of `20.11–23.66 crore and `26.37-31.45 crore, respectively. His total pay is commensurate to size and complexity of the business. At the 2021 AGM, the company had sought shareholder approval for modification of his remuneration terms to include stock options under ESOP 2021. The exercise price of stock options was at 50% discount to market price; the company received significant investor dissent for the modification,” IiAS said in its note.
Neither the company’s board nor the nomination and remuneration committee (NRC) seem to have addressed investors’ concerns. The assured remuneration has further increased in the new remuneration structure as the stock option component has increased to 50% of variable pay from the earlier 35%, it said.
“This significantly increases Amit Syngle’s assured pay. Although we support stock options as a part of the remuneration, we do not support the current inclusion under ESOP 2021 scheme since the options are in-the-money from the date of grant itself. The company must cap remuneration in absolute terms and disclose the estimated quantum of stock options to be granted over tenure,” IiAS said.
According to InGovern, the pay of MDs and CEOs should largely be performance-based to align their interest with company growth.
“The proposed increase in fixed pay will proportionately increase the fixed component of his total remuneration and hence may not be in the best interest of the company. Also, the lack of disclosure of quantum of variable pay and limit thereof leave room for ambiguity. Also, there is lack of proper disclosures on metrics and benchmarking done,” InGovern said.
However, the proxy advisory firms have supported other resolutions.
In its response, Asian Paints said the proxy advisory firms’ comparisons are not on a like-to-like basis.
The proposed remuneration payable to Syngle, mainly comprises fixed pay (includes basic salary and allowances) and variable pay (includes profit-linked commission and ESOPs) which were approved by shareholders at the company’s 75th AGM.
“In accordance with the approval of the board, based on recommendations of the NRC, the ratio of fixed and variable pay of the proposed remuneration to Amit Syngle, was fixed at 40:60 (at norm). Further, the total variable pay shall not exceed 0.50% of the consolidated profits of the company, and the value of stock options granted shall not exceed 50% of the total variable pay, on an annual basis,” a company spokesperson said.
The proxy report compares the basic salary paid to Syngle in FY20-21 with the proposed remuneration for the period of re–appointment from FY23-24 onwards, which is three years ahead. This is not be a like-to-like comparison considering it includes year-on-year growth based on performance. The stock options proposed to be granted are subject to satisfaction of vesting conditions including achievement of performance targets and service conditions.
“The stock options are not fixed as such. The ESOP component is a carve-out of the existing commission payout to the CEO and MD and the discount of 50% on the reference share price encourages the “pay-at-risk” for the eligible employees. The endeavour is to establish a healthy balance between the fixed and variable pay which would be in line with the industry practise and motivate the employee to align their focus with the company’s goals and performances,” it said.