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Sajjan Jindal,Chairman & MD of JSW Steel is one such person who, according to a governance firm, Stakeholders’ Empowerment Services (SES) gets paid Rs 27.5 crore every year. This includes Rs 7.71 crore as salary and perks and Rs 12.54 crore as profit linked commission. SES noted that Jindal’s salary is three times the remuneration of other directors put together and nine times the average remuneration to non-promoter executive directors. SES believes that the remuneration policy followed by the company is not fair and is skewed in favour of the promoter director.
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The key word here is ‘promoter director’. Few would object to the remuneration received by a professional director. When the interim Chief Executive of Cairn India,P Elango received a 40% hike in his salary, few objected to it. No one also objected to the Rs 51.77 crore salary that it’s earlier CEO,Rahul Dhir had received. But when it comes to a promoter director, questions are being raised and rightly so.
A promoter director has a vested interest in his company, over and above his salary. He being a stakeholder, anyways enjoys the benefit of seeing his wealth increase or decrease through its share price movement. He also is entitled to a hefty dividend.
In the case of JSW Steel, in which Sajjan Jindal is the promoter director, the promoters hold 38% stake in the company through 84,893,075 shares. The company has recently announced a Rs 10 per share dividend, which means the promoters, will be receiving Rs 84.89 crore. Now this kind of money is something that a professional CEO is not entitled to. He might be given shares but they might be miniscule and not something that can threaten the promoter’s or his family’s hold.
If one includes the remuneration of other Jindal family members, the amount works out to close to Rs 110 crore, which is nearly 6% of the company’s profit after tax. Or to make it juicier, it is equivalent to almost three times the money the company spends on its 9574 employees every year as staff welfare expense (Rs 33.91 crore in 2012-13).
But the Jindals are not the only ones who are getting a fat salary. Not surprisingly, it is the promoter director who generally withdraws a hefty salary. The list includes Sajjan’s brother Naveen Jindal, the Marans(Kalanithi & Kavery), Munjals, Birla among others. For the shareholders who approve such high levels of salary, there is little that he takes home. JSW Steel has fallen from its peak of Rs 1,398 in October 2010 to a new 52 week low of Rs 551, couple of days back.
But investor activism has to come from the independent directors who should be objecting to such arbitrary raises in compensation.But when they are also willing to look the other way, such promoters will keep on giving themselves a raise, irrespective of how they perform. They have the law on their side which allows the promoter director to draw up to a maximum of 5% of the net profit.
In the case of JSW Steel the company made a profit of Rs 963 crore. This means Sajjan Jindal can withdraw a maximum of Rs 48.15 crore as his salary and remuneration plus the dividend he receives. There is enough room for doubling his salary and make the minority shareholders poorer.
