MUMBAI: Engineering and construction conglomerate Larsen & Toubro (L&T) is seeking shareholders' approval to increase the variable component of executive chairman AM Naik's pay from 0.30% of net profit (excluding extraordinary items) to up to 0.40%. This translates to a 37% or Rs 4.22 crore increase at FY13 profit level over his current variable pay of Rs 11.29 crore. Naik also earned a fixed salary of Rs 2.68 crore in FY12, according to company statements.
Slamming the proposal, shareholder activistAnil Singhvi, Founder Director of Institutional Investor Advisory Services and ChairmanICAN Investment Advisors, said: "It makes no sense to hike salaries at a time when the economy is in a bad shape."
Across India Inc, CEO compensation increased by only 9% during FY13, according to a December 2012 report by Global management consultancy Hay Group.
L&T is also seeking to increase the variable pay for other top managers including the CEO & MD, the deputy MD and full-time directors to 0.30%, 0.25% and 0.20% respectively. Earlier, these officials were earlier eligible for commission of 0.25%, 0.18% and 0.15% of profits respectively.
The proposals, cleared by the board of directors, are outlined in the notice to shareholders for the company's 68th AGM to be held next month.
L&T declined to comment on the subject. "We regret we will not be able to discuss the proposal ahead of the shareholder's discussion/ approval," a company spokesman said.
The notice to shareholders cited a restructuring of the company's businesses resulting in separation of some of the businesses into subsidiaries as the reason for the proposed compensation change. Naik had restructured L&T into nine 'independent companies' in 2011 to maintain growth, profitability and shareholder value.
"What is the scope of additional accountability, value or responsibility that comes with restructuring L&T into different companies? When you split a company into different businesses or merge it back, does that really improve the fortunes?" quipped Singhvi.
The former CEO of cement maker Gujarat AmbujaBSE -0.70 % had earlier also opposed a resolution that sought approval to continue with Naik as executive chairman. Then, IIAS had argued that Naik should have stayed on as non-executive chairman and handed over businesses reporting to him - 17 of them - to a successor, in this case K Venkataramanan. Seventy year old Naik, who was due to retire in September 2012, got a five year extension.
The proposal for a salary hike comes at a time when the $14-billion L&T, like the rest of industry, is hit by the economic slowdown with a slowing capex and a weak order book.
Larsen & Toubro is tackling fierce competition for new orders in most of its business verticals and has even lowered its order book guidance for this fiscal.
However, Naik has been credited for single-handedly building L&T into a massive engineering conglomerate over the years. He joined the company as a Junior Engineer in 1965 and rapidly rose to positions of increasing responsibility as he moved from General Manager to Managing Director and CEO, culminating in his appointment as Chairman in December, 2003.
L&T split the roles of chairman and managing director in a major top-management rejig in 2012. It appointed Venkataraman as its CEO & MD, and retained Naik as executive chairman for the next five years.