Tata Motors is seeking shareholders’ approval to ratify the payment of minimum salary to its MD and CEO Guenter Butschek, a German national, for FY20 -- and a hike for FY21.
According to the company, Butschek’s total remuneration for FY20 was Rs 19.27 crore. The Companies Act 2013 prescribes a certain limit for executive payment if a company has ‘inadequate profits’.
Tata Motors suffered a loss of nearly Rs 7,500 crore (Rs 7,083 crore as per Section 198 of the Companies Act) in FY20.
So when the rule is applied, Butsheck is eligible for only Rs 7.45 crore.
The excess of Rs 11.82 crore is what Tata Motors wants to ratify through a special resolution.
“Pursuant to the provisions of Section 197, in respect of the payment of managerial remuneration in case of no profits or inadequacy of profits, the company may pay such remuneration over the ceiling limit, provided the members’ approval by way of a special resolution has been taken for payment of the minimum remuneration for a period not exceeding three years,” Tata Motors said in the FY19-20 annual report.
The special resolution that Tata Motors is proposing also seeks to hike Butschek’s salary for FY21.
Will shareholders’ approval be easy?
For Tata Motors, history offers little solace.
In 2014, shareholders had turned down the company’s pay plan for three of its senior executives.
The company failed to secure the required 75 percent votes in a postal ballot to compensate the then Executive Director (Commercial Vehicles) Ravindra Pisharody, Executive Director (Quality) Satish Borwankar, and the legal heir of former Managing Director Karl Slym in excess of the limits for the year that ended in March 2014.
Even in Butschek’s case, this is not the first time that the company is seeking such an approval.
Tata Motors had sought a similar approval and won it at the time of his appointment in 2016 for three years. With that period ending, the company is forced to approach the shareholders again.
Accodring to Shriram Subramaniam, Founder & MD, InGovern, India’s first proxy advisory firm, in 2014, there was a loss in Tata Motors India, but, as a group, the company was profitable.
The Companies Act states that any Indian company that is making losses needs to seek shareholders' approval for remuneration of EDs. Hence, even this year, they have placed such a proposal, he said.
Butschek’s performance and salary
Barring FY19, Tata Motors posted a net loss each year since Butschek assumed office in February 2016.
In fact, an auto analyst, who did not want to be named, said his report card on Butschek is “not good”.
“The company had just one profitable year, it has not been able to shrug off non-core investments, it missed an opportunity to tie up with global majors, and did not fully recover from the losses in the M&HCV market share,” he explained.
“Successes with products like Tiago helped, but no traction was seen with Harrier. I have seen no effect as raw material cost to sales in the standalone entity is up each year from FY16 to FY 20 -- from 67.9 percent to 74.2 percent,” he said.
According to disclosures made by the company, while the total remuneration to Butsheck for FY20 was Rs 19.27 crore, it was Rs 26.32 crore in FY19. In FY18, it was Rs 26.42 crore. In FY17, it was Rs 22.55 crore.
“Payment of remuneration to Butschek from February 15, 2016, to March 31, 2019, was well within the statutory limits approved by the members,” Tata Motors said in its annual report.
The payment of minimum remuneration would require fresh members’ approval in the event of inadequacy of profits in the 4th and 5th year of Butschek’s tenure -- from February 15, 2019, to February 14, 2021. Considering that the company had adequate profits for FY19, the said members’ approval is required for the period April 1, 2019 to February 14, 2021,” Tata Motors further explained.
“As per the company’s budget/ business plan for FY20 approved by the board in March 2019, the company was expected to have adequate profits for FY20 and therefore no resolution was passed in the previous AGM held in 2019,” Tata Motors stated.
For FY21, Tata Motors wants to give Butschek a pay hike of 20 percent to Rs 23.11 crore (subject to achievement of targets). This will be his fifth and final year as director of Tata Motors.
In comparison, Mahindra & Mahindra MD Pawan Goenka received Rs 10.03 crore as salary for 2019-20, and Maruti Suzuki MD Kenichi Ayukawa Rs 5.02 crore for 2018-19.
As COVID-19 hit all automakers hard, the profitability of Tata Motors was affected by about Rs 500 crore and free cash flows by about Rs 2,000 crore during FY20.
Butschek and Tata Motors
Butschek’s appointment at Tata Motors came after two years of intense global search under former Tata Sons chairman Cyrus Mistry following the death of previous MD Karl Slym.
Butschek became the third foreigner to head Tata Motors (after Carl-Peter Foster and Slym).
Before joining Tata Motors, he was the chief operating officer at Airbus, where he spent 30 months. Before that, he worked at Daimler AG for around 25 years, leading functions such as production, industrialisation and procurement.
The last role he held in Daimler was that of president and chief executive of Beijing Benz Automotive Co, a joint venture between Daimler AG and Beijing Automotive Industrial Holding in Beijing, China.
The German national took over the reins when Tata Motors was witnessing a free fall in market share despite the launch of new products like Zest and Bolt. The company’s passenger vehicle share fell from 14 percent to 5 percent in just four years as at 2016.
Butschek was able to borrow from his days in Daimler and reduced the number of auto suppliers by more than half and is credited with spearheading Tata Motors’ transition to new vehicle architectures Omega and Alfa.
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