Is Bajaj Auto's special treatment to independent director fair?

Barely a fortnight after Tata Motors directors were denied pay increases by shareholders, Bajaj Auto has found itself in a tangle with governance activists over a special commission paid to an independent director.

The remuneration of former Citi banker Nanoo Pamnani, who has been serving as an independent director on the boards of four Bajaj group companies, including flagship Bajaj Auto, is substantially higher than those of other independent directors of the board in Bajaj Auto and Bajaj Finance. In its annual report, Bajaj Auto said, “In terms of the approvals given by the Board of Directors and shareholders, Nanoo Pamnani will be paid Rs 1,500,000 as additional commission for the year 2013-14 in consideration of the extra services rendered by him at the request of the Management during the year 2013-14.”

Proxy advisory firm Stakeholders Empowerment Services (SES) has termed this an unfair practice and recommended shareholders to vote against these proposals in the coming annual general meeting.

“SES is of the opinion that any extra payment to any independent director (ID) beyond what is payable to other IDs is an unfair remuneration practice. The post of ID, by its definition and role, is a board position; IDs cannot be assigned or expected to do any other task on behalf of the company, as this will be in conflict with their role and amount to executive function.” SES also pointed out that Pamnani has been paid significantly more than other independent directors in another group firm Bajaj Finance. In this firm, Pamnani was paid a total remuneration of Rs 85.50 lakh for FY 13-14, whereas another independent director Balaji earned Rs 4 lakh.

In response to an email seeking comment, Kevin D’Souza, president (finance), Bajaj Auto, referred to the credentials of Pamnani and said the payments related to certain extra services and were approved by the board. “Nanoo Pamnani, an independent director in the company, was requested by the company management to render certain extra services during the year, in light of the rich experience and expertise he has in certain areas, where the company was desirous of having guidance. Pamnani has an excellent profile, with impeccable qualifications and experience and he has handled a wide range of senior assignments, both in India and abroad, in a 40-year career at Citibank.”

He added, “It is up to the Board to decide on the commission payable to the non-executive directors within the powers given by the shareholders. Since there were justifiable reasons for doing so,

Mr Pamnani was paid the additional amount of commission of Rs 15 lakh this year, in recognition of the valuable contributions made by him.”

SES also pointed out differences in the number of shares purchased by the company in its Indonesian subsidiary PT Bajaj Auto Indonesia (PT BAI). “The annual report states in the year ended March 31, 2013, the company held 291,875 shares in PT BAI, while in the year ended March 31, 2014, it held 796,875 shares in the same entity,” SES said. “SES finds there appears to be some discrepancy in the data, as the number of shares in the two notes does not match. Further, it is not clear how such a large number of shares were acquired for getting an extra 0.29 per cent stake.”

It added that the significant question shareholders needed to ask was how these shares were valued. “An extra 0.29 per cent shares have cost the company a sum of Rs 67.75 crore, giving the value of 100 per cent of PT BAI to Rs 23,362 crore, and the value of the investment of the company in PT BAI, at 99.25 per cent, to be Rs 23,186 crore. On the contrary, the company has provided for almost all its investment in PT BAI during the year of investment itself.”

SES said the company’s statement, “The above outflow excludes an investment of Rs 67.75 crore (previous year: nil) made in its subsidiary, PT BAI for increasing its stake from 98.94 per cent to 99.25 per cent” presented a misleading picture. This statement indicated the company paid Rs 67.75 crore for an additional stake of 0.29 per cent, while the fact was the company had bought further shares and in the process, increased its holding, as other shareholders did not take any further shares, SES said.

It added the company had to explain why an investment made during the previous year had been written off in the same year. D’Souza of Bajaj Auto said, “With regard to impairment, the total investment in Indonesia was Rs 205.57 crore. Of this, Rs 137.79 crore was impaired up to March 31, 2013. Keeping in mind the losses incurred by PT BAI, Bajaj Auto made a further write-off of Rs 63.78 crore during the year ended March 31. In fact, the fresh infusion of Rs 67.7 crore was to make good the accumulated cash losses of the business. In retrospect, we state the sentence on page 58 of the directors’ report pertaining to foreign exchange earnings and outgo could have been worded better.”