Constrained by the Companies Act, India's biggest automobile company, Tata Motors, is seeking approval from the central government for the salary package finalised for its newly appointed managing director Guenter Butschek.
The Tata Motors management approved a yearly 2016-17 pay of Rs 27.24 crore to the former Airbus executive who joined the Mumbai-based company in mid-February this year.
This makes Butschek the company's highest-paid executive, as his remuneration package stands at more than twice the size of his predecessor Karl Slym (at Rs 12.84 crore) and more than four times that of the chief financial officer, C Ramakrishnan (at Rs 5.86 crore for 2015-16).
Butschek proposed pay is higher than the prescribed limits as defined under Section 198 of the Companies Act, forcing Tata Motors to seek approval from the central government.
"Considering that Mr Butschek's remuneration would exceed the said limits in the case of no/inadequacy of profits in any financial year and that he is a German citizen and non-resident of India, the approval of the central government is being sought," said Tata Motors in its annual report.
Last financial year, Tata Motors reported net profit of Rs 234.23 crore on a standalone basis. However, by the provisions of the Section 198 of the Act, the company on a standalone basis had a loss of Rs 465.05 crore, by the company.
"Pursuant to the provisions of Section 197 of the Companies Act, the remuneration payable to any one managing director or wholetime director shall not exceed five per cent of its profits as calculated under Section 198 of the Act and if there is more than one such director, the remuneration to them shall not exceed 10 per cent of such profits," the Mumbai-based company said further.
Based on the Tata Motors' effective capital of Rs 14,411.75 crore as on March 31, the company would be permitted to pay Rs 4.02 crore per director for the current financial year if the company has inadequate profits in the year.
"While the company has improved its performance last year, it may be likely that the company may have a scenario where there is inadequacy of profits under the said provisions of the Act in any of the financial years during the three years' period from the date of their appointment. As a matter of abundant caution, members' approval is being sought for payment of minimum remuneration as defined in the said resolutions", Tata Motors added.
Only two years ago, Tata Motors' shareholders rejected compensation payment in excess of prescribed limits to three directors - executive director (commercial vehicles) Ravindra Pisharody, executive director (quality) Satish Borwankar, and the legal heir of former managing director Karl Slym (who died in January 2014).
Proxy advisory firms and shareholders had contested the pay packages awarded to the three directors even as the company suffered losses during that year.
However a few months later the company was able to secure the requisite votes in favour of the packages through a postal ballot.
Tata Motors meanwhile also stated that the remuneration of Butschek is commensurate with the remuneration of expatriates appointed at CEO/MD levels of similar sized multinationals taking into consideration the responsibilities shouldered by him and subject to a survey conducted by Aon Hewitt, an independent consultant.