IIAS opposes L&T Finance boss's pay, non-execs commissions

Proxy advisory firm Institutional Investor Advisory Services is advising institutional investors to vote against L&T Finance Holdings ' resolution on chairman and managing director YM Deosthalee's remuneration, saying it was way above the industry average.

Deosthalee was formerly group chief financial officer of Larsen & Toubro .
L&T Finance is proposing to pay Deosthalee Rs 7.3 crore, excluding retirement benefits and accommodation allowance, which have not been disclosed.

Here is what IIAS has to say on Deosthalee's remuneration:

"IIAS compared the proposed remuneration of YM Deosthalee with those of peers benchmarking these against key financial parameters of peer companies. We find that the proposed remuneration of Rs 7.33 crore for YM Deosthalee is disproportionately high even in comparison to the closest peer with similar profit after tax and total income as LTFHL and to the peer set average of Rs 2.4 crore.

In FY12, the company reported 42.1% growth in total income (to Rs.3007.3 crore) and 16.3% growth in PAT (to Rs 454.8 crore). However, despite its growth the company has not declared any dividend from FY09 to FY12 unlike its peers with an average dividend payout of 21%."

According to IIAS' findings, Infrastructure Development Finance Company paid its Managing Director & CEO Ranjit Lall Rs 6.26 crore in FY11. But then IDFC's profit after tax in FY12 was Rs 1550 crore and the company paid out Rs 2.3 per share (Rs 347 crore) as dividend.

IIAS has also recommended voting against the company's resolution on the remuneration of N Sivaraman, President and whole-time Director of L&T Finance Holdings since October 2010.

"On comparison with peers, we find that the proposed remuneration of Rs 5.33 crore of N Sivaraman is significantly higher when compared to peer set average of Rs 1.98 crore. We also note that L&T Finance Holdings has not declared any dividends since FY09 unlike its peers," says the IIAS note.

The third resolution that IIAS is opposing is the one seeking to pay non-executive directors (NEDs) commissions not exceeding 1% of the net profits of the company for a period of five years from FY12.

"The company has stated that the quantum of commission payable will be decided by the board. However, the evaluation criteria for deciding the quantum of commission to NEDs are not mentioned.

IIAS understands that the current regulations provide for payment of commission upto 1% of net profits. However, we feel that this should be subject to an upper limit in absolute amounts based on the size of the company. In the absence of such limits we find that the proposal to pay commission to NEDs is open ended," says the IIAS note.

At the current price of around Rs 42, L&T Finance shares are down 19% from its issue price of Rs 52 last August.