Jindal Steel & Power Ltd. is again facing proxy firm ire--this time over a shareholder proposal to pay one-time remuneration to independent directors.
International proxy firm Glass, Lewis & Co. and its Indian peers Institutional Investors Advisory Services and Stakeholder Empowerment Services have advised to vote against the resolution at the Sept. 30 annual general meeting. The California State Teachers Retirement Fund has gone with the Glass, Lewis recommendation.
The fresh pushback comes after the steelmaker in July restructured a deal to transfer a subsidiary, Jindal Power Ltd., to a firm owned by the Jindals. The investor advisory firms and analysts had questioned valuations at the time.
One-Time Payout
JSPL wants to pay a one-time remuneration, in addition to the sitting fees, to the four independent directors: Ram Vinay Shahi, Arun Kumar Purwar, Sudershan Kumar Garg, Hardip Singh Wirk.
Listed as the last proposal to be discussed at the AGM, it has turned out to be the most contentious.
The remuneration of the company’s non-executive directors is approved by shareholders. But Schedule V of the Companies Act sets limits on the amount that may be paid to managerial persons and non-executive directors in a year when an issuer has no profits or its profits are inadequate, regardless of the approved pay structures.
In this case, given JSPL's inadequate profits during the fiscal year ended March, the board was seeking to waive this obligation to pay the one-time remuneration.
The company reported a profit of Rs 5,272 crore for FY21, after having posted consolidated losses from FY15 to FY20.
Glass, Lewis said the shareholders should reasonably expect a clear and convincing rationale for such a measure. The minimum remuneration should be limited to fixed pay, with no entitlement to variable pay, aside from commission, it said, asking investors to vote against it.
“In this case, to our knowledge the board has not provided a compelling rationale as to why shareholders should approve the proposed one-time remuneration, in addition to the sitting fees, to these non-executive directors,” Glass, Lewis said.
This is “especially concerning” given that the non-executive directors received about Rs 4.4 lakh to Rs 5.65 lakh in the past fiscal year and the board is seeking to pay them one-off payments amounting to Rs 5 lakh to Rs 25 lakh, it said. That would “constitute up to five times of their sitting fees, while the directors have all recently left the board”.
The California State Teachers Fund, accepting this recommendation, decided to vote against the one-time payout, according to the information available on its website. The pension fund doesn’t own more than 0.1% in JSLP as of June, according to the company's disclosures.
Two domestic proxy advisory firms also asked investors to reject the resolution.
IiAS recommended voting against it on the grounds that the non-executive directors concerned approved the related-party transaction for the sale of Jindal Shadeed Iron and Steel LLC, which was “prejudicial to the interest of minority shareholders”.
JN Gupta’s Stakeholder Empowerment Services, too, recommended voting against the proposal. Three out of the four independent directors—Purwar, Garg and Wirk—voted for their own remuneration, it said.
The proxy firm also cited “contradictory statements” made by the directors and “the approval of an unfair related-party transaction relating to the divestment of Jindal Power”.
Institutional Shareholder Services, however, approved the proposal saying that the payments to the independent directors are “not deemed excessive” and have been “broadly commensurate with the size and scale of operations despite the net losses recorded by the company in the recent past”.
Reappointment Of Shallu Jindal
Shallu Jindal, a director of the company, retires by rotation. Being eligible, according to the proposal, she has offered herself for reappointment as a director.
The proxy firms, including Glass, Lewis, didn’t oppose the resolution. But the California pension fund or CalSTRS decided to vote against the reappointment, according to its website.
Of the 13 proposals that will be up for voting, the pension fund, in the pre-proxy shareholder vote, favoured the remaining 11.
The pension fund didn’t respond to emailed queries. JSPL declined the comment until voting results are out.
The voting process officially starts on Sept. 27.
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