IIAS questions remunerations for Paytm founder Vijay Shekhar Sharma, CFO Madhur Deoraremunerations

Are CEOs paid more than they deserve? Is there is a need to relook at their remuneration and even scale it back to more reasonable levels?

Institutional Investor Advisory Services India (IIAS) thinks so. The proxy advisory firm has advised shareholders of One97 Communications, the parent company of Paytm, to reconsider the remuneration offered to its chairman, managing director and CEO Vijay Shekhar Sharma .

In a report ahead of the digital payment platform's annual general meeting scheduled on August 19, the advisory firm stated that Sharma's remuneration was higher than those received by CEOs of S&P BSE Sensex organisations, especially the ones that are profitable.

"The company is seeking shareholder approval for the proposed remuneration as minimum remuneration — which will be paid to him even if the company continues to report losses," it stated. It is estimated that Sharma's FY23 remuneration stood at over Rs 796 crore. 

"This comprises stock options of 21 million at an exercise price of Rs 9, a deep discount to the market price on the date of grant (fair value spread across the vesting period)," the report elaborated. It added that while Sharma committed to making the company profitable , these have not materialised. "We believe the board must consider professionalising the management," IIAS advised. 

The firm has also raised caution about the remuneration offered to Paytm's key executive, Madhur Deora, who joined the company in 2016. The company's board appointed him as executive director, president and group chief financial officer on May 20 2022, to hold the office for five years based on approval received during the upcoming 22nd AGM. 

According to Paytm's 2022 annual reports, during FY 2021-22, Deora was granted 21 million stock options and 2.2 lakh stock options under its ESOP scheme at an exercise price of Rs 9 per option. Besides him and Shekhar, no other directors were granted stock options during the fiscal year. 

In its draft prospectus last July, Paytm claimed that in fiscal 2021, Deora received an aggregate compensation of Rs 22.9 million. Further, for FY 2021, he accrued Rs 1.3 million as a performance-linked incentive, which will be payable in FY 2022.

Back On The Board?

In addition to raising a red flag about his remuneration, IIAS also advised Paytm's shareholders against reappointing Sharma as its chief executive. If shareholders approve, his pay package for the current fiscal year would be around Rs 4 crore, including perks like company-leased accommodation and transport.

The agency cited the falling price of the digital payment company's share prices as a reason for their assertion. It had fallen 63 per cent from the issue price of Rs 2,150 per share during its IPO to touch Rs 692 on July 26.  

In its report, IIAS said, "We take comfort in the board's assertion that the company has an effective mechanism for succession planning for the orderly succession of directors and senior management personnel. We raise concerns that he (Sharma) is not liable to retire by rotation, and that he will get board permanency if he continues in a non-executive capacity following the end of his term as managing director." 

Another reappointment that it has voiced concern about it that of Ravi Adusumalli, founder of venture capital firm Elevation Capital, who was amongst the earliest backers of Shekhar's vision for Paytm. He is currently a non-executive director on the company's board of directors. 

Explaining its stance, IIAS noted that Adusumalli had attended only 9 out of 19 board meetings in FY 2021-22, which is less than 50 per cent. "We expect directors to take their responsibilities seriously and attend all board meetings, and at the very least 75% of board meetings. We believe that elected directors must attend board meetings, either via teleconference or video conferencing solutions, instead of relying on alternate directors," it said in its report.

At the same time, the firm has rooted for the reappointment of Deora. This could be chalked up to helping the company turn around its fortunes , which has taken a beating in recent years. While Paytm's total income for the April-June quarter grew 88 per cent year-on-year to Rs 1,781.6 crore, this was 8 per cent slower on a sequential basis.

At the same time, its consolidated loss widened to Rs 645.5 crore in the same three-month period, almost doubling from Rs 381.9 crore in April to June last year. However, the company maintained that losses decreased by 15 per cent sequentially, from the Rs 762.5 crore it posted in January to March 2022.

Push Back From Investors

Paytm is not the first company where IIAS has sounded warning bells about the high remunerations granted to top management. It had recently raised concern about resolutions proposed by JSW Steel, especially those related to the compensation of its managing director Sajjan Jindal. 

"His FY22 remuneration aggregated Rs 140 crore, making him possibly the highest-paid executive in corporate India, although JSW Steel is not India's largest company. The proposed remuneration terms are open-ended and allow Jindal a commission of 0.5% of profits. Therefore, his remuneration will increase as the company rides the commodity cycle. There is no cap on the absolute level of remuneration and no performance metrics to tangibly measure Sajjan Jindal's contribution to business growth," it stated in a pre-AGM report on July 20.
 
In June 2022, it recommended Asian Paints' shareholders vote against the reappointment and remuneration of its CEO and managing director Amit Syngle, citing a lack of disclosures on salary. In April 2020, the company modified his pay structure, adding stock options worth 0.75 per cent of the net profit.

 
IIAS estimated Syngle's FY23 and FY24 remuneration in the range of Rs 20.11 to Rs 23.66 crore and Rs 26.37 to Rs 31.45 crore, respectively. "His total pay is commensurate to the size and complexity of the business. At the 2021 AGM, the company sought shareholder approval to modify his remuneration terms to include stock options under ESOP 2021. The exercise price of stock options was at 50 per cent discount to market price; the company received significant investor dissent for the modification," the firm stated. 
 
It added that while it supported stock options as a part of the remuneration, it did not accede to the inclusion under ESOP 2021 scheme since the options are in the money from the date of the grant itself. It recommended that the company cap remuneration in absolute terms and disclose the estimated quantum of stock options to be granted over tenure.
 
Investors are demanding growing transparency when it comes to CXO remunerations. This is on the back of their concerns that rising salaries are disproportionate to the company's growth. A performance-based compensation, on the other hand, will motivate them to work harder to put the organisation on a path to progress.