Bosses en­joyed fat pay, gave them­selves hefty hikes

Financial Chronicle - - DEEP - FC BU­REAU

THE fall of In­fra­struc­ture Leas­ing & Fi­nan­cial Ser­vices (IL&FS) has brought to the fore some amus­ing but bizarre sto­ries that clearly sug­gests that the rot in the sys­tem clearly fol­lowed a top-down ap­proach.

De­spite a dras­tic fall of the in­fra­struc­ture con­glom­er­ate re­sult­ing from un­planned ex­pan­sion and con­tin­u­ously chang­ing own­er­ship, a group of in­di­vid­u­als, es­pe­cially three from the top deck, not only en­joyed fat pay pack­ages but also en­sured hefty raises ev­ery year com­pletely ig­nor­ing com­pany’s cor­po­rate gover­nance and fi­nan­cial ac­count­abil­ity. The re­mu­ner­a­tion of the se­nior man­age­ment of IL&FS Ravi Parthasarathy (non-ex­ec­u­tive chair­man from Oc­to­ber 4, 2017), Hari Sankaran, vice-chair­man and man­ag­ing di­rec­tor and Arun Saha, joint CEO and man­ag­ing di­rec­tor, in­creased sig­nif­i­cantly since FY15, ac­cord­ing to the com­pany’s FY18 an­nual re­port.

Given such a poor per­for­mance by the IL&FS and group en­ti­ties, se­nior man­age­ment paid the price of cor­po­rate mis­gov­er­nance where the com­pany sat with piled-up debt of over Rs 91,000 crore till March 2018.

Ac­cord­ing to the an­nual re­port that has also been filed by MCA in NCLT, Parthasarathy’s to­tal emol­u­ments shot up by 144 per cent to Rs 20.45 crore in FY18 from Rs 10.8 crore in FY17. In­ter­est­ingly, his salary com­po­nent only rose from Rs 5.80 crore in FY15 to Rs 9.21 crore in FY18, in a pe­riod in which the group’s for­tunes de­ci­sively plum­meted.

Parthasarathy, a former banker of Citi Bank, joined IL&FS in 1987 as pres­i­dent and CEO, was ap­pointed as man­ag­ing di­rec­tor in 1989, el­e­vated to

vice chair­man and man­ag­ing di­rec­tor in 1994, be­came chair­man and man­ag­ing di­rec­tor in Novem­ber 2004. He be­came a non-ex­ec­u­tive di­rec­tor and chair­man from Oc­to­ber 2017 till July 20, 2018, when he fi­nally stepped down for health rea­sons.

Sim­i­larly, Hari Sankaran, vice chair­man and man­ag­ing di­rec­tor, has been with the com­pany for 28 years, while Arun K Saha, joint man­ag­ing di­rec­tor and CEO, joined IL&FS in 1988.

Some of the com­pany’s in­de­pen­dent di­rec­tors also have long stints on the board. R C Bhar­gava, chair­man of Maruti Suzuki In­dia, has been on the board since Au­gust 1990. Michael Pinto, a former bu­reau­crat, joined the board in July 2004. Su­nil B Mathur, former LIC chair­man, joined the board in Jan­uary 2005 and Jaithirth Rao, formerly from Citibank, was ap­pointed as di­rec­tor in Au­gust 2012.

Even dur­ing FY18, when Parthasarathy be­came a non-ex­ec­u­tive for nearly half of the year, his salary com­po­nent only in­creased to Rs 9.21 crore from Rs 9.03 crore in FY17. Sim­i­larly, be­tween FY15 and FY18, Sankaran’s to­tal re­mu­ner­a­tion rose by 61 per cent to Rs 7.76 crore, while Saha’s in­creased by 20 per cent to Rs 7 crore. (see ta­ble)

The re­port, how­ever, added that the to­tal an­nual salary given by the com­pany to all in­de­pen­dent di­rec­tors in FY18 was Rs 2.16 crore where R C Bhar­gava was paid the max­i­mum pie of Rs 0.57 crore, fol­lowed by S B Mathur Rs 0.38 crore, Michael Pinto Rs 0.47 crore, Jaithirth Rao Rs 0.36 crore and Rina Ka­math Rs 0.36 crore.

As far as the role of in­de­pen­dent di­rec­tors is con­cerned, it broadly in­cludes im­prov­ing cor­po­rate cred­i­bil­ity and gover­nance stan­dards func­tion­ing as a watch­dog, and play­ing a vi­tal role in risk man­age­ment. In­de­pen­dent di­rec­tors play an ac­tive role in var­i­ous com­mit­tees set up by com­pany to en­sure good gover­nance. An in­sider source in the com­pany told FC, “With so many lu­mi­nar­ies of the cor­po­rate world on the board, man­age­ment over-sighted the is­sue and se­nior man­age­ment emol­u­ments never tracked per­for­mance of each key in­di­vid­ual in the com­pany.” Though the com­pany formed a risk man­age­ment com­mit­tee (RMC) of the board, which was an ex­tremely im­por­tant com­mit­tee in a non-bank­ing fi­nance com­pany, spe­cial­is­ing in high-risk in­fra­struc­ture fi­nance and devel­op­ment, an in­her­ent as­set-li­a­bil­ity mis­match hap­pened there­after. The RMC, how­ever, is em­pow­ered to re­view the core func­tions of the com­pany such as as­set li­a­bil­ity man­age­ment, credit, liq­uid­ity and mar­ket risk, cap­i­tal ad­e­quacy and com­pli­ance with reg­u­la­tory norms. An­other source also said, “Why the stake of pub­lic sec­tor lender Cen­tral Bank of In­dia has gone up sig­nif­i­cantly more than SBI is be­cause of pay fac­tor only. In 2009, most of the se­nior of­fi­cials of CBI took VRS and joined IL&FS hap­pily as they were of­fered a hefty pay pack­age each with less role to pay in the com­pany.”

To­tal an­nual salary given by the com­pany to all in­de­pen­dent di­rec­tors in FY18 was `2.16 cr

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