India: Share Microfin MD Takes Home 7.4 cr, More Than Double HDFC Bank MD Salary
New Dehli, India, February, 01 2011 -
His business is at the bottom of the pyramid, but not his compensation. Udaia Kumar , promoter of microfinance company Share Microfin, draws a salary unmatched by any executive among listed banks.
In 2009-10, Kumar earned 7.4 crore as managing director of his own microfinance company. This is more than double of what the highest-paid executive in all listed banks made that year — Aditya Puri, MD of HDFC Bank , earned 3.4 crore. This is more than the limit set by the Companies Act, which regulates the operations of firms in India. Share Microfin is India’s thirdlargest microfinance company.
An ET investigation on Monday had unravelled how 45,000 poor women shareholders in a few large microfinance companies, including Share Microfin, had missed out on the benefits of wealth creation — some due to transactions engineered by promoters, some due to the structure used to house the shares of the poor.
“When you are dealing with the poor, it does not appear morally right to take such compensation given that the income is coming exclusively from the poor,” says MS Sriram, adjunct professor at the Indian Institute of Management, Ahmedabad. Sriram documented such promoter-friendly payouts in his March 2010 paper titled ‘Commercialisation of Microfinance in India: A Discussion on the Emperor’s Apparel’.
An above-industry average salary is also being drawn by Kumar’s wife Vidya Sravanthi at Asmitha Microfin, another of India’s top 10 microfinance companies. The managing director of Asmitha earned 3.2 crore in 2008-09.
Chunk of Kumar’s pay comprises sweat equity
Neither Kumar nor Sravanthi responded to phone calls or text messages. Pradip Kumar Saha, the Sidbi nominee on the board of Share Microfin , said he was in Kolkata and could comment only after speaking to his superiors at the financial institution’s Lucknow office.
The top executive of the other two leading microfinance companies, SKS Microfinance and Spandana Sphoorty , earned more in line with corporate standards. Suresh Gurmani, who quit as CEO of SKS Microfinance last year, earned Rs 1.7 crore in 2009-10. Padmaja Reddy, promoter and managing director of Spandana Sphoorty Financial , earned Rs 1.4 crore. Kumar’s remuneration comprises salary and the value of stock options issued to him. A significant portion of Kumar’s remuneration comes from sweat equity — shares issued at zero cost. As per a scheme which began in 2007, Kumar will receive 1.4 million shares over three years.
In 2008-09, his remuneration of Rs 8.1 crore — including Rs 5.3 crore as salary and Rs 2.6 crore as sweat equity — exceeded what is permissible under the Companies Act. The Act, which regulates the operations of firms in India, says a company cannot pay more than 5% of its net profit to a director without government permission. In the case of Share Microfin , that figure for 2008-09 worked out to Rs 4.6 crore. But the company paid Rs 8.1 crore to Kumar, for which it got approval from the ministry of corporate affairs. The same year, even Sravanthi was paid about 80% more than what the Companies Act automatically allows — Rs 3.2 crore against Rs 1.8 crore.
“The ministry gives its approval based on the individual’s skill sets and the value he or she brings to the job and the company,” says an expert on company law who did not want to be identified. “Usually, companies don’t breach the limit set by the Act.”
Legally, Share Microfin and Asmitha, being unlisted companies, can pay their executives whatever they want so long as they meet the Companies Act stipulation.