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Sobha shareholders have voted against two special resolutions proposed by the south-based real estate developer, expressing concerns over fairness and potential conflicts of interest. The first resolution aimed to cap the total remuneration for non-executive directors at 5% of the company's net profit, while the second sought to permit Ravi Menon, non-executive director, and chairperson, to receive over 50% of the total annual remuneration allocated to all non-executive directors for FY2024.
The majority of institutional investors, 88.6% and 86.3% respectively, voted against the resolutions. According to the company's regulatory filing, the resolutions failed to pass since they did not receive more than three times the number of votes cast against them. Regulations require shareholder approval through a special resolution when an annual remuneration payable to a single non-executive director surpasses 50% of the total annual remuneration for all non-executive directors.
Ravi Menon is a member of Sobha's promoter family, and during the 2021 AGM, shareholders approved his remuneration of over ?5 crore or 2.5% of the company's net profits, whichever was higher. The current resolution proposed that Menon's remuneration may exceed 50% of the total non-executive directors' remuneration, subject to a 5% limit of the company's net profits.
Stakeholders Empowerment Services (SES), a Mumbai-based corporate governance firm, recommended voting against both resolutions, citing the lack of an absolute cap on commission as a conflict of interest. It argued that the remuneration package was heavily skewed in Menon's favour and unfair to other non-executive directors.
Institutional Investor Advisory Services (IiAS) also voiced concerns about the resolutions, suggesting that companies should place a cap on proposed payments instead of adhering to regulatory thresholds. IiAS further criticized resolutions seeking shareholder approval in perpetuity, emphasizing the need for companies to regularly re-examine remuneration policies in line with changing business environments and stakeholder expectations.
The rejection of the remuneration proposals by Sobha shareholders underscores the increasing importance of corporate governance and transparency in decision-making processes. Shareholders and investors are becoming more vigilant in scrutinizing executive compensation packages, demanding greater accountability from companies and their boards.
In the wake of this decision, Sobha may need to reassess its remuneration policies for non-executive directors and consider implementing more equitable practices that balance the interests of all stakeholders. This could include establishing clear guidelines for non-executive director compensation, incorporating performance-based incentives, and ensuring a fair distribution of remuneration among all directors.
In conclusion, Sobha shareholders rejected both remuneration proposals, reflecting concerns over fairness and potential conflicts of interest. This decision highlights the importance of adhering to good governance practices and maintaining a balance in remuneration policies for non-executive directors. As companies continue to face increased scrutiny from shareholders and regulatory bodies, they must prioritize transparency and fairness in executive compensation decisions to maintain trust and ensure long-term success.
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