[pqr]

Background

Mr. Guenter Butschek was appointed Chief Executive Officer (CEO) and Managing Director (MD) of Tata Motors Limited’s (TML) standalone business, excluding Jaguar-Land Rover (JLR), in February 2016. As an expat, he spent almost over 5 years in India.



He was looking after a mix of India centric and semi-global businesses - that included TML’s passenger vehicle business unit (PVBU), commercial vehicle business unit (CVBU) including CBU exports from India and their CKD assembly and sales operations in different countries across the world. Contribution wise – it’s a mere 19% of Tata Motors annual consolidated revenue. As lion’s share of Tata Motors annual revenue comes from the global operation of Jaguar-Land Rover.



As per the annual reports of Tata Motors, its CEO and MD from 2015 (Feb) to 2021 (March) - Mr. Guenter Butschek, was paid over ₹ 100 Crore as remuneration. Making him one of the highest paid company heads in India.





Comparison with peers in India

The easiest way to compare his salary is to look at India’s largest passenger vehicle manufacturer – Maruti Suzuki India Ltd (MSIL), also having expat MD. MSIL is also a listed company on the Indian stock market, so data is easily available. Mr. Kenichi Ayukawa is the current Managing Director of MSIL. During the same period, Mr. Kenichi Ayukawa received ₹ 26.6 Crore as remuneration. That is almost a quarter of what TML paid to Mr. Guenter Butschek.

However, financial results delivered by Mr. Kenichi Ayukawa has been far superior to Mr. Guenter Butschek, during the same time frame.



Consolidated data over the same period



Some may argue (for obvious reason) that Mr. Guenter Butschek was leading a complete transformation journey of TML. But then Mr. Kenichi Ayukawa also received a business when MSIL’s market share dip to the lowest level and so does the net profit after tax (NPAT) margin. But then he delivered on both fronts – increased market share with better profitability. Though in recent years margin is under pressure due to external factors and the poor SUV/crossover strategy of MSIL. Still Mr. Kenichi Ayukawa can get the benefit of doubt, as strategy is now under correction phase with SUV/crossover onslaught plans in partnership with Toyota Kirloskar Motors (TKM).



The above graph also shows how Mr. Jagdish Khattar led the profitable transformation of MSIL, since its full privatization. His successor Mr. Shinzo Nakanishi, however, could not sustain those margins. Both, Mr. Jagdish Khattar and Mr. Kenichi Ayukawa, has proved over time, that a high market share can be achieved without sacrificing profit margin. That shows how leadership matters in a company’s performance.



As per the above document - Mr. Martin Schwenk, Managing Director of Mercedes Benz India Limited (MBIL), another expat, received ₹ 4.6 Crore as remuneration in 2020.

So, India’s leading - mass market and luxury - car makers have MD remuneration in the same ballpark, and both these expats come from a high income country as well (Japan and Germany respectively). That makes Mr. Guenter Butschek an outlier.

Conclusion

These facts and figures raise more questions than this article can answer:

• Has TML overpaid its MD?
• TML board didn’t had remuneration bench-marking data before hiring expat?
• Why does TML continue paying such high remuneration despite not so good financial results?
• Couldn’t TML find Indian MD to lead the transformation journey?
• Why strong succession planning is not in place to have the right leadership at all times in TML?

[padmrajravi]

May be that extravagant package was the reason Gunter let go off other avenues to join TML. I am not talking in terms of evidence, just on a hunch. Tata does not have the brand value compared to other global automotive manufacturers. So they will obviously have to pay more to fetch the right international talent. Just like small-time companies have to pay more when they are headhunting people with historic success from top companies.

Agree with the succession planning part. They have not done a good job of it so far. If they had done it, they could have avoided the whole international hiring process. Mahindra does well here compared to Tata.

[Capricorn]

Good analysis.

While TML might have paid lot more (or highest in the industry) for the MD position but contribution of Mr Butschek towards the company is lot more than numbers.

Consider following things

1. Tata Motors was the least aspirational car brand before 2014. Now it is in top 3 if not the top, in mass market category.
2. A visible change in the attitude of staff towards their duties. Even the showroom and service centers are catering excellent now. I would safely consider their service above MSIL and Hyundai at least in my region. As example, while making purchase I had doubts over Corner Stability Control of Nexon compared to EBS. I was arranged a call with Product Engineering Lead at ranjangaon plant to satisfy my doubts.
3. Future proof sustainable product strategies means TML is more secured than MSIL for next decade in spite of more financial profits to latter.
4. Manufacturing has included significant automation. It is still below Hyundai/MSIL level, but still few steps up from a decade ago. Has it any relevance? Off course, the mechanised precision manufacturing makes quality assembly.
5. TML is now in position to take over Ford manufacturing plant as it needs more manufacturing capability. Whether they buys it or not is different question.

I belive TML wouldn't mind having him another bonus .

[GTO]

Great post as always . Wasn't he stepping down in the current FY entirely? Tata had announced the same - link.

We have to realise that Tata Motors had a huge vacuum at the top. Carl-Peter Forster - a much celebrated man - had abruptly quit Tata Motors. Then, Karl Slym committed suicide. The top chair at Tata Motors has been empty for long durations in the last decade.

I know people make a big deal about CEO salaries, but I'm not one of them. Just look at the Tata Motors of 2016 (when Guenter Butschek joined) and today. The brand is now selling 30,000 cars / month and has the best product lineup in history. Did Tata get value out of the crores paid in salary to Butschek? An emphatic YES.

Agreed on the Maruti & Mercedes CEO examples. But with Maruti, their bosses are typically Suzuki lifers (not outside hires like Guenter) and Japanese companies don't pay their CEOs as well. Mercedes India boss? Well, it's a company that sells <15,000 cars / year.

[The Rationalist]

In 2015 when I bought a car, I didn't even think about TATA, forget checking their offerings. Come 2022, when I'm looking for a car, it's TATA that is at the top of my shortlist with 2 vehicles! Infact right now it's TATA all the way unless Slavia comes out to be something compelling.

The foundation for long term success has been laid, what TATA does now onwards can make history if done right. I wouldn't be surprised if they capture the second position on a consistent basis. I for one feel it is the best ₹100 crore TATA motors will ever spend.

[warrioraks]

Originally Posted by pqr

These facts and figures raise more questions than this article can answer:

• Has TML overpaid its MD?
• TML board didn’t had remuneration bench-marking data before hiring expat?
• Why does TML continue paying such high remuneration despite not so good financial results?
• Couldn’t TML find Indian MD to lead the transformation journey?
• Why strong succession planning is not in place to have the right leadership at all times in TML?

Taking a slightly different tint to these questions. What choices did Tata have in 2015-16 when the company was ailing like no other auto company in the country? Was there anyone else who was willing to do a job at a lower remuneration? If we don’t know the answer to these, then pretty difficult to conclude on a lot of questions in OP.

Regarding Mr Guentek being overpaid with respect to industry because of leading a transformation, I don’t buy the argument. Transforming organisations is table-stakes in today’s world for any CEO and that cannot be the sole reason for commanding higher remuneration. But at the same time, Mr Guentek did end up creating a case study for future generations. So with the benefit of hindsight around TML’s un-imaginable turnaround, both the board and CEO seem to have delivered. That is all that matters.

[V.Narayan]

I did the arithmetic from the excerpt from their annual report the OP has posted and even allowing for the most extreme in each range I cannot come up with more than Rs 45 crores or thereabouts for the 6 years. So not sure where this figure of Rs 100 crores from 2015 to 2021 comes from. Maybe the OP can show the details. If employee stock options are a part of his incentive package then notional valuation of ESOPs as demanded by Company Law & SEBI inflate the compensation significantly even though those numbers mean nothing till actually exercised some years later and even then the actual value redeemed may have no bearing to the assumptions in the Black Scholes valuation done for reporting purposes.

I am not debating here about whether he is fairly paid or over paid. Just stating that picking figures as reported if ESOPs are involved will almost always present a distorted picture.

[pqr]

Originally Posted by V.Narayan

Maybe the OP can show the details.

Here you go – excerpt from the annual reports. Stock option and sweat equity section - indicated as zero.

What I have not noticed earlier was – TML’s expat MD remuneration was almost 10 times that of TML's Indian Executive Director. But in case of MBIL, it was just double and not 10 times!

2015-16



2016-17



2017-18



2018-19



2019-20



2020-21

[Theyota]

The responsibilities and pay of Tata Motors CEO can be compared to Suzuki global or Daimler global CEO and cannot be compared to a country level CEOs of Maruti Suzuki or Daimler India. The CEOs of Maruti Suzuki and Daimler India are part of global matrix organization with significantly lower decision making authority and responsibilities. They do not share the same decision making power, responsibilities or risks as in case of Tata Motors CEO. Maruti Suzuki and Daimler India are subsidiaries of Suzuki Global and Daimler global. For them, their global organizations develop products, build and run their manufacturing footprint, manage procurement, manage finances, control many operational issues, etc.

[charanreddy]

I don’t believe renumarations of top execs can be compared across companies. It’s a function of challenges a company may be facing at a certain point in time and available pool of top execs willing to take up that job. Also I detest when people compare salaries of employees vs salaries of CEOs and make exceptional claims line CEO makes 100X of a line worker. Per me it’s all about impact. The CEO spends a significant part of his / her life working on himself / herself and sacrifices a lot to get to that position and then maintain that position. His / her job is to get a few key decisions right and that makes all the difference. I have personally seen and experienced how a good top exec vs bad top exec changes the fortunes of companies single handedly.

[Shreyas_H]

Great post and nicely researched!

As someone whose day job involves salaries and compensation, let me tell you that Executive compensation (CEOs/MDs etc) is a completely different ball game altogether and often lacks what we may perceive as logical decision-making. It is impossible to compare salaries for this level of employees - there is sometimes no semblance of logic to the kind of compensation paid to senior executives. At the end of the day, it is the value that the board feels is brought to the table by the CEO or MD.

Did you know that 2 years ago, the highest paid CEO in India was Vivek Gambhir from Godrej Consumers Pvt Ltd. The man left GCPL to join BoAt!

Strategic projects, mergers, product turnarounds etc are key indicators by which CEO compensation gets pegged and reviewed. And of course, I am not even getting into details around equity, deferred compensation, RSUs etc - that forms probably the largest chunk of wealth that CEOs make in their positions.

A fact you will find interesting - Mr Mukesh Ambani's salary has been capped at Rs 15 crore annualy for the last 10+ years. We all know he is in no way underpaid

[mohitchalla]

Great report! The compensation of a company's leader is a reflection of what problems they are able to solve. While each company has its own set of problems, a general trend to be observed is that Japanese companies pay a much lower compensation even to the top executives compared to other countries. Mr. Akio Toyoda, the president of Toyota Motor Corp is paid significantly less than CEOs of much smaller, loss making automobile companies. This is just how Japan works and it is very deep rooted in the history, society and culture. The reason why I am mentioning this is that comparing compensation of the leaders of TML and MSIL is not as simple as it seems.

[bhargav2015]

Firstly, why bother!?!
Every company has its own set of challenges and strategic decision making to reach their objectives. Also, IIRC the remuneration of KMP is annually reviewed and approved by the Remuneration Committee of the Board.

The ownership mindset and the changes brought about by top executives shape an organization in ways hard to fathom. Each company has a different way of assessing and putting a price tag on that skill set.

Would you compare the salary of an Engineer/ Service Technician in MSIL vs Mercedes Benz in India?

[m8002?]

Originally Posted by charanreddy

I don’t believe renumarations of top execs can be compared across companies. It’s a function of challenges a company may be facing at a certain point in time and available pool of top execs willing to take up that job. Also I detest when people compare salaries of employees vs salaries of CEOs and make exceptional claims line CEO makes 100X of a line worker. Per me it’s all about impact. The CEO spends a significant part of his / her life working on himself / herself and sacrifices a lot to get to that position and then maintain that position. His / her job is to get a few key decisions right and that makes all the difference. I have personally seen and experienced how a good top exec vs bad top exec changes the fortunes of companies single handedly.

This is where the problem comes. For every good CEO who takes the company to next level, there are much more who just let the company float and others who have run it to the ground. But these people are also get equally good fat cheques. Then people start questioning why was he paid that high amount.

Originally Posted by Shreyas_H

Great post and nicely researched!
A fact you will find interesting - Mr Mukesh Ambani's salary has been capped at Rs 15 crore annualy for the last 10+ years. We all know he is in no way underpaid

Ambani makes a lot more in dividends and shares and thats exactly how it should be. The base salary needs to be "reasonable" but additional payments should come based on growth or the successful transformation.

Lets say Mukesh takes in a salary of 100Cr ( no shares/dividends) and his brother also took in a salary of 100Cr 15 years back. Is Anil Ambani's salary justifiable for the way things turned out? We might still say Mukesh is underpaid.

[CARDEEP]

Salaries of Japanese Multi-national Companies Executives are driven by certain Japanese law that prohibits payment of more than certain times of the median pay. It is irrelevant where Japanese legislation is not applicable.

I think we are comparing Apples to Oranges.

I have dealt with Japanese executives outside Auto Sector & they get equivalent perks. So cash salary may be only one part money spent on other benefits is another.