Do South Africa’s banking bosses really deserve their massive salaries?

Executive pay continues to be a hot topic for shareholders in South Africa and the world, with new accounting rules putting bigger focus on stakeholders’ say on how company bosses get paid.

Recent studies by advisory groups Deloitte and PwC investigated attitudes towards high pay among executives, noting that the social concerns around the high pay was coming to the fore – and would become the topic of much-heated discussion at JSE-listed companies’ future AGMs.

Last week, media giant Naspers also faced criticism from its shareholders over executive pay, with over 50% of the group’s ordinary shareholders voting against the company’s remuneration policy.

According to the new King IV rules – should more than 25% of shareholders rebuke the proposed remuneration policies, companies will have to engage with them. Luckily for Naspers, these rules are yet to kick in with full effect (and ordinary shareholders only represent 32% of the group’s total shareholding, anyway).

In previous coverage, BusinessTech has highlighted that South Africa has one of the highest pay gaps in the world, ranking up there alongside many developed economies like the US and the UK.

Salary gaps – the difference between what CEOs earn and what their average employees earn – are one way to measure pay disparity in any given sector. In South Africa, among the 25 biggest companies listed on the JSE, this gap averages around 100 times – with the highest gap seen at over 1,330 times (Shoprite).

Deloitte and PwC’s reports showed that the average executive in South Africa earns R17.972 million a year in total compensation, while CEO averages can average as high as R24.6 million.

South Africa’s banking sector is one place where CEOs tend to earn higher than these averages.

Value of SA’s banking CEOs

German business magazine, Handelsblatt, recently compiled an index to assess the value by executives at local companies, by looking at economic value added internally and externally by CEOs over a period of five years.

Internal value is measured by looking at how profitable companies have been, while external value measures how much value has been created for shareholders. This is represented in terms of how CEOs are paid – effectively how much value is created for every unit of currency paid to the chief exec.

While Handelsblatt uses economic value added (EVA) as a metric for internal value, not all of South Africa’s banks report this figure. In the data table below, we have used headline earnings to measure internal value added, and the change in market cap to measure external value.

For example, in South Africa, headline earnings at Capitec between 2012 and 2017 totaled R14.24 billion, while the group’s market capitalisation increased by R65.4 billion. Meanwhile, chief executives (Riaan Stassen and Gerrie Fourie) were paid a combined R90.23 million in salaries in the same time.

Expressed as value added, for every R1 paid to the CEOs, R158 of value was created internally for the bank (in headline earnings), while R725 was created for shareholders (through the change in market cap).

The table below breaks down this principle among South Africa’s retail banks. The data covers the period 2012 to 2016 (2017 for Capitec), and is ranked by external value added.

Bank Total CEO Salary (2012-2016/17) External Value in ZAR for R1 of CEO’s Salary Internal Value in ZAR for R1 of CEO’s Salary
Capitec R90.2 million R728 R158
FirstRand R173.8 million R591 R517
Standard Bank R227.9 million* R242 R416
Absa R131.6 million R192 R491
Nedbank R169.5 million R133 R227

* Includes salaries for both Sim Tshabalala and Ben Kruger

Read: The highest paid banking CEOs in South Africa

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Do South Africa’s banking bosses really deserve their massive salaries?