Mining boss defends R300 million payday

 ·15 May 2022

Neal Froneman, the chief executive officer of mining firm Sibanye-Stillwater, has defended his R300 million remuneration saying that shareholders approved the package, and that the process was transparent.

Questions about his salary have been raised at a time when the company is in the middle of a wage dispute with workers. The Sunday Times reports Froneman as saying that the company will not be bullied into unsustainable wage demands.

He told the Sunday paper in an interview that executive remuneration ‘is not well understood’. He said his salary and bonuses and even long-term incentives are benchmarked against what peers are paid.

“I had nothing to do with my remuneration. Only a small portion, I think R28 million in this case, is a cash remuneration that is paid by the company. The R270 million of shares is a cost to the shareholder.”

“If you have not delivered and you receive remuneration like this, then you should be embarrassed – but to be honest, the Sibanye team has shot the lights out. Our gold division only had five years of life. We have still got 10 to 13 years of life. We have saved 30,000 jobs.”

Froneman told the Sunday Times that Sibanye outperformed top companies including Impala Platinum, Gold Fields, and Anglo American Platinum, adding that he has taken the company’s market cap to R150 billion, from R15 billion when he joined in 2013.

The Sunday Times reported that the company has also grown to almost 85,000 employees, from 36,000 over that time period, with wages and salaries increasing from R6 billion to R26 billion.

Froneman stressed that a long-term incentive awarded in 2018 made up the bulk of his pay for the 2021 financial year.

“This is not unfair remuneration. It is also an incentive that is at risk. If we did not perform, we would not receive this. It is not that it is a guaranteed return. It is a very important difference.”

Equitable pay

Professor Imraan Valodia, an economics expert at Wits University, told the Sunday Times that the gap between top and bottom earners in South Africa is “so huge that it is not reasonable”. In many other countries, the ratio is around 50 to one, he said.

“To my mind there is no reasonable justification when someone earns R300 million in a year — no-one is adding so much value in the company that they can justify earning such an outlandish salary,” he said.

PSG chief executive Piet Mouton recently suggested that the requirement to disclose executive pay should be made optional.

Dr Ronél Nienaber, chair of the remuneration committee forum at the Institute of Directors in South Africa (IoDSA), responded to this by saying that the issue of executive pay is highly complex, and quoting the data disclosed in the annual report without the necessary context can be misused by various stakeholders to further their own interests.

This, however, does not mean that disclosure of executive pay is unnecessary, Nienaber added.

“Transparency is key to good governance globally, and thus to attracting investment—remuneration committees have to ensure absolute clarity in the remuneration reports when they describe how they reached their remuneration decisions, specifically indicating the alignment between performance outcomes and reward outcomes.

“Fair and responsible remuneration have to be demonstrated within the context of building value not just for shareholders but for the broader stakeholder community, including workers and the communities in which they live,” she said.

Nienaber noted that South African companies, in contrast to countries that have similar disclosure requirements but are operating in well-developed economies, face the additional challenge of a persistently worsening socio-economic divide, providing a context in which executive pay can be leveraged by unions to justify pay demands.

Executive pay is not the cause of unemployment and poverty in the country, she said, pointing out that high-performing executives play a crucial role in creating jobs, growing the economy and alleviating poverty, and should be rewarded accordingly.

Context is key 

Nienaber argues that remuneration committees need to ensure that targets linked to the variable pay plans are within management’s control, verifiable, relevant and with sufficient stretch.

In each case, the remuneration committee needs to show what has been factored into their deliberations and ultimate decision.

“For example, in the case of Mr Froneman, it is clear that he has benefitted from the positive effects of the resources boom on the share price. Ideally, the remuneration committee should clearly explain why it did not intervene to cap the benefit caused, in part, by the commodity cycle.

“Such a conversation would include the investments made by the company into society more broadly, with the aim of showing how the benefits from the macroeconomic context have been distributed beyond the fortunate few.”

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