New laws coming after executive salaries in South Africa
South African firms are courting shareholders ahead of annual general meetings after new laws gave investors more power over executive pay and put the directors who oversee it under greater pressure.
Mr Price’s recent AGM provided an early test of the new rules.
Amendments to the Companies Act that took effect in May replaced advisory votes on remuneration at listed companies with binding shareholder approval requirements, giving boards more reason to secure investor support before votes are cast.
The Durban-based fashion retailer engaged with investors who collectively held more than 67% of its ordinary shares before its September AGM, according to the company.
While both remuneration resolutions passed, more than a third of ordinary votes opposed its pay policy, compared with about 26% a year earlier.
“A 34% vote against the policy, after the company says it engaged holders representing nearly 70% of the register, is a useful early data point under the new rules,” said Zwelakhe Mnguni, chief investment officer at Benguela Global Fund Managers. “Engagement is no longer a substitute for substance.”
Mr Price said shareholder concerns centred largely on the weighting of performance measures and disclosure of strategic targets used in short-term incentives.
The company said views differed among investors and that its remuneration committee sought to balance their feedback.
Under the new rules, public and state-owned companies must secure shareholder approval for their remuneration policies by ordinary resolution.
If investors reject a company’s annual remuneration report, eligible non-executive remuneration committee members must stand for re-election to the committee at the following AGM.
A second consecutive rejection bars them from serving on the committee for two years.
Companies are consequently holding earlier and more structured discussions with investors, according to Mnguni.
Some of that engagement remains defensive, involving more meetings and disclosures without significant changes to incentive targets or the use of board discretion, he said.
The changes also require greater disclosure of the gap between companies’ highest and lowest earners, giving investors more information to scrutinise executive rewards.
The initial effect is likely to be more shareholder engagement, followed by changes to pay structures where boards face persistent opposition, Mnguni said.
“Binding votes will not automatically produce that alignment,” he said. “They will, however, make it more costly for boards to pretend the conversation is only about engagement.”
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