How to clamp down on executive pay

Legislation giving shareholders a “say on pay” needs to be introduced if South Africa is ever to narrow the pay inequality between executives and employees in listed companies.

This is the view of Old Mutual Invetment Group head of sustainability, research and engagement, Jon Duncan, as expressed in a column on BDLive.

Pay disparity in South Africa is amongst the worst in the world, with the country having the 5th biggest pay gap after the US, Hong Kong, Germany and the UK.

A report compiled by Mergence Investment Managers, looking at executive remuneration in South Africa in context of both local and global trends, found that CEOs of the JSE’s top listed companies earn on average 140 times more than the average worker.

In the extreme, Shoprite CEO, Whitey Basson, earned a staggering 725 times more than the company’s average employee salary in 2013, the report found.

Mergence said that global trends are moving to limit executive remuneration through various means – notably through increased disclosure of incentives, and in other cases through legislation.

In South Africa, the disclosure of individual directors’ remuneration and benefits is already a listing requirement of the JSE.

However, Old Mutual’s Duncan says that this is not enough, suggesting that shareholders be given a “say on pay” through the provision of a binding vote on remuneration policy, “which would bring SA’s markets in line with international practice”.

“While mandatory disclosure is to be applauded, it is not sufficient to hold management accountable for ensuring alignment between executive remuneration practices and the creation of shareholder and broader long-term stakeholder value,” Duncan said.

“In an ideal world, executives would act on this as a leadership issue and regulation would not be necessary…Yet, globally, this is not the experience,” he said.

According to Duncan, Old Mutual voted at the annual meetings of 224 companies on 4,063 individual resolutions in the last year, collectively voting against the remuneration policies of 36 companies.

“We see the provision of regulation to facilitate greater shareholders’ ‘say on pay’ as an important step in closing the accountability loop between beneficiaries, asset owners, investors and the market,” Duncan said.

However, regulation would need careful consideration and shouldn’t be the sole avenue to explore, he added, saying it should be coupled with a debate on regulation and policy related to job creation.

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How to clamp down on executive pay