More than a third of the CEOs of South Africa’s largest listed companies did not receive a salary increase in 2020 as the Covid-19 pandemic hit, but 80% of JSE listed companies still managed to pay out bonuses to executives – even as workers in other parts of the economy experienced reduced working hours or were laid off.
These are some of the findings in Deloitte’s latest guide on remuneration for listed companies, including results from the top 250 JSE-listed companies in South Africa.
The report found that the Median Total Remuneration (TR) of a chief executive – expressed as a single figure including basic salary, contributions, and incentives – increased by 7.09% from 2019 to 2020.
However, the data shows that this is because of the increases at the top five dual-listed firms on the JSE. By comparison, CEOs at large, medium, and small JSE listed firms have seen a reduction in their TR between 2019 and 2020.
The average total remuneration for a CEO now averages around R14 million for all the 250 surveyed companies. However, this is lifted by large and top companies, as CEOs in medium companies typically receive an average TR of R8 million, Deloitte said.
“The impact of the pandemic varies widely by company and sector, and investors and proxy advisors are closely scrutinising executive pay outcomes,” said Tyrone Jansen, reward leader and associate director at Deloitte Africa.
Jansen said that the media and society would further ensure they reflect the shareholder and employee experience through intense coverage and increased shareholder activism.
“Remuneration committees are expected to use judgement and demonstrate fair, appropriate, and consistent decisions within the broader workforce experience.
“At the same time, committees will be looking to set reward frameworks that incentivise leaders to deliver business resilience and recovery in the years ahead.”
The report shows that the disparity in executive pay levels concerning lower-paid workers is a societal concern worldwide.
However, this disparity is exacerbated in South Africa, with its additional transformational needs and high levels of unemployment.
“The recent social unrest and looting are testaments to just how fragile the situation is. In an ongoing COVID-19 environment, societal issues will likely have a significant impact on the direction of executive pay. It is encouraging to see how companies are starting to grasp the nettle of pay disparity,” said Jansen.
Jansen said another concerning trend is that more than 20% of the Top 50 JSE listed companies did not disclose the increase awarded to their CEO.
He notes that should the increase, once eventually disclosed, be found not to be in line with shareholder expectations, there will be a shareholder pushback at the next AGM.
“In the coming months, remuneration committees will be considering guaranteed pay levels for the year ahead, and investors have indicated that they expect to see continued restraint in this area.
“Where increases are awarded, higher increases have been awarded to the lowest-paid workers, particularly those in front line or critical worker industries.”
Changes are coming
Executive remuneration has come under further scrutiny in the latest amendment of the Companies Act, which explicitly requires disclosure of the pay gap.
In addition to a background statement, companies will be required to disclose total remuneration – including salary, benefits, and other incentives – given to the highest-paid employee and the total remuneration of the lowest-paid employee.
Companies will then have to publish the average and median remuneration of all employees; and the gap, expressed as a ratio, between the remuneration of the top 5% highest-paid employees and the bottom 5% lowest employees.
Jansen concludes by noting a set of questions that boards must ask in setting executive pay starting with how the company performed relative to its targets and market conditions, whether there is a crisis or not.
The next question to answer is how that performance aligns with the experience of other stakeholders. Next is to consider how ESG performance compares with overall performance, he said.
The two next critical questions to ask relate to workers, specifically what was done to protect jobs and the health and safety of workers as well as what was done to improve the livelihood of the lowest-paid employees.
“Boards then have to consider the potential response from shareholders and their advisers, whether they can justify their use of discretion as well as whether their action was considered ethical by all stakeholders.”