New data from the PwC’s \u2018Non-executive directors: Practices and fees trends report,\u2019 published on Tuesday (29 January 2019), shows that the median chairperson fee across the entire JSE increased by 5.1% in 2018.<\/p>\n
PwC noted that institutional investors have expressed concern\u00a0at the current state of executive pay, and called for stronger remuneration committees.<\/p>\n
The report noted that the median chairperson fee across the entire JSE has risen to R595,000<\/strong> (from R566, 000 in 2017), while overall fees for non-executive directors at the median level increased from R492,000 to R518,000<\/strong>.<\/p>\n Of the 325 active companies and 2,402 non-executives serving on boards, several are South African citizens paid in foreign currency. Conversely, some foreign nationals receive payment in South African rand.<\/p>\n In the period 2016 to 2018, lead independent directors were not rewarded with an increase at median level and their total fees were reduced by 1.3%.<\/p>\n A central theme of the report is the role of remuneration committees in corporate South Africa, and whether remuneration committees are actually fit for purpose. According to PwC, the suitability of skills, experience and independence of individuals serving on boards are the areas of most concern to South African directors when it comes to general perceptions of governance.<\/p>\n Remuneration committees are facing increased responsibility, time commitments and risks in the face of new regulation, governance standards and disclosure rules. Non-executive directors are being called on to justify their companies\u2019 remuneration policies and the implementation thereof, directly to shareholders.<\/p>\n This is expected especially where a company has experienced poor financial performance, but executive pay levels have continued to climb.<\/p>\n “There is a strong perception amongst major South African institutional investors that remuneration committees are not approaching shareholder engagement properly, need to do more to upskill themselves to properly execute their duties, and should not place an over-reliance on external consultants and advisors,” said Gerald Seegers, head of people and organisation for PwC Africa.<\/p>\n PwC said it hosted a recent roundtable event for major institutional investors and governance institutions to gauge their views on executive pay in South Africa. “While some expressed hope that remuneration governance had made significant progress over the past few years, others were concerned at the current state of executive pay, and called for stronger remuneration committees.<\/p>\n “Overall, institutional investors stated that remuneration committees need to engage with investors directly, and continuously, regarding the company\u2019s remuneration policy and implementation thereof,” PwC said.<\/p>\n “Remuneration committee chairpersons should demonstrate full understanding of their companies\u2019 remuneration policies and how they are linked to the entity\u2019s business strategy, and not rely heavily on remuneration consultants or executive management.<\/p>\n “It is notable that some investors believe the legislative framework around directors is not strong enough to hold them to account, and is hard to enforce. The question arose whether there was room in South Africa to introduce a governance code which could strengthen the enforcement of good governance principles.”<\/p>\n According to the report, the suitability of skills, experience and independence of individuals serving on boards are the areas of most concern to South African directors when it comes to general perceptions of governance. “We have already seen some examples of schisms between investors and boards of listed companies, particularly in the face of stagnant financial performance,” PwC said.<\/p>\n London FTSE 100<\/strong><\/p>\n The report provides a trend analysis of the total fees paid to non-executive directors of FTSE 100 companies in the UK. Total fees paid to chairpersons at the median levels increased from $540,000 in 2017 to $552,000 in 2018. Total fees paid to non-executive directors increased from $142,000 to $145,000.<\/p>\n Profile of a non-executive director<\/strong><\/p>\n As at 30 November 2018, the total number of non-executive directors serving on the boards of active companies on the JSE was 2,402, which is 145 more than in the prior reporting period.<\/p>\n In addition, the board tenure for non-executive directors has shown an increase for both chairpersons and non-executive directors, as it did last year. Some practices which have emerged to promote board refreshment in the corporate sector are tenure requirements, and mandatory age limits, for non-executive directors.<\/p>\n Some institutional investors and activist investors have gone so far as to propose that, after a certain length of tenure, non-executive directors should no longer be considered independent. King IV\u2122 does not take a hard and fast approach to the length of a non-executive\u2019s tenure.<\/p>\n Both the mean and median age of chairpersons and non-executive directors has remained 55 over the past two years, with some variation across industry sectors.<\/p>\n Non-executive positions have become more burdensome than in the past. Serving on multiple boards in smaller companies may be possible. The data, however, reflects that many non-executive directors serving on numerous boards are holding different portfolio responsibilities as non-executives on large-cap companies in diverse industries.<\/p>\n It is noteworthy that many non-executive directors do not have specialised qualifications, and the shortage of competent and qualified people is a real challenge.<\/p>\n “It is evident that the role of independent non-executive directors is vital to maintaining a sound corporate governance framework and, particularly in the field of remuneration, they are held to increasingly higher standards. In certain jurisdictions penalties are imposed for failure to uphold these duties.<\/p>\n “In South Africa, this is particularly noticeable in the drive by the JSE to adopt corporate governance principles in its Listing Requirements and the proposed amendments to the Companies Act relating to the disclosure of directors\u2019 remuneration,” PwC said.<\/p>\n\n
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