Taking good care of the cronies

‘Benchmarking’ justifies inexplicable greed

There’s something not quite right about the chairman of a remuneration committee talking earnestly about the dangers of inequality when his committee has just approved a multimillion-rand retention payment for an executive on the basis of nothing more substantial than a “benchmarking” exercise.

The assumption we’re expected to buy into is that once a benchmarking exercise is done the remuneration committee’s job is over; it has fulfilled its obligations to the board and the shareholders. There is no requirement to exercise any discretion. This means all the committee need do is appoint its expensive remuneration consultants to get information about what the most popular practice is and present that as a benchmarked policy.

In doing this, there is the attendant assumption that there is a clearly demarcated market for executives.

What a cop-out. At the least you have to wonder: why bother with the remuneration committee members, who are essentially well-paid middlemen? Their task seems to be simply to allocate benchmarking exercises and rubber-stamp the result.

There is nothing that happens in the crony world of executive remuneration that cannot be justified by reference to benchmarking. The lucky executives believe this is proof of how scientific their generous remuneration policies are. The great benefit of this is that it helps them and their mates on the remuneration committee avoid any suggestion of corruption.

For the mass of people who exist outside this bubble, benchmarking is used to slap a veneer of respectability on a system that is little better than the political one. Essentially it attempts to justify the inexplicable greed of one company by reference to the inexplicable greed of most companies.

The drafters of the Companies Act may have hoped the social and ethics committee would step in to ensure some balance between the interests of the executives and shareholders on the one hand and the employees and stakeholders on the other.

The social and ethics committee, as well as the audit committee, are the only board committees a company is obliged to have. The social and ethics committee was a sop to Cosatu, which had been pushing for a two-tier board structure along German lines.

Had the trade union movement been a little more engaged it could have taken control of the social and ethics committees, particularly in companies in which it was invested, and used them to promote the purposes intended by the act.

Instead they appear to have become the training ground of newbie directors who do not have a financial background. What a waste. At the least they should be monitoring the company’s Gini coefficient and using that monitoring process to ensure some restraint at the very top and relief at the bottom.

If, as seems to be the case, remuneration committees assume responsibility for disclosing the Gini coefficient, when there’s a legal obligation to do so, the certainty is there will be lots of benchmarking to ensure nothing useful comes of it.

Remuneration committees are little more than well-paid middlemen