LOOK AT THE BIG PICTURE
In the past few years, the asset managers who invest your pensions have finally been stepping up, rising to the expectations society has of them
ou may not have noticed it, but there has been a quantum shift in the way the people who manage your pension money are going about their jobs. Belatedly, these asset managers are demanding accountability from the companies in which they invest your cash. It couldn’t have come soon enough.
New figures show that between September last year and May this year, Old Mutual voted against 37% of remuneration policies at Jse-listed companies, Allan Gray vetoed 28.6% of them and Coronation vetoed 20.9%. This emerges from Pwc’s annual remuneration survey, released last week. It hints at a far greater activism from investment managers than used to be the case — which bodes well for the prospects of holding CEOS accountable.
Of course, it’s not a wholesale conversion. On the other side of the activism scale are Stanlib Asset Management and Investec Asset Management, which both voted against just 6.5% of remuneration policies.
Still, it’s a far cry from a few years back, when most asset managers hardly ever raised a peep at an AGM, much less voted against a company’s pay policies.
In its report, PWC urges shareholders to consider going to court to reclaim bonuses from executives who have fiddled their accounts: “There are compelling reasons why companies should consider introducing clawback policies.”
It gets more interesting, however, when you compare the more active managers against their rankings in the performance tables. The rankings tables from Willis Towers Watson, a consultancy that advises SA pension funds, puts Allan Gray, Old Mutual and Coronation in the top 10 of 34 global balanced funds over a five-year period, with returns of 10%, 10.3% and 9.5% respectively.
Now, those ranking tables are a very rough metric, assessing only a few funds at an investment house. And some of the less obviously activist funds have, in some cases, done well too.
But it does suggest that those money managers who pay
Ygreater attention to governance see a pleasing correlation in performance.
Karl Leinberger, chief investment officer for Coronation, says the entire culture of the industry has shifted. “When I started in this industry 20 years ago, it was totally different. There was hardly any scrutiny on these issues. If you didn’t like how a company operated, you voted with your feet. But clients have demanded more, and regulation has changed. So there’s no doubt governance at companies is better as a result of us holding boards to account,” he says.
Jon Duncan, head of responsible investing at Old Mutual Investment Group, agrees. “I can’t speak for what others are doing, but since 2015, we’ve been clear that sustainability is a major macroeconomic trend reshaping markets globally. One aspect of this trend is greater asset manager focus on active stewardship and holding management to account.”
And asset managers now have to demonstrate their social utility as never before. “Are we just taking fees for generating small returns, or are we able to build trust by ensuring the companies we invest in generate a decent return while building resilience into the social and environmental ecosystems?” he asks. In the US, new rules this year are forcing American companies to publish the ratio of a CEO’S salary to that of an average employee. It has made for some arresting numbers. At Weight Watchers International, CEO Mindy Grossman took home $35.5m — 5,908 times that of the $6,013 earned by the average staff member. At Mcdonald’s, CEO Steve Easterbrook’s $21.7m was 3,101 times that of the average worker’s salary.
SA companies aren’t obliged to publish this ratio, but Pwc’s research found that of Jse-listed companies, the average ratio of the CEO’S pay was between 12.7 and
64.7 times that of their average worker. Last year, the average SA CEO was paid R5.2m, a 7.6% increase on the year before.
Leinberger makes a good point, however, when he says this pay ratio is too blunt a tool to be truly illuminating. “It’s such an easy measure to game. For example, you can pay poorly performing executives 10% more while outsourcing the lowest-paid work, and your ratio would vastly improve. So, the only way to properly assess this is to look at the individuals and assess whether they have been rewarded according to the value they’ve added,” he says.
Also, the biggest problem in SA is not the gap between the CEO and the workers; it’s between people who get paid any salary at all, and the 36.7% of South Africans who want jobs but can’t get them.
This is why American CEOS earn far more than their average employees than we see in SA, yet the level of overall inequality in the US economy (which has just 4% unemployment) is far less damning than here.
It is this sort of nuance that asset managers need to consider when looking at how “fair, responsible and transparent” pay packages in SA really are — not just at a company, but in the wider society too.
The problem in SA is not the gap between the CEO and the workers; it’s between those who have jobs and those who don’t