Out of control
THE PAY PACKETS of chief executives in South Africa are out of control, says Philip Theunissen, of forensic and accounting firm Computus, which recently published a research note on the gap between salaries of CEs and average employees. Theunissen analysed the annual reports of 326 listed companies and public corporations for the financial years ended July 2008 and June 2009. He found the average CE’s remuneration of all the companies studied was R4,76m/year. The average basic salary of CEs was R2,37m/year, while the average worker earned R124 457/year over the same period, according to Statistics SA.
While performance-based remuneration, often in the form of share options, has become a worldwide practice to align the interests of a company’s shareholders and its CE, options aren’t closely linked to the performance of CEs, allowing them to benefit from movements in share prices due to market and industry trends beyond their control.
Says Theunissen: “It seems a small number of CEs are using the conditions of incomplete and asymmetric information surrounding their capabilities to such an extent that, when it comes to remuneration negotiations, their individual bargaining power is far greater than the collective bargaining power of the remaining 8,4m workers. The result is that CEO remuneration in SA is in all likelihood out of control.”