Out of con­trol

Finweek English Edition - - Business Trends - ANDILE MAKHOLWA

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.”

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