Sky-high ex­ec­u­tive pay

Finweek English Edition - - INSIGHT - EX­EC­U­TIVE PAY HAS

been a hot­but­ton is­sue, both in South Africa and be­yond, for sev­eral years. In­dig­nant anger and ou­trage at ex­ec­u­tive salaries has be­come com­mon­place, whether it is given a voice on the streets or elo­quently ex­pressed in busi­ness col­umns. Pub­lic out­cries ap­pear to be mak­ing an im­pact, with a re­cently re­leased re­port by ad­vi­sory firm PwC re­veal­ing that it is now ‘com­mon prac­tice’ for ex­ec­u­tive pay in­creases to be in line with those of the rest of the work­force. PwC an­a­lysts an­tic­i­pate that the level of ex­ec­u­tive pay will start plateau­ing over the next few years as share­holder en­gage­ment and pay-for-per­for­mance mod­els be­come high pri­or­i­ties for re­mu­ner­a­tion com­mit­tees.

“There is ma­jor pres­sure be­ing placed on re­ward sys­tems, and the in­ter­na­tional trend is to­ward more ‘ Say on Pay’ f or share­hold­ers,” ex­plains Ger­ald Seegers, PwC Head of hu­man re­sources ser­vices for South­ern Africa, adding that many or­gan­i­sa­tions are tak­ing a closer look at their en­tire ap­proach. In Ger­many, for ex­am­ple, there is a move to­ward an ex­ec­u­tive pay cap, and a call for an equal pay and board gen­der mix. In Italy, there are pro­pos­als for a cap on re­mu­ner­a­tion i n the pub­lic sec­tor while the US has forced ma­jor im­prove­ments in dis­clo­sure and the ex­pla­na­tion of ex­ec­u­tive pay pro­grammes.

“There is still much de­bate about what ex­actly the cor­rec­tive in­ter- ventions should be as the un­der­ly­ing cause may not only be the per­ceived high l evel of ex­ec­u­tive com­pen­sa­tion but also a host of other prob­lems, in­cludi ng un­em­ploy­ment and poor ser vice deliver y,” adds Seegers. He points out that the pay gap in SA re­mains rel­a­tive com­pared to that in the UK and in the US where in­come dis­par­i­ties are among the high­est in the world.

Ac­cord­ing to the PwC re­port, SA com­pa­nies have seen mod­er­ate in­creases in re­mu­ner­a­tion lev­els in re­cent years, al­though the num­bers vary sig­nif­i­cantly across in­dus­tries. While the me­dian To­tal Guar­an­teed Pay Pack­age (TGP) was 4.5% for the JSE as a whole, notes Seeger for the pe­riod 1 May 2012 to 30 April 2013, in many cases, the in­creases were above in­fla­tion.

“The me­dian TGP for the CEOs of large- cap ba­sic re­sources com­pa­nies has shown a si gnif­i­cant i ncrease of 9. 3% ( R9m), af ter a de­cline l ast year, and i s now at a level higher than in 2011,” the re­port states. “Af­ter a pe­riod of neg­a­tive i ncrease, the me­dian TGP for ex­ec­u­tive di­rec­tors of large-cap ba­sic re­sources com­pa­nies has re­mained static at R4.9m. The me­dian TGP for the CEOs of large- cap com­pa­nies in the fi­nan­cial ser­vices sec­tor has shown a mod­est in­fla­tion­ary in­crease, as in the prior year (R6.6m).”

Loane Sharp, labour mar­ket an­a­lyst for Ad­corp, sug­gests that self- reg­u­la­tion would be an ef­fec­tive way to ad­dress the is­sue of ex­ec­u­tive pay, and warned against the dan­gers of Govern­ment in­volve­ment.

“I am alarmed at the scale of Govern­ment in­ter­fer­ence in ex­ec­u­tive pay,” says Sharp, “It is go­ing to be dis­as­trous for the coun­try.”

Sharp notes that there has been a marked trend of “mi­cro-level in­ter­fer­ence” by Govern­ment in the be­hav­iour of lo­cal com­pa­nies, which he says is go­ing to lead to “much poorer per­for­mance” in the pri­vate sec­tor in the long term.

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