Workers’ bonanza or window-dressing?
| Staff share schemes can deliver life-changing payouts — or produce nothing but lip service
FOR Ntebo Mothibeli, one of the 6 000 recipients of the Kumba Iron Ore employee share plan’s now legendary payout in 2011, the money meant she could buy her first home and settle her debts.
“It was such a happy moment — quite unbelievable, really — when we heard how much it was going to be,” Mothibeli said.
Many members of Envision, Kumba’s share scheme, received hundreds of thousands of rands when the company paid out R2.7-billion in the first phase of the scheme, with longer-serving staff members netting R345 627 each.
Mothibeli still works at Sishen mine in the Northern Cape, as does another shareholder, Molefe Moilwa, an operator. He was about to get married when the payout was made.
Both of them took the financial advice given to them and invested in property.
In Moilwa’s case, he bought a house, and cattle and sheep for his mother’s family home in Mammebe village, near Kuruman in the Northern Cape. “The financial fitness information made us realise we need to invest in things of value,” he said.
Nico Baard, an operator at Sishen mine who left the company after nine years of service but returned to Kumba just over a year before the payout, used his payment to refurbish his home. On the eve of Kumba’s second payout, employee ownership schemes are in the spotlight as a number of staff share plans established in 2005-2006 begin to vest.
The government’s surprise plan, since withdrawn, to downgrade the weighting of broadbased and employee ownership schemes has also focused attention on these schemes.
Studies due to be released this month by research firm Intellidex estimate that employee ownership schemes have created more than R50-billion of net value for staff of the 100 largest JSE-listed companies in the past 15 years.
The Chamber of Mines said 21 000 historically disadvantaged employees had benefited through ownership, directly and indirectly, in the past 12 years.
But Solidarity and the National Union of Mineworkers said that the schemes as they were presently structured were not delivering real empowerment because the payouts to individuals were too small or the schemes were “under water”, meaning the amount owed on the loan taken out to finance the initial deal is greater than the value of the assets. Staff also have no say in how the companies in which they hold shares are managed, they said.
Successful schemes in the mining sector include Kumba and Exxaro, but most of the bestpaying schemes are in financial services, healthcare and telecommunications — such as those at Absa, FirstRand, Standard Bank, Naspers, Mediclinic, MTN and Sanlam.
Many of the large deals, which depend on the appreciation of a company’s share price, were set up in the mid-2000s when mining stocks performed well.
According to experts, the failure of employee share schemes can be attributed to three things:
The share price did not rise as anticipated;
The shares were bought by the companies with loans that had to be paid back through dividend flows; and
The money had to be divided between large numbers of employees, diluting payouts.
Mzila Mthenjane, head of strategy and stakeholder engagement at Exxaro, said the company, like Kumba, was fortunate in that the iron ore price was high at the time the employee scheme vested.
He said the company had not conducted research, but from anecdotal information it did not appear that the employee ownership scheme aided staff retention.
“It’s part of a general good performance package that a staff member would get during the year. It does allow staff to do certain things, but it’s seen as part of a total package.”
The lower price of iron ore is expected to have a significant impact on Kumba’s second payout. The NUM said it was running education programmes at Kumba to help staff understand how payouts are calculated and the factors that influence the amount paid out.
Luthando Brukwe, head of transformation at the NUM, said the staff share schemes in construction, mining and energy generally did not pay enough when they vested to make a “meaningful difference in the lives of members”.
“Employees are given a very small percentage of the ownership, with the lion’s share going to BEE individuals,” he said.
“There is a situation where 40 000 employees are sharing 2% and 11 individuals are receiving a 20% stake.
“With the exception of Kumba, and Exxaro [which paid R135 000 each to more than 9 000 workers] I have not seen payouts exceed R50 000. This amounts to about R35 000 after tax.”
Many of the payouts are closer to between R3 000 and R7 000.
Solidarity CEO Dirk Hermann agreed. “Most of the [schemes] I have seen have been too small to create meaningful wealth for workers.
“It’s more of a symbolic gesture. [Share schemes] are not a creator of wealth.”
Schemes that have failed entirely to pay out include those set up by Xstrata, Impala Platinum and AngloGold Ashanti.
An employee share scheme adviser, who asked not to be named, said the sectors most likely to have employee ownership schemes at the moment were those reliant on government business — such as mining, telecommunications, banking and construction — which need to show BEE compliance.
Black Business Council vicepresident Sandile Zungu is an outspoken critic of employee share schemes. He supported the government’s recent abortive plan to award fewer points on the BEE scorecard to broad-based schemes.
“Most employee share schemes have been abused severely in the past, becoming little more than a fronting exercise,” he said.
Zungu said the structure of the schemes devised by companies ensured that staff did not receive adequate returns, and kept the running of the company firmly in the hands of its chairman.