The SOE pay farce

CEO SALARIES: SHOULD BE PEGGED TO PERFORMANCE

Many SOEs are poorly managed, perform abysmally and unable to deliver on their mandates. Yet their CEOs are among the best-paid people in SA. Moneyweb

Unlike in the private sector where suitable candidates are hired for the job, and held accountable by a board and sometimes shareholders, there appears to be very little performance management of state-owned companies’ (SOEs’) CEOs.

So how do they justify their extraordinary salaries and the occasionally massive increases?

Eskom’s former CEO Brian Molefe was the highest paid CEO during his 15-month tenure, compared with the CEOs of Transnet, Denel, SAA, Sapo and Acsa.

Molefe received R9 467 000 in 2015-16 and R8 871 000 remuneration for the 2016-17 financial year, while at Eskom.

He was appointed group CEO in September 2015 at a salary at least three times higher than his predecessor. Some argue he deserved it, as he brought Eskom’s maintenance schedule up to date and ended load shedding. Others argue load shedding declined as new power came on-stream and the economy stalled.

However, under his watch, group profit vacillated wildly, increasing 42% in 2016 and declining 82% to R888 million in 2017. Molefe resigned in December 2016 after being named in the former public protector’s State of Capture report.

Before Eskom, Molefe was Transnet’s CEO. He resigned in September 2015 and received R6 678 000 remuneration. His Eskom move therefore earned him a 41% increase.

Siyabonga Gama succeeded Molefe at Transnet. His 2015-16 remuneration was R7 249 000 – 9% more than Molefe’s 2015 remuneration, however in the 2016 financial results Transnet’s profitability decreased 93%.

According to Transnet’s remuneration structure, performance is recognised and rewarded and performance improvement is incentivised.

Activist shareholder Theo Botha said CEO salaries aren’t necessarily linked to the CEO’s performance, and it’s unusual for SOEs to have performance criteria. However, where CEOs are paid extravagantly, despite their entities’ involvement in corrupt dealings, someone should be held to account.

CEO Riaz Saloojee has been with Denel since 2012 and enjoyed significant remuneration increases. His 2015-16 salary rose 13% and his 2016-17 salary jumped 35% to R6 407 000. Over this period group profitability declined.

Botha said other than CEOs taking accountability for their actions, board members are also expected to intervene. Only the board can really hold SOEs to account: it’s appointed to hold executive directors to account and ensure the company is well managed and produces profit at the year-end.

In addition to board members, there should be independent people who evaluate, Botha added. The board evaluates the executive directors and staff and somebody should evaluate the board.

In JSE-listed companies, it’s the shareholders. With SOEs that would be government. But that doesn’t happen.

A key SOE performance measurement should be debt, said Botha. A CEO should be managed on their ability to get debt under control.

Another way to motivate CEOs is to set a low basic and give them a great long-term incentive scheme.