Bank executives coining it after Covid collapse
• Bosses may have suffered a dent in their remuneration, but bonuses have made up for it handsomely
So much for solidarity and the rather fanciful notion that the Covid pandemic was something of a “leveller” and we were “all in it together”. As the post-Covid company results trickle out, one thing is evident: SA’s top executives may have suffered a temporary dent in their remuneration, but bonuses over the past two years have made up for most of that knock.
Nowhere is this more evident than the banking sector. In April 2020, bank executives were cajoled into taking pay cuts by President Cyril Ramaphosa’s announcement that he was taking a 33% cut for the following three months. Having made a bland commitment to ensure executive pay was “appropriate for performance and the environment”, Ramaphosa’s move prompted Nedbank to take things up a notch. It announced CEO Mike Brown would follow Ramaphosa’s lead and take a one-third cut in salary for the three months.
Next up was FirstRand, which said its CEO, CFO and COO would also take a onethird cut for three months. Then Absa announced five of its top executives would donate 33% of their monthly salaries over the following three months to the Solidarity Fund.
Standard Bank was a little more circumspect, a little less socially sensitive. “The bank is setting up mechanisms to enable its executives to make donations, confidentially where preferred, over the next three months,” said then CEO Lungisa Fuzile, insisting the bank was committed to making a meaningful difference in the lives of the most vulnerable of SA’s society.
As it happened, the biggest remuneration knock came from the collapse in share prices across the JSE. Also, because of the sharp deterioration in economic activity, the banks were forced to increase their provisions for bad debts, which hit profits.
But the banks chose to ignore the Reserve Bank’s request that “bonuses for senior executives should be put on hold during this period”. In 2020 and 2021, despite not attaining performance targets, they paid out hefty short-term bonuses to their top executives. These weren’t for performance; they were for retention.
In its 2021 remuneration report Nedbank explained the general position adopted by the banks, which was “the increased retention risk in the face of extreme Covid-19 volatility and uncertainty”. The banks feared their top
executives would depart in droves if they were not given bonuses, despite not achieving performance targets. There was no mention as to where all these executives would go given the worldwide slump in economic activity.
The attitude reflects what one leading remuneration consultant noted several years ago: top executives have come to regard “bonus” payments as a guaranteed portion of their annual pay package.
The banks also ignored the Reserve Bank’s request to halt discretionary ordinary dividends during the Covid crisis and paid dividends due on shares that had been awarded to the executives.
While employees across the country were struggling to hold onto their jobs — millions were unable to — and cash-strapped small businesses were going to the wall, executives of companies listed on the JSE continued to enjoy the largesse afforded by the tenuous levels of accountability that comes with anonymous and widespread share ownership.
The only knock bank executives suffered was to their long-term incentives, and then only temporarily. In most years, long-term incentives amount to at least 150% of guaranteed pay. But for two years the slump in profits and share prices meant the long-term incentive targets were not met. In FirstRand’s case, its June year end meant its executives also lost out on a long-term bonus in the 2023 financial year.
Long-term incentives are awarded in the form of shares. They are awarded at the review year’s share price but ownership only vests with the executive after three years and (usually) only if performance conditions are met. The quantity of shares awarded is influenced by the price. Almost inevitably, unless there is a global financial crash or a pandemic, the value of those shares will have increased over the three-year period.
Recall that in 2021 SibanyeStillwater’s CEO, Neal Froneman, earned the ire of much of the public when it was revealed that his remuneration package for the year was worth R300m. Much of that eyewatering sum was due to the surge in the company’s share price between the time of the long-term incentive award three years earlier and the 2021 financial year end. Remuneration committees justify the generosity by claiming the share price surged because of the executives.
This justification permeated Nedbank’s recently released remuneration report, which revealed that CEO Mike Brown received an astonishing R92.5m for the 2023 financial year. That is a large sum of money by any measure. It is almost three times what Brown received in 2022 and is 400 times what Nedbank pays its lowest earners. It’s also
worth noting that it’s 1,500 times more than the SA minimum wage.
Just more than R53m of Brown’s remuneration was thanks to long-term incentive shares, which had been awarded to him three years earlier and had increased 64% in that time.
In anticipation of widespread criticism, the remuneration committee provided a graph showing that the CEO’s 164% return on his long-term incentives since early 2020 was dwarfed by the 309% return earned by shareholders over the same period. The graph measures the share price performance from around its March 2020 low to its 2023 year end level.
What it fails to take into account is the reality that most shareholders bought the shares before March 2020 when it was trading considerably higher. By end-2023 they were looking at a loss on the share’s pre-Covid highs of close to R300.
In another suspect use of data, Nedbank’s remuneration committee points out that the group’s minimum guaranteed pay has increased 122% since 2013, while guaranteed pay at executive level has only increased by 68% over that time. “This is a result of a deliberate long-term approach to narrow vertical pay gaps and reduce income inequality”, said the remuneration committee, pointing out that the pay ratio between Brown’s guaranteed pay has come down from 60 times in 2013 to 48 times now. It ignores all the other remuneration “goodies” that bump up Brown’s pay to 400
times more than the minimum.
The thing is, how much of the share price bounce and the improved operating performance was down to Brown’s efforts? Or indeed any of the Nedbank executive team? Or, for that matter, how much of the entire industry’s performance — good and bad — over the past few years has been due to management? In March 2020, bank shares collapsed along with all the other shares on the JSE. It was entirely because of Covid. The profit performances of all the banks were dealt a massive blow because of the accompanying fall-off in economic activity as well as the need to significantly increase provisions for bad debts.
In its 2023 report Nedbank’s remuneration committee acknowledged the improved operating environment and made an ever-so-slight downward adjustment to the payout.
Remarkably, Brown’s R92.5m was not the highest single figure payment made to a bank executive in 2023. Fani Titi, CEO of Investec, holds the record. Though running a considerably smaller operation, he received a staggering R172.5m.
The Investec pay is reported in sterling because the bank has some business in the UK, so the remuneration committee might have thought the £7.5m figure would slide under the radar. Besides guaranteed pay of more than R20m, which includes R2m for personal security, the package boasts R36.8m in short-term incentives and a staggering R110.4m in long-term incentives. That figure would have been even higher except the remuneration committee tweaked it down marginally to take into account the general improvement in trading conditions.
Though Investec performed better than the major banks, the remuneration committee’s tweak comes nowhere close to allowing for the share price recovery from the Covidinduced slump in 2020.
In 2023, Standard Bank’s Sim Tshabalala was within sight of Brown with a payment of R83.3m. His R11.7m guaranteed pay was topped up with R24m of short-term incentives and R47.6m in long-term incentives.
Gerrie Fourie, CEO of Capitec, the best-performing bank, received R65.7m for the 12 months to end-February 2024. His R17.5m guaranteed pay was topped up by R5.9m of shortterm incentives and then ballooned with R42.4m of longterm incentives.
Absa’s Arrie Rautenbach picked up R37.3m for a year in which his bank seemed to fail to benefit from the recovery in general trading conditions. Despite the poor performance, Rautenbach’s guaranteed pay of R10.4m was lifted by a shortterm bonus of R12.6m and longterm incentives of R14.5m.
Trailing the pack because of the absence of a long-term bonus was FirstRand’s Alan Pullinger, who nevertheless managed to scoop up about R35m in total. In addition to guaranteed pay of R10.2m, Pullinger received a bonus of R14.9m as well as at least R10m from “Covid-retention” shares allocated to him in 2020.
Unusually, FirstRand has valued these “Covid shares” at just R6.4m, which was their value at the time they were allocated to Pullinger in 2020 and not the value at the end of financial 2023. So the R6.4m valuation does not take into account the sharp recovery in the share price since then. This recovery will ensure Pullinger, who retired on April 1, will receive a bumper long-term incentive for 2024.
So it turns out we weren’t all in it together. Executives certainly ensured they didn’t waste this crisis; they took advantage of the Covid-induced slump in share prices to boost their already-generous longterm incentive payouts.
Which means that instead of “building back better” as we were all promised, the response to Covid has aggravated the already dangerous levels of inequality in SA as poor and vulnerable people became poorer and more vulnerable and the rich executive class became richer, for reasons that have little if anything to do with their competence.
HOW MUCH OF THE ENTIRE INDUSTRY’S PERFORMANCE — GOOD AND BAD — OVER THE PAST FEW YEARS HAS BEEN DUE TO MANAGEMENT?