The winners take almost all
McKinsey calls the achievements of the financial industry ‘paper wealth but people like Francois Gouws are doing very well out of it
Hands up all those who think PSG Konsult’s CEO should be paid as much as Capitec’s CEO?
PSG Konsult has a market capitalisation of R15.2bn and Capitec’s is R163bn.
Of course, market cap doesn’t tell you everything about a company and though both companies are involved in the financial sector, their activities are quite dissimilar.
PSG Konsult is generally in the business of managing people’s money and has a sideline in commercial insurance, while Capitec is a reasonably straightforward retail banking operation that has historically focused on the lower-income segment but is growing market share in higher-income segments and in business banking.
While Capitec is one of the largest retail banks in South Africa, most people would struggle to place PSG Konsult on the financial sector map. It did have R354bn of assets under management at the end of February 2023, which is reasonably impressive, particularly as it had managed to add 12% during a particularly tough year for the asset management industry.
But still, for PSG Konsult CEO Francois Gouws to get paid R61m, just R1m less than Capitec’s Gerrie Fourie, doesn’t seem right.
The PSG Konsult remuneration report talks about this being an industry “heavily reliant on intellectual capital” and the need for exceptional talent. Given this absolutely standout generosity and the presumed efficiency of the market for CEOs, members of PSG Konsult’s nomination committee must spend all their waking hours batting off the hordes of would-be CEOs who come knocking. The R61m wasn’ ta one-off splurge by the remuneration committee;
Gouws was awarded R52.7m for 2022.
And the great thing for Gouws, who is based in London, is that this year more than half of that generous payment, R34.2m, was paid in cash in May because, says a note in the remuneration report, he had more than 10 years’ service.
Gouws, who worked for stockbrokers Senekal, Mouton & Kitshoff in the 1990s, was appointed deputy CEO of PSG Konsult in July 2012. Between 1995 and 2011 he held various positions at UBS Investment Bank in London. He was responsible for the UBS securities division alongside the heads of fixed income until October 2011.
Gouws’s UBS departure came as a result of the headline-grabbing $2.3bn trading scandal that erupted the month before. An internal investigation showed risk systems had detected unauthorised activity but failed to respond. At the time of Gouws’s departure, Reuters quoted the caretaker UBS CEO, Sergio Ermotti, as saying it was “simply not acceptable” that unauthorised activity was not properly investigated and controls not properly enforced.
Twelve years later at PSG Konsult, Gouws did have to tick off lots of key performance indicators (KPIs) before he was given the huge award.
Judging by the remuneration committee report, that was straightforward. According to the report, he had either met or exceeded requirements for each of the KPIs.
When it comes to executive remuneration, the financial sector which is being pipped by miners tends to spark more outrage and indignation than most. This may be due to the suspicion among financial sector clients, which is almost all of us with a job or a pension, that this is not a value-creating proposition so much as a winner takes all gamble.
Consider the lift that bank profits and bank pay will get from the second consecutive 50 basis point increase in interest rates that is set to make life even more difficult for the rest of us. And, while fund managers get generously rewarded for the past few years’ performance, will this be worth anything particularly after all the fees during our long years of retirement?
If a recent unnerving report from global consulting firm McKinsey is any indication, those past performances will have little bearing on the future. According to McKinsey, the global financial industry has created $160-trillion in “paper wealth” over the past two decades. During that time, “economic growth was sluggish, inequality rose, and every $1 in investment generated $1.90 in debt”.
We could shrug it all off and note that asset price inflation has been around for considerably more than 20 years, so it must be normal. Or not. McKinsey suggests we’re in dangerous territory.
“Tremors in the financial system may signal a shift in how the world borrows, lends and accrues value, with a wide range of plausible long-term scenarios.”
The only one that isn’t terrifying is where volatility abates as savings are pumped into existing assets rather than flow into productive investments. Essentially, more of the same.
Gouws and all the other exceptionally well-paid individuals across the global financial sector will win whatever happens.