Regulation is becoming the norm

ALTHOUGH South Africa’s executive pay levels are comparable to those of developed economies, local executives have to date enjoyed light-touch regulation on the matter.

The Companies Act imposes a minimal level of disclosure. This is endorsed by the JSE with listing requirements also obliging companies to obtain 75% support for a share incentive scheme.

In addition to recommendations relating to the membership of remuneration committees, the King code recommends companies hold nonbinding advisory votes on remuneration policies.

Despite the lack of engagement to date, company executives are alert to the possibility of government intrusion in part because of oft-expressed public concern, but also because there is considerable international precedent for it.

The current regulations in the US require shareholders to vote 70% in support of executive remuneration; they also require disclosure of golden parachutes that might become payable.

US regulations also provide for the clawback of bonuses, the dis-

There is considerable precedent for intervention

closure of pay ratios within the company and disclosure of use of remuneration consultants.

In Australia, the “two-strike” rule provides that if a “no” vote of 25% or more is cast against the remuneration report at two successive AGMs, the future of the directors is put into play.

Last year, a Swiss referendum gave shareholders a veto on remuneration. Severance payments and other extraordinary payments such as golden handshakes and golden parachutes as well as bonuses on takeovers will be banned.

A recent overhaul of legislation in the UK has left it with the most detailed requirements in the world on how directors are paid and how this pay is disclosed. The PwC report on executive remuneration cautions against regulatory intervention in South Africa.

“If CEO and executive pay throughout the country were slashed by regulatory or government intervention, the country would run the risk of flight of leadership talent as South African CEOs are well respected in many other international markets,” it says. — Ann Crotty