(Pay)day of reckoning awaits executives

IN what may be a desperate bid to look as though they’re taking their responsibilities seriously, fund managers are voting against remuneration policies put to shareholders at AGMs.

It is common for 25% of shareholders to vote against a company’s remuneration policy, and increasingly as many as 35% do.

In an environment where most resolutions receive over 90% support, this is remarkable.

Unfortunately, given that nothing other than potential embarrassment hangs on the remuneration policy vote — it is an advisory vote — it’s impossible to know whether shareholders or fund managers actually hope to achieve anything.

What is known, however, is that year after year many companies resubmit policies that are substantially unchanged.

Ansie Ramalho, who is finalising the draft version of the King 4 code of corporate governance, has indicated that in the new code the remuneration policy vote will be changed from an advisory one.

If so, a significant vote against will carry consequences. This may or may not persuade the likes of Richemont and Investec to rein in the largesse they shower upon their executives. It probably won’t.

For the top executives of listed companies there is far too much money involved to be discouraged by threats from governance geeks.

Last year, co-CEO Bernard Fornas was paid R88-million by Richemont. His colleague, Richard Lepeu, was awarded R85-million. A big chunk of both packages — R33-million and R28-million respectively — consisted of bonuses, which gives the impression that specific performance targets were achieved and it wasn’t only because the group had a great year thanks to wealthy Chinese consumers.

At Investec, Hendrik du Toit’s package of R86-million included a bonus of a massive R78-million, on top of a basic salary of a reasonably modest R7-million.

If there are performance targets, Investec’s remuneration committee isn’t sharing them with the shareholders. Investec isn’t even sharing its remuneration policy with shareholders.

This is why the Public Investment Corporation, among others, gave the thumbs-down to the advisory vote on its remuneration policy.

The company has not disclosed its adopted remuneration policy, but rather a remuneration philosophy, according to an evidently irritated PIC. And, much more disturbing, the PIC said, “bonuses were paid yet there is no indication of how the bonuses were arrived at”.

Not unreasonably, the PIC suggests bonuses should clearly relate to performance against yearly targets consistent with long-term value for shareholders. And the targets should be financial and nonfinancial.

The lack of performance targets or of targets deemed to be sufficiently stretching was the main reason why the PIC has voted against so many remuneration policies.

The year under review is likely to be the last time for some years that we’ll see mining companies among the top payers. It is a reminder of just how random executive pay can be.

Mining executives benefited enormously from Chinese demand for commodities; that has disappeared and so will their generous packages. It’ll be some time before Anglo American’s Mark Cutifani sees R66.9-million again or a Northam Platinum boss sees R51.5-million.

But if the rand continues its slide, next year executives at dual-listed companies will inevitably record hefty increases in the rand value of their remuneration, regardless of operational performance.

If there are performance targets, Investec isn’t sharing them