CEO pay increases higher vs inflation

It seems performance variable pay is seen as a given.

It seems performance variable pay is almost seen as a given.

Increases in the guaranteed pay of CEOs at the largest 100 JSE-listed companies have exceeded inflation by a considerable margin over the past five years on a compound annual growth rate basis.

There also appears to be little correlation between CEO guaranteed pay and the size and complexity of the organisation, particularly among firms with a market cap of between R5 billion and R50 billion.

These are some of the key trends highlighted in Deloitte’s Inaugural Executive Compensation Report. The report provides an analysis of six years’ worth of executive remuneration and company performance data and an assessment of the companies’ remuneration reports.

“Advisory votes on remuneration reports in the past may have seldom fallen below 50%, but the level of overall acceptance has certainly diminished, with many commentators and institutional shareholders vocal in their criticism, and votes in favour often sailing close to a 75% level,” the report notes.

The report comes in the wake of the King IV Report on Corporate Governance. King IV’s effective for financial years starting on or after April 1 2017 and raises the bar for implementation and disclosure of executive pay practices.

Leslie Yuill, Deloitte Consulting’s actuarial, reward and advanced analytics practice head, says King IV recommends remuneration be fair, responsible and transparent. In considering fairness, one has to consider the increases executives receive in relation to that of the workforce.

Some commentators contend executive pay increases should be in line with those of the general workforce (market-related), where guaranteed pay hikes are broadly expected to be in line with inflation.

Cash incentives

According to the report, annual cash incentives paid to the CEO and CFO over the period were “considerable in relation to guaranteed pay, but with little indication of the performance linkages”. With CEOs, Deloitte only identified 15% of instances where an incentive wasn’t paid over the past six years.

Nick Icely, Deloitte associate consultant for executive compensation, says it seems performance variable pay is almost seen as a given – executives generally receive a bonus as long as they haven’t severely underperformed during the year, but only receive an exceptional bonus if they’ve fully achieved their targets.

Shareholder and company value

With SA’s skewed income distribution and inequality, certain commentators have called for a workforce pay metric to be taken into account when benchmarking executive pay. Yuill says remuneration and social and ethics committees must take a view on remuneration that’s fair, reasonable, defensible and justifiable when evaluating median worker pa.,