Johannesburg - Executive pay has increased in South Africa notwithstanding the financial crisis and onset of the global recession, according to Computus, a forensic accounting firm.
Using a sample group of 326 listed companies and parastatal corporations, the average CEO remuneration of all the companies studied amounted to R4.76m a year in the year ended June 2009. The average basic salary of a CEO in South Africa was R2.37m.
CEO remuneration increased by 11.5% a year on average from 2006 to 2009. Astonishingly, CEOs of parastatal companies, which number Eskom and the Land Bank among them, received R5.1m on average annually of which 51% was made up by incentive remuneration.
Phillip Theunissen from Computus said that the landscape of executive remuneration had become far more "sophisticated" in recent years with the introduction of incentive schemes.
Said Theunissen: "The findings of the investigation show that performance of the individual companies is, however, by no means a determinant of CEO remuneration.
"Although slightly stronger, there is also no convincing indication that company size is a determinant of CEO remuneration."
Still, this is scant consolation for the hoi polloi. The average worker in South Africa earned R124 457 a year in the year ended June 2009, according to Statistics SA.
"In 2009, it took just about three months on average for a CEO to earn R1m while it will take the average worker eight years to earn the same amount," Computus said in its study.
CEOS who sing for their supper
There have long been question marks about how best to remunerate chief executives of listed companies, with critics asking whether salaries paid can always be justified.
As a result, companies have increasingly linked executive pay to company performance and, in some cases, executives are paid out of dividends and profit share.
Here are some examples to show how this works.
Quinton van Rooyen, MD of listed Namibian financial services firm Trustco Group Holdings, has not received any bonuses since 2008.
Instead, he is paid with an annual, once-off fee of 0.25% of the audited annual turnover of the company. In addition, he receives 0.5% of the firm's audited annual headline earnings, and 0.5% of its audited annual basic earnings.
The outcome is a financial package worth R1.6m for the year. Van Rooyen does not receive any additional salary, bonus, car scheme, medical aid or pension contributions.
"The CEO owns 55% of the company, which means he is obviously interested in increasing shareholder value," said Sean Riskowitz of asset management firm Manhattan Financial. Van Rooyen is the largest single shareholder in Trustco.
"On top of that, he gets no cash salary. Rather, it's based purely on performance, and the audited top and bottom lines. I don't think you can get more aligned than that," Riskowitz said.
Van Rooyen has overseen the dual listing on the JSE's Africa board and, according to a recent trading update, headline earnings are expected to be between 15% and 35% higher than the previous year. He has also facilitated a number of loans for the staff incentive scheme.
AltX-listed telecomms company Telemasters pays quarterly dividends to shareholders. CEO Mario Pretorious draws a salary package of about R1.5m, but remains a major shareholder with 85% of the stock. Investors have enjoyed an historic dividend yield of about 8%.
Telemasters was able to deliver return on equity (earnings expressed as a ratio of funds used to establish the company) of 63% in the previous financial year. This is quite high even for a company in its growth phase.
Telemasters' share price has been steady at 200c in the last 12 years, but this is partially a function of the limited liquidity in the stock.
Keith McLachlan, an analyst for smallcaps.co.za, said a company like Telemasters was facing increasing competition from other sector participants and alternative technologies, which might put its growth rate under pressure.
Of the larger, more liquid stocks, media group Naspers CEO Koos Bekker does not draw a salary, but has his performance linked to a series of share options.
Bekker has an indirect shareholding of 4.7 million Naspers "N" shares which are listed on the JSE. These options are staggered over multiple years.
It can be argued that Bekker, who not so long ago took a one-year sabattical to review media companies around the world, is independently wealthy and, unlike CEOs of smaller companies, is not dependent on a salary. However, in the course of positioning Naspers as a global media company, he has produced the goods for shareholders.
Naspers shares have gained 70% since 2007 as the firm embarked on rapid expansion in developing world locations. Trustco, which listed in November 2009, has slid from 60c to around 40c a share losing 30%; Telemasters has dropped 42%.
Mark Bussin, executive chairperson at 21st Century Pay Solutions Group, recently commented in a paper on executive remuneration: "Advocates of pay for performance systems argue that good systems motivate employees towards achievements that support corporate goals and strategies.
"The reality is that incentive schemes differentiate high performing employees from low performing ones."
- Fin24.com