New era for executive pay - PwC

Pretoria - A new era for executive pay and performance has begun, says PricewaterhouseCoopers (PwC) commenting in its latest report on practices and trends in the vexed area of remuneration .

Gerald Seegers, head of human resources at PwC, and the report's project leader, says companies must take note of the King III report on corporate governance.

One of the key changes with which companies have to wrestle is the need to report comprehensively on their remuneration policies and packages. Executive directors will also have to accept the publication of greater detail of their remuneration, says Seegers.

And while shareholders' votes on remuneration policies are not binding, companies can certainly not ignore them anymore. In this respect a number of FTSE 100 companies received negative publicity when their remuneration reports were voted down, including Bellway, Provident Financial, Punch Taverns and Royal Dutch Shell.

On average, voting against remuneration reports has risen from 13% in 2008 to 24% in 2009.

Ansie Ramalho from the Institute of Directors (IoD) says South African companies need to be socially responsible in how directors are remunerated, but at the same time they need to retain skilled people.

The PwC report points out that until now listed companies have had to report on directors' remuneration only at director level.

In terms of the King III report, companies will now also have to report on the remuneration of the three highest paid non-directors. Disclosure will include basic salary, bonus and share options.

Top 40 JSE-listed companies

In the report Seegers points out that there are still no trends evident with regard to such disclosure. King III has been in force only since March and many companies haven't yet begun to apply the principles contained in the report.
 
It will be interesting to see the degree to which companies start to apply these principles and their explanations for not doing so.

In South Africa growth in directors' increases has certainly slowed, but there are still a couple of examples that jump out in sectors where one would least expect them.

Seegers says it's difficult to give specific reasons for those that stand out.

It is in the JSE's mid-caps in particular, in sectors such as raw materials, financial services and the industrial sector, that directors' have been exceptionally well paid during the economic crisis.

In South Africa's financial sector the remuneration of directors in the top 40 JSE-listed companies reflects the pressure on this segment. Total compensation for these directors dropped from R11.5m to R8.7m a year.

But medium-sized companies in this sector had no qualms about increasing packages from R2.6m to R3.4m.

However, smaller companies in the sector reflected the economic reality with a 26% decline in directors' total remuneration, down to R3.4m.

- Sake24