New pay rules for bosses

Johannesburg - Company directors may in future have to do more to prove to shareholders that they earn their remuneration packages.

The disclosure of directors' performance targets is expected to be one of the recommendations in the new King III report on corporate management. The report will be released on January 29.

Lindie Engelbrecht, CEO of the Institute of Directors (IoD) and editor in chief of King III, says the report will focus on remuneration of executive directors because it has been questioned so much over the past couple of years.

The IoD is investigating a number of aspects relating to remuneration, including that shareholders should get the right to approve packages beforehand, says Engelbrecht. Directors' performance targets may also be disclosed, so that shareholders remain informed of how well the company is managed.

The report is also considering requiring the disclosure of the remuneration of the company's top five earners - not only the executive and non-executive directors.

Disclosure of remuneration can disuade suitable candidates for top positions, warns Daniel Malan, head: unit for corporate governance in Africa at the University of Stellenbosch Business School and a special advisor to KPMG.

Companies could lose valuable expertise.

According to a 2002 report of the International Corporate Governance Network, there is anecdotal evidence that business people refused to serve as directors because it would mean that their remuneration would be made public.

Too much disclosure could lead to sharp remuneration increases, as companies would not like to be seen as paying less than their competitors.

Directors will also demand to be paid more than their counterparts at other companies, which are not performing as well. This will force companies to increase their remuneration so that they attract the right talent, says Malan.

- Rapport