Ray Harraway, who leads the forum and is also a director at Ernest & Young, points out that there are updated remuneration guidelines for remuneration committees in the King III practice notes. (The Practice Notes were commissioned by the King Committee on Corporate Governance to assist with the insight into and practical application of King III).
Harraway said: "Too often, companies tend to lapse into conformity around pay issues too quickly.
"This is a complex issue and remuneration committees have to use common sense, innovation and a long-term view to come up with the right solution for their company.
"An unintended consequence of the move towards transparency is that the nuances of each company's position tend to get lost as companies' pay rates are compared as though everything else is equal. This is simply not the case."
He cites the attempt in Europe to cap bonuses as a percentage of annual salary as a move that is likely to have adverse consequences-one of which will be a tendency for annual salaries to rise.
The same point could be made of the current trend to adopt a "pay ratio" (the measure of the gap between top and bottom wage-earners in a company) as a way to understand the disparity.
Stakeholders
In this instance, Harraway says, the trick will be to resist the temptation to compare company with company, no matter how tempting.
Each company has its own distinct strategies, business and talent management models and organisational structures, which in turn will determine its unique remuneration models.
Another unintended consequence of transparency has been to raise executive pay, as executives demand parity with their peers in other companies - a trend that is spreading to wage-earners now. Again, this approach ignores the substantial differences between companies and their strategies.
"The main point is surely that pay, variable pay in particular, must be aligned with the company's performance," said Harraway.
"What's problematic is that companies and their broader stakeholders seldom have a clear, shared understanding of what they mean by performance and thus what the key performance indicators should be."
The setting of key performance indicators, always complex, has become more so with the advent of integrated reporting.
Companies and their remuneration committees thus need to give serious and sustained thought to how to strike a balance between the two poles of near-term financial gain and long-term sustainability. (It should never be forgotten, however, that sustainability also includes the company's financial viability over the long term.)
One of the delicate balances they must strike is between the need to give top executives incentives (they are desperately needed to navigate the rapids of an extremely challenging global economy) and the need to support labour stability.
Harraway believes that it is a good sign that some executives are beginning to voluntarily forfeit their bonuses in solidarity with their employees and calls for remuneration committees to take the lead in this area.
Read more on: popcru | police | pretoria
Read more on: ancyl | walter sisulu university | east london | education | strikes