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CEOs of JSE-listed firms rake in about R13m - report

Cape Town - The average increase of CEOs' total pay climbed by 11% from R7.6m in 2009 to R13.3m in 2015, a report released on Tuesday shows.

The Directors Remuneration report by Khokhela, a specialist remuneration consultancy, has been produced annually since 2009. It highlights and analyses the remuneration paid to directors of JSE-listed companies with an annual turnover of R200m or more.

READ: SA ranked the top place to be CEO … if you want to be richer than society

Data between 2014 and 2015 indicate the median percentage increase on guaranteed pay was 7%, much lower than the average increase of 11.5%.

Khokhela managing director Laurence Grubb explained the reason for this difference.

“[N]ew CEOs are being paid more than exiting CEOs who have been in the company for a number of years. We assume that this is the market at work where if the company wants a new CEO, they have to pay a premium.”

The typical target pay mix that would be used in the design of the pay structure for a CEO of a reasonably large company would be 45% for guaranteed pay, 23% as a short-term incentive and 32% as a long term incentive.

The report states that on average 74% of CEOs received short-term incentive payments over the review period and only 20% on average received long term incentive cash payments.

“The increase in long term incentives cashed in may be due to CEOs' concerns about the future of the South African economy and the JSE market,” said Grubb.

The lifespan of a CEO is typically limited in that only 51% of CEOs have a tenure longer than six years.

What CFOs get paid

Meanwhile, the lifespan of a chief financial officer is even shorter than that of a CEO, as only 41% of CFOs have tenures longer than six years.

The report noted that the ratio between the remuneration of CFOs and CEOs remains at about 62%.

The total remuneration for CFOs increased from R4.8m in 2009 to R8.3m in 2015. This is an average increase of 11% per year, in line with that of CEOs.

However, the median percentage increase on GP was 14.5%, which is much higher compared to the 7% for CEOs.

READ: Disposable salaries unlikely to beat inflation in 2016

“The reason for the higher percentage increases for the CFOs could be that the CFOs who remain in the company for a number of years are receiving increases which keep their pay aligned to that of the CEO,” said Grubb.

Khokhela said it is well known that the biggest factors affecting CEO and CFO pay is the size of the company and the type of industry. Executive pay is known to vary across industries, typically with consumer services paying the highest and the AltX and Information Technology companies lagging behind.

A look at the remuneration of execs

The report showed that generally the remuneration of executive directors follows a similar trend to that of the CEOs and CFOs, with the total remuneration of executive directors increasing from R4.6m in 2009 to R8.0m in 2015.

The median percentage increase on GP is 11.5%. The percentage of executive directors receiving the short-term incentives, other and long term incentives is fairly similar to that of the CEO and CFO.

Only 40% of executive directors remain in their positions for more than six years.

Between 2009 and 2013 there was a notable increase in fees for non-executive chairperson fees year-on-year (y/y).

Similar to non-executive chairpersons, the report found that non executive director fees have experienced a steady y/y increase.

“Khokhela has always been of the opinion that pay for non-executives should not be based on company performance but rather on the size of the company and the skills, knowledge and the value add the individual brings to the board,” said Grubb.

“We subscribe to the King principle that non executive directors should not be rewarded by being offered shares in the company,” he added.

READ: 290 years to earn what Shoprite boss got in one month

The report found that lead independent director fees however had rapid y/y fluctuations.

Before the lead independent director was recommended by King III, very few and mostly large companies would have appointed lead independent directors, but since then the number of lead independent directors has increased significantly and hence smaller sized companies - which would most certainly pay significantly less than the large companies - now also appoint lead independent director.

“King IV asks for more transparency and explanations as well as the disclosure of a single figure for directors, so companies need to be clear about what they are paying for and how much they will pay for various levels of performance," said Grubb.

"Hopefully this will continue to improve the relationship between director remuneration and company performance.”

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