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Big funds fight fat-cat salaries

Jul 15 2018 06:09
Lesetja Malope And Justin Brown

Four of the largest local fund managers have fought against the excessive pay of executives of JSE-listed companies through voting on remuneration resolutions at shareholder meetings and meetings with the boards of these companies.

A PwC report on executive director remuneration this week revealed the voting patterns of six of these funds when its comes to JSE-listed company remuneration policies in the period from September 1 last year to May 6 this year.

The Public Investment Corporation voted against 44.9% of such remuneration policies, Old Mutual (37%), Allan Gray (28.6%) and Coronation Fund Managers (20.9%).

On the other hand, Investec Asset Management and StanLib Asset Management were a lot more supportive of executive remuneration. They both voted against 6.5% of remuneration policy resolutions.

City Press sent questions to all six fund managers regarding voting on executive pay resolutions.

Old Mutual, Allan Gray and Coronation responded.

Robert Lewenson, a Old Mutual Investment Group section head, said that: “The key question we ask is not so much what the amount of pay is but rather whether there is a clear link between the business performance of the company and the way it remunerates its executives.”

Lewenson said Old Mutual would argue for changes to the Companies Act to provide for better rights for shareholders over executive remuneration.

“We see the next evolution in 'Say on Pay' in South Africa to provide for a binding vote [instead of the existing non-binding vote] on the remuneration policy, given the social context in ensuring fair and responsible remuneration practices as required by King IV,” he said.

The Say on Pay principle allows shareholders to have a say on remuneration packages of executives.

Performance vs. Pay

Allan Gray chief investment officer Andrew Lapping said that worldwide there has been a substantial inflation in executive pay and more JSE executives were overpaid than underpaid.

“There is often very little correlation between performance and pay,” he said.

“We have a view on how management should be incentivised, this relates to the structure of the plan more often than the quantum.

“We look for alignment and long-term, rather than short-term, incentives. What the remuneration policy uses as performance measures is important,” Lapping said.

“Disclosure is also an important factor. We recommend to our clients that they vote against if we think the structure is poor, we also recommend against if the disclosure is poor and we can’t see how decisions are made or how management is held to account,” he said.

Lapping said that Allan Gray told JSE-listed companies how they planned to vote before the vote and provided the reasons for their decision.

When Allan Gray did vote against remuneration policies, companies had become far more proactive.

The advisory vote on company remuneration at a shareholder meeting was “probably preferable but a company should be given a grace period to get their house in order”, he said.

Coronation Asset Management chief investment officer Karl Leinberger said Coronation voted against “quite a fair number of remuneration resolutions”.

There were three major reasons for voting against a remuneration policy, he said.

“When we think there are material flaws in remuneration policies that will result in outcomes that are beyond our threshold we would vote against the policy.

“Or [if] we think there is completely inadequate disclosure of the policy of how things are done. Or if we think the quantums … are unacceptable we would vote against.”

The response from remuneration committees to strong opposition votes against remuneration policies was to change the executive remuneration structure in the next financial year, Leinberger said.

“I think the biggest issue is in fact whether or not someone isn’t performing as an executive.

“A lot of people will vote against a remuneration policy because they think the executive shouldn’t be there.

“The biggest issue is whether the right person is in the job.”

Leinberger didn’t support a binding shareholder vote on executive remuneration for a number of reasons.

Salary gap

The salary gap between the executives and workers of listed companies has decreased slightly and it has very little to do with minimum-wage legislation the government has adopted, according to the PwC report.

The executive pay of the JSE top-10 companies, which account for 60% of the JSE’s market cap, averages at R24.9 million for CEOs and R15.1 million for chief financial officers; executive directors take home R8.7 million.

The Gini coefficient, which is a measure of inequality, has decreased indicating that there was a slight decrease in the pay gap between the executives and the rest of the workforce.

Speaking to City Press, Gerald Seegers, PwC head of people and organisation for Africa, said the slight decrease in the gap between executives and non-executive employees was because there had been greater increases to workers, especially those belonging to unions.

Seegers said the recent minimum-wage legislation would not have affected the report because the majority of the companies were already paying above-minimum wages to the most junior employees.

“I think the minimum wage affected more the unlisted companies and agriculture sector and the like,” he said.

“The Gini coefficient of the employed has declined slightly to 0.429 this year from 0.431 last year and decreased significantly from 0.44 in 2014 when we first measured this indicator.

“The pay ratio for a company, which is the ratio between the total remuneration of the CEO of a company and the average of the total remuneration of all other employees of the company, has increased from 61.8 last year to 64.7 this year,” Seegers said.

He said that the through malus and clawback policies, which enable companies to adjust and recover a portion of remunerations, were not compulsory for the listed companies and it would be seen as a good move for companies to adopt them voluntarily.

“I’d rather companies at the moment adopt them voluntarily but in certain regulated sectors there is some merit in making them compulsory,” he said.

Seegers said the financial services sector, the executives of which are the highest paid, is under more scrutiny than ever and the responsibility on directors’ shoulders has increased.

“The median total guaranteed package for the CEOs of large-cap companies in the financial services sector showed an above-inflationary increase of 14.9% (R8.6 million). The median total guaranteed package for the executive directors showed an increase of 15.5% (R5 million),” he said.

Union federation Cosatu spokesperson Sizwe Pamla said the report produced no surprises as the organisation had been lamenting the large pay gap for a long time.

“If we are going to have a minimum wage we should have a maximum wage. We have been saying there should be a pay cap for executives,” he said.

The SA Federation of Trade Unions (Saftu) said it was outraged at the gap and total guaranteed package as it showed the hypocrisy of the corporates.

“What is most infuriating to workers is that the people receiving these colossal amounts are the same ones who argue that companies cannot afford to pay their workers wage increases to compensate for the rise in the cost of living,” Saftu said.

Federation of Unions of SA (Fedusa) secretary-general Dennis George said the level of pay increases was one of the reasons for the ever-increasing inequality.

“Executives benchmark against international standards, while the workers are lucky to get inflation plus 1%,” George said.

Fedusa wanted union representatives to get a seat on the boards of listed companies and remuneration committees so that workers’ interests were represented, he said.

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fedusa  |  investec  |  allan gray  |  cosatu  |  stanlib  |  pic  |  pwc  |  old mutual  |  inequality  |  pay gap
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