Gross earnings

SA corporate fat cats’ pockets are getting heavier, despite a worldwide crackdown by regulators and governments on high bonuses and pay hikes.

Over the past 12 months, while SA was crawling out of a recession, executive directors of JSE and AltX-listed companies enjoyed increases of up to 7% on their total annual remuneration (base pay, benefits and bonus).

Though lower than the average 23% increase in 2008, it is substantial compared with their UK peers at FTSE-100 companies whose base salary increases were limited to 1% in 2009 and bonuses were zero.

Average performance bonuses paid by large JSE-listed companies fell from R2,9m to R2,4m in 2009, but midcap firms across sectors rewarded their executives with increases despite falling share prices and mass retrenchments.

These executive pay packages are contained in a comprehensive PricewaterhouseCoopers (PwC) report released this week. “SA has not experienced the pay freezes imposed elsewhere in the world, particularly in the UK,” says Gerald Seegers, author of the report.

In a country such as SA, where the world’s worst economic inequality is compounded by the wide income gap between people of different races, the executive pay gap is a serious and controversial issue.

The spate of recent strikes, settlements and golden handshakes is as telling as the statistics. SA has the widest income gap between rich and poor, according to various studies.

The pay multiple between the CEO of a medium to large company or SOE and a minimum-wage employee averages 57.

The PwC report shows executive directors of large-cap companies earn on average R10m/year (R4m/year guaranteed package, R2m performance bonus and R4m in share plan benefits). In contrast, SA’s lowest-paid workers earn around R3500/ month or R42000/year. This equates to a pay gap of 250-300 times.

Over the past 20 years, there has been a growing global chorus from shareholders, business media, policy makers and academics, criticising how much top managers are paid.

In SA, unions, and more recently finance Minister Pravin Gordhan, have lashed out against the inequalities in pay packages. “Extreme earning disparities cause offence, not just when associated with profiteering of financial malfeasance, but also when the reward for honest work seems disproportionate or weakly aligned with incentives,” Gordhan said.

He called for new parameters to be established to “moderate high-earning remuneration levels” within large corporations. “The social dimensions of earnings trends surely cannot be ignored in the economic calculus of risk and reward . We are creating a dangerous culture in SA.”

“Some of the less-desirable remuneration practices of US and UK banks of huge annual cash bonuses disproportionate to base salary have not been seen in SA,” says Seegers. For example, Goldman Sachs CEO Lloyd Blankfein stands to collect a US$100m bonus this year.
It is exorbitant bonuses like these that regulators are opposed to.

The SA Reserve Bank has not followed the route of the UK regulator, the Financial Services Authority, in imposing a code of practice governing executive remuneration, but that could change soon. A report by the local regulator, the Financial Services Board (FSB), into the progress made by G20 countries in implementing its principles and standards, suggests further global action is expected on executive remuneration .
The Reserve Bank has sent out questionnaires to SA banks to assess the extent of compliance with FSB standards, suggesting it could impose rules governing executive pay in line with global trends.

SA’s corporate honchos have not caught up with their peers in the UK and US who earn “over- the-top” packages, says Martin Westcott, MD of P-E Corporate Services. In the UK, CEOs tend to secure packages of about R500m. SA closely follows UK trends in executive remuneration .

The report also reveals that companies that experienced big falls in share price have, in response to shareholder pressure, scaled back reward levels between 20% and 40%.

About 50% of CEOs surveyed believe either their pay will not change, or it will decrease in the short term. In the long term, however, about 75% of companies are optimistic that CEO pay will increase over the next five years as earnings and the global economy recover.

This is an extract of a larger story from the Financial Mail. For the full story, click here.

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