Remuneration committees in SA continue to struggle with the right balance

Companies in South Africa continue to struggle with finding the balance between CEO remuneration and the ley performance indicators (KPI) that form the basis for pay levels, according to a new report from global professional services firm PwC. The report details various trends at the executive level. 

Executive pay is a long-standing debate in the South African market, with a number of critics highlighting the juxtaposition between exhorbitant salaries on the one hand and rampant unemployment on the other. To ease the debate, analysts have sought to examine the basis for the high levels of executive pay in the country.

A number of companies have remuneration committees that exist with the objective of finding the balance between the expectations from CEOs and their compensation levels. These committees are under growing pressure, with some being asked to devise backup plans to retrieve lost funds on CEO compensation.

In essence, remuneration committees are seeking what PwC describes as “a ‘winning formula’ that creates value for the company, shareholders and participants alike. PwC has examined the performance indicators based on which compensation levels are set, to help gauge the priorities across the market. 

Some of these indicators reveal other disturbing realities that go beyond high executive pay. PwC finds that a number of companies listed on the Johannesburg Stock Exchange (JSE) don not position environmental, social and governance (ESG) issues anywhere in their KPIs, while those that exist are scarcely actionable.

One prime example of the lack of consideration for ESG indicators is the fact that less than 4% of the CEOs on JSE listed firms are women. The women that are at the executive level, meanwhile, receive far smaller compensation packages than their male counterparts, a scenario that has persisted in South Africa and around the world.

Research has shown that women in South Africa face a glass ceiling when it comes to a corporate career, and face additional discrimination if they break through it. According to PwC, the overall perceptions surrounding gender and – more broadly – diversity issues contribute to the poor progress in this regard. 

The firm reports that most companies still see a diverse executive pool as a tool for appeasing the public, despite that fact that diversity has been demonstrated to be the key to a relevant and competitive business in the near future. This shift in perception is yet to come amongst South African businesses.

Nevertheless, the firm has also found some promising signs through its analysis. For instance, PwC found that a number of the JSE top 40 firms have introduced what is termed as a ‘living wage,’ wherein the basic essentials are taken care of within compensation packages.

However, at the top level, compensation packages only appear to be getting higher. According to the report, where the median CEO base pay and stated benefits across all sectors stood at just under $1.2 million last year, it has increased to nearly $1.3 million for this year.

“What is clear is that a CEO’s remuneration package cannot be determined by the “Board in isolation; there are myriad factors that must be considered, including the nature of the incentive payments made
to him or her, the performance conditions applicable to their short-
and long-term incentives, how an unjustifiable pay package which is divorced from the concept of pay for performance can compromise the company’s approach to fair and responsible remuneration, and whether they are doing enough to create an inclusive culture in their businesses that effectively embraces women and people from diverse backgrounds,” concludes the report.