Institutional investor views on remuneration
PwC hosted a round table event in October 2018 for major South African institutional investors and governance institutions to gauge their views on the state of executive pay in the country.
While some expressed hope that remuneration governance had made significant progress over the past few years, others were dismayed at the current state of executive pay, and called for stronger remuneration committees.
The observation was made that remuneration is one of the leading areas of concern among global asset owners, and asset managers are expected to play a greater role in developments in this area.
Representatives at the round table included heads of environmental, social and governance; investment analysts and representatives of governance bodies such as the United Nations Principles for Responsible Investment.
They voiced the official views of their respective constituencies, and also shared their experiences engaging with companies on remuneration-related matters in the relatively new King IV™ era.
Specific issues discussed at the round table included:
- Engaging with shareholders
- The role of the remuneration committee
- Benchmarking executive and non-executive director pay
- Non-executive director fees
- Performance conditions.
The board agenda in 2019
The suitability of skills, experience and independence of individuals serving on boards are the areas of most concern to South African directors when it comes to general perceptions of governance, according to a recent study by the Institute of Directors Southern Africa. The study suggests they are also the areas directors have been the most negative about in recent years.
Some South African investors are not taking the situation lying down, and have gone as far as attempting to dissolve boards of companies they found problematic. Our report discusses this trend in more detail, and examines investor voting patterns around board reappointments.
In the previous edition of this report, we highlighted some of the major areas of disruption that would affect boards in 2018. In this edition we go further and examine whether, in order to adapt to a world of rapid disruption, boards should do more to incorporate millennial directors. Similarly, embracing gender and diversity in organisations also remains a pressing agenda item for all boards, and this is covered in more detail.
Diversity in the workplace
Many successful companies regard gender and ethnic diversity and inclusivity as a source of competitive advantage. Inclusive diversity is not only a matter of corporate social responsibility, but is also essential to the company’s overall growth strategy.
In previous editions, we have discussed how in the South African context, particularly given the underrepresentation of women and people of colour in the boardroom, the need to actively promote the growth of diverse leadership in the private sector is an even greater imperative. But as our analysis highlights, South African businesses are failing to close the race and gender gap in a meaningful way.
Gender and ethnic parity, not only in terms of numbers, but also in terms of remuneration, should be an area of major concern and focus for boards. Given the South African social and economic context, and the proven financial and strategic benefits of a more diverse and inclusive boardroom and (of equal importance) corporate culture, boards should set concrete goals to promote diversity throughout their organisations, and pursue them zealously.
Environmental and social governance
In the 2015 edition we introduced and discussed the need for Boards to consider the importance of the global set of goals, otherwise referred to as ‘sustainable development goals’ (SDGs), driven by the United Nations, that governments were expected to adopt. When a government signs up for the SDGs it looks to society, and business in particular, for help to achieve them.
The introduction of SDGs heralded a major change for business as governments started measuring and monitoring their progress and managing the effectiveness of their interventions. In turn, businesses need to assess their impact on the SDGs and review their strategies accordingly.
To have a meaningful purpose that takes account of SDGs, organisations need to bring economic, fiscal, societal and environmental metrics together in a way that is relevant to the organisation and its stakeholders.
Similarly, Boards also need to ensure that the relevant metrics find their way onto their executive directors’ remuneration scorecards, thereby aligning the organisation’s purpose with executive remuneration. These criteria cover a broad spectrum of often nonfinancial measures that are hidden from day-to-day accounting, but which have a direct and significant effect on the well-being and future sustainability of the organisation and the planet.
South Africa is still reeling from large-scale corporate governance failures that have occurred over the past few years. Frontline regulators have taken steps to encourage greater corporate accountability, and this has resulted in proposed amendments to the Johannesburg Stock Exchange (JSE) Listings Requirements and the Companies Act respectively.
We have also had some time to observe how the introduction of the King IV™ Code on Corporate Governance (King IV™), as well as the two-part non-binding vote on the remuneration policy and implementation report, has impacted the corporate landscape.
The report sets out a high-level summary of remuneration-related developments in South Africa and abroad.