26 November 2020
Pay rules are ripe for an overhaul
This article, by Tracey Davies, was first published in the Financial Mail on 26 November 2020.
The organisers of the 2020 summit of the US National Association of Corporate Directors made an interesting decision when they invited author Anand Giridharadas, famous for his public scorching of corporate elites, to speak at the event.
Giridharadas, true to form, lambasted members of the audience for their lack of leadership on a string of issues, from the climate crisis and inequality to fake information, tax evasion and the opioid crisis.
His comments were met with predictable shock, but the association’s CEO stood by the decision to invite him, saying it is essential for members to be exposed to contrasting views on crucial issues.
I was reminded of this last week, as I sat through Sasol’s gruelling four-hour AGM.
Giridharadas is also, unsurprisingly, a critic of excessive executive pay, arguing that the widening wealth gap it represents is a threat to democracy.
Many of the questions asked by shareholders at the AGM were about the remuneration paid to Sasol’s executive and nonexecutive directors.
The company has faced sustained criticism for the R96m in separation packages paid to former joint CEOs Stephen Cornell and Bongani Nqwababa. In 2019, the two agreed to an “amicable mutual separation” after the board had reviewed an independent report into what went wrong at the Lake Charles Chemicals Project in the US.
At the AGM, Sasol chair Sipho Nkosi reiterated the company’s position on the payments, saying “no misconduct by the joint CEOs was identified”, but that the board had nevertheless decided the “best interests of the company were served by an expedited process of separation”.
Shareholders’ views on this were made clear at the AGM, with an extraordinary 56% voting against the remuneration implementation report.
But this doesn’t mean anything will be done about those “amicable” separation packages. Shareholder votes on executive pay are nonbinding in SA. All Sasol is required to do is invite dissenting shareholders to discuss their concerns.
Executive (and nonexecutive) remuneration at Sasol is particularly infuriating, given a 60% fall in the share price over the past year.
But Sasol is certainly not the only company at which shareholders have voiced dissatisfaction. In the past few months, Pick n Pay, Woolworths, Sanlam, RCL Foods and Shoprite have all faced criticism about executive pay.
FirstRand will no doubt experience the same at its AGM on December 2. The bank has awarded its senior managers a “Covid-19 instrument”, a three-year “retention condition in the form of an LTI [long-term incentive] with only time-based vesting and no performance condition”.
The payment has been devised because the economic effect of Covid on the bank’s performance means these executives’ 2017 LTIs — and possibly also their 2018 and 2019 LTIs — will not vest.
The instrument is designed, it seems, to prevent key senior managers from leaving the bank in a fit of pique as a result. The value of this instrument for CEO Alan Pullinger, for example, is about R19.3m. His total package for 2020 (without the instrument) is R39m.
Time for a change
There are howls of outrage on this topic every year, because it has become impossible to rationally link remuneration at listed companies to performance, or any objective measures of fairness. But in 2020, for the many Covid-related reasons it is unnecessary to repeat here, the figures are more repugnant than usual.
The impotence of the shareholders who are trying to tackle the problem and the inertia of the regulators who should be tackling it are also stark.
Our system, where management must “engage” with shareholders who vote against executive pay, appears to assume this engagement will result in companies taking the criticism on board and voluntarily improving their remuneration practices.
But Giridharadas likens corporate promises of improved behaviour to new year’s resolutions: often made, rarely kept.
In response to questions about recent pledges by US businesses to commit to “stakeholder capitalism”, he asked: “Why would we trust voluntary virtue by corporate America, when we have not changed the personnel, we have not changed the rules of the game, we haven’t changed the incentives, we haven’t changed the law?”
Shareholders must have a binding vote on executive pay. It’s not a silver bullet, but it will at least give them a fighting chance in the game.