The weak link between executive pay and performance
Publish date: 12 July 2017
Issue Number: 195
Diary: Legalbrief Workplace
CEOs of the top 10 JSE listed companies take home an average pay of R24.6m, PricewaterhouseCoopers’ (PwC’s) ninth edition of its Executive Directors’ Remuneration and Practices report, has revealed. Fin24 reports that the report reviewed the total guaranteed package for executives paid during 2016. Globally, despite increasing calls to reform executive remuneration, the gap between executive pay and the average employee is still widening. ‘Executive pay has come under intense scrutiny around the world, with many critics arguing for more stringent regulations citing the weak link between pay and performance, and the need for more transparency in the pay determination process,’ said Gerald Seegers, head of people and organisation for PwC Africa. As a result, some countries have considered regulating executive remuneration for companies in certain sectors. One of the main findings of the report is that the average increase paid to junior workers for 2016 was 16%, compared to 5.7% for executives. However, gender inequality persists. In Africa only 5% of CEOs are women, the report said. Particularly in SA, there is only one female CEO in the top 40 JSE-listed companies. Further, the report indicated that the total guaranteed pay for women is lower than that of their male counterparts.
CEOs of large-cap basic resources companies are the highest paid among their peers, despite spectacular share price declines among stocks in this sector over the past decade. CEOs of JSE-listed large-cap basic resources companies received a median total guaranteed pay of R23m in 2016, with those in the upper quartile bagging R33.4m, Business Day reports the PwC report revealed. This contrasted with CEOs of mid-cap and small-cap basic resources companies, who received median pay of R8m and R1.7m, respectively. The difference could be explained partly by the fact that large basic resources companies were generally dual listed and so the CEOs were paid in foreign currency, said Martin Hopkins, a partner at PwC. Still, the report says, the JSE’s mining index is down more than 24% over five years and more than 43% over 10 years, reflecting poor shareholder returns amid declining commodity prices, as well as a difficult political and economic environment for local mining companies.
A recently study from Deloitte showed that investors have numerous concerns when it comes to local pay cheques that run into millions of rands for bosses, reports City Press. The survey found that executives at JSE top-100 companies earn R3m to R56m or more a year, depending on the size of the company and other factors. This pay compares with SA’s per capita income of $5 718 (R74 679) a year in 2015, according to World Bank estimates. The report says this sort of remuneration is alarming as SA is one of the most unequal societies in the world, and is dealing with high levels of poverty and a general unemployment rate of 27.7%. Investor concerns include: a general lack of disclosure; increases in total remuneration without acceptable justification; increases of base inflation; and hikes in pay amid weak performance. And when it comes to cash incentives, investors are worried about a lack of a demonstrable link between performance and bonus payouts.
JSE-listed companies are, however, growing more sensitive to their internal pay gaps, awarding junior workers much higher salary increases than senior executives in an attempt to narrow the divide, says PwC. For the 12 months to April 2017, JSE-listed firms gave junior workers an average 16% salary increase, while executives received an average 5.7% rise in pay, PwC is quoted in Business Day as saying. Inflation over the period averaged 6.6%. Executives were awarded increases below this because they came off a much higher base relative to junior workers. It was encouraging to see an improvement in the salary level of the lowest-paid workers, but there were questions over whether this would help solve unemployment, since it made entry-level jobs more expensive, said Hopkins.
Looking at salaries in general, a salary review from CareerJunction shows those working in information communication and technology (ICT) scoop the biggest pay. Fin24 reports that the June 2017 salary review considers salary information across 10 different sectors and different regions, advertised on the CareerJunction website. The ICT sector is one of the top-paying sectors, given the high demand for these professionals, the report said. The architecture and engineering sector, is also one of the highest-paying sectors in the SA job market, according to the report. This is followed by the building and construction sector, the average pay of those in intermediate positions is at R30 897. Financial professionals are among the highest earners in SA. This is particularly true for those living in Gauteng. As for medical workers, the average pay of those in intermediary positions is R25 890. The warehouse and logistics sector is one of the lowest-paying sectors. And, the report says, those in admin and office support face a lot of competition due to the oversupply of workers. Salary offerings do not reflect notable increases year-on-year, according to the report.
An online survey suggests, meanwhile, that more than one in three working individuals earning more than R5 000 a month earn an additional income over and above their normal job, reports Moneyweb. These individuals, referred to as ‘slashers’ due to the ‘slash’ between their job titles (communication manager/yoga instructor), are part of a global phenomenon where people supplement their main source of income for various reasons. American author Marci Alboher coined the term in 2007. Conducted towards the end of June among a booster sample of 943 individuals as complementary research for the annual Old Mutual Savings and Investment Monitor, the report says the survey studied the habits of working South Africans – 24% of respondents indicated that they earned additional income by doing something that was vastly different from their current job and an additional 13% said they earned more money by doing something similar to their current job. Lynette Nicholson, research manager at Old Mutual, expects the percentage of South Africans who supplement their main source of income to rise in future, although she doesn’t want to put a number to it.