Bosses' bonuses grow even when shares tank

Analyst asks why CEOs are given extra rewards for merely doing the job they were hired to do

The issue of executive bonuses has been highlighted again by the enormous payouts being made at Richemont: three of its directors are in the top 20 of the biggest bonuses of 2015-16.

Former Richemont joint CEOs Bernard Fornas and Richard Lepeu received R43.5-million and R34.9-million in bonuses respectively.

They were followed by the company's financial officer, Gary Saage, who gotR33.7-million, and executive director Frederick Mostert, who received R14.2-million.

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This despite the fact that Richemont's share price shed about 16.3% on the JSE from December 1 2015 to November 30 2016. The company reported a 13% decrease in sales in the six months to September 2016.

According to the interim results, the decrease was caused by a "weak demand for watches in general, as well as historically high comparatives and the impact of exceptional inventory buy-backs".

However, the biggest individual bonus received in the 2015directors' remuneration list went to Hendrik du Toit, CEO of Investec Asset Management, who received a staggering R78-million performance bonus - much higher than group CEO Stephen Koseff's bonus of R8.9-million.

Nolwandle Mthombeni, an analyst at Mergence Investment Managers, said many of the dual-listed executives in the UK and South Africa were paid in pounds, so when converting the currency in rand terms, the bonus appeared huge. Investec's share price has fallen by 25.6% this year, largely affected by the drop in the value of the pound after the Brexit vote.

Du Toit was also paid more than Koseff last year, which Investec said previously was due to the different regulations the holding company and its subsidiary were subjected to, depending on where they operate.

However, Mthombeni said, when it came to the R18.7-million bonus paid to Old Mutual CEO Bruce Hemphill, some shareholders were upset.

"He has been getting a lot of negative feedback in terms of the bonus he will be getting just for managing the separation of Old Mutual. He is incentivised to get it done and motivated and it's actually quite costly for shareholders and the entire business," Mthombeni said.

Hemphill was appointed in November last year after former CEO Julian Roberts resigned - and left with a R22.7-million bonus. Hemphill's sole task is to manage the unbundling of the company.

When investors began objecting to Hemphill's bonus, Old Mutual told shareholders the CEO's salary in 2016 was part of an incentive plan during the breaking-up of the company. The maximum payout will depend on achieving performance targets measured at the completion of the process.

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Another contentious bonus was the R23.5-million paid to Sasol's former CEO, David Constable, who left the company in June. Although many analysts acknowledged that Constable had done a good job restructuring the business, they said he had left amid issues with one of the biggest projects the group had undertaken - to build a plant in the US to produce ethylene. Unforeseen additional costs added $2.1-billion to the $8.9-billion project.

Makwe Masilela, a portfolio manager at stockbroker BP Bernstein, said executives unfortunately received bonuses long before the company strategy paid off. But bonuses were sometimes not based on the performance of the individual or the company, which angered investors and observers.

He said companies set targets for executives, who only deserved to receive bonuses if they exceeded their objectives - not if they simply met them. "What happens when the person does not reach the target?" he said.

Another big bonus was paid to Anglo American group CEO Mark Cutifani, who received R19-million as he cut tens of thousands of jobs. The company's share price tripled this year on the back of high commodity prices. Some may see Cutifani's bonus as justifiable because the company was flailing before his appointment as CEO.

Masilela said he was not opposed to incentives for a job well done, but companies needed to ask themselves: "Where do we draw the line? Is this enough, or is this too much?"

For example, Kevin Hedderwick, who retired as CEO of Famous Brands in February, received a R2.8-million bonus - even though the company delivered exceptional performance. Famous Brands has outperformed the JSE All Share index, with its share price rising 62% in the past two years.

De Wet Schutte, an analyst at Avior Capital Markets, said Hedderwick's bonus did not seem large. "With share options, when the share goes up your options become increasingly valuable."

mtonganal@sundaytimes.co.za

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