Meet SA's R69‚000-a-day workers who STILL get inflation-beating increases

The financial squeeze has completely bypassed one group of workers: executives of the JSE’s top 100 companies.

A report by Deloitte finds “despite the increasing scrutiny ... executive guaranteed pay increases in general have well exceeded inflation” in the last five years.

Last September‚ the average executive at the top 100 companies was rubbing along on a total pay package of R17.97-million a year‚ or about R69 000 a day‚ says Deloitte’s actuarial‚ reward and analytics leader‚ Leslie Yuill.

In its inaugural executive compensation report‚ the company found that increases to CEOs’ guaranteed pay over the last five years exceeded inflation by a considerable margin; and annual cash bonuses paid to CEOs and chief financial officers were large in relation to guaranteed pay.

“Our analysis uncovered some key trends that‚ in our view‚ definitely provide vitriol to the debate (on executive pay)‚” said Yuill‚ adding that companies’ remuneration reports often “provide little or no explanation as to the cause or reason for these trends”.

He admitted that in South Africa‚ the issue had added piquancy. “The disparity in levels of top executive pay in relation to those of the lower-paid workers is a societal concern worldwide. This is particularly the case in South Africa‚ with its additional transformational needs and high levels of unemployment‚ which contribute to a powder keg of potential dissent and disharmony.”

The study found little correlation between CEOs’ guaranteed pay and the size and complexity of their organisation — particularly for companies with a market capitalisation of between R5-billion and R50-billion.

Annual incentives appeared to be “contingent on” performance rather than aimed at “driving” performance. Cases in which companies declined to pay incentives were the exception‚ rather than the rule.

“In the case of the CEO‚ we only identified 15% of instances where an incentive was not paid over the last six years‚” said Yuill. “It is almost as if executives are entitled to expect a reasonable performance bonus even when not warranted by performance.

“An executive can expect to earn at least one times and as much as three times his base salary in performance-variable pay‚ often when there is no discernible link to company performance or shareholder value.

“Through the last six years‚ collectively as a group‚ executive pay growth is broadly in line with growth in shareholder value creation‚ but has generally outstripped growth in turnover and headline earnings.”

The mining‚ construction and resources sector — where shareholder value had dropped by a third in the last six years — appeared to be the exception. Despite this‚ “the impact on executive pay has not been dramatic‚ and shareholder and company misfortune has not correlated with executive pay”.

Yuill said the implementation of the King IV report on corporate governance would engender increased of dialogue between companies and their shareholders‚ “and this in turn should have a positive impact overall both on the structure of remuneration policies and quality of disclosure in implementation policies”.

He added: “Remuneration committees will have to continue to focus both on the target-setting process to ensure targets are appropriately stretching and on the disclosure of these targets in relation to the payouts.

“The derivation of simpler‚ more shareholder-aligned and yet more societally-oriented structures will be the challenge for the future with‚ perhaps‚ the establishment of minimum shareholding as one design goal.”