Bigger say on pay is only a starting point

Full marks to the Public Investment Corporation for its efforts to rein in executive pay, or to at least introduce some accountability into the never-ending donations that companies make to their executives under the guise of remuneration.

And full marks to the other investment managers, such as Element, Allan Gray and Old Mutual, who are also trying to improve the quality of reporting on this extremely controversial issue.

But here's the thing: although a few are paying some attention, most companies aren't paying any attention to their shareholders' concerns.

There are two primary reasons for this lack of response.

The first is an immutable sense of entitlement - so entrenched that most executives are impervious to any attempts to embarrass them into being reasonable.

Public disclosure has fuelled ever- higher pay awards as remuneration consultants and remuneration committees have referred to exceptional outliers to justify exceptional levels of pay for mediocre talent.

The second reason for the lack of response to the non-binding vote on remuneration, which is based on a recommendation from King III, is that absolutely nothing hangs on it.

South Africa has one of the world's flabbiest regulatory environments when it comes to the issue of executive remuneration. The non-binding advisory vote is, as one analyst noted, "nonexistent in law".

For directors, the prospect of hefty support behind a non-binding vote recalls UK politician Denis Healey's description of an attack from fellow politician Geoffrey Howe as "like being savaged by a dead sheep".

The Companies Act, which applies to listed and unlisted companies, requires shareholder approval for directors' fees - as directors - but has no approval requirement for directors acting as executives, which means it is useless as a restraint.

The JSE requires that all new share-incentive schemes must have at least 75% backing from shareholders. However, this only gives shareholders an opportunity to vote on the rules and structures of incentive schemes and not on the criteria for allocating the shares or the sums of money involved.

Regulations are much tougher in other jurisdictions - and include greater attention paid to the role of remuneration consultants.

In the UK, Netherlands, Sweden, Norway and Denmark, companies are obliged to hold a binding vote on the remuneration policy. From next January, any payments, including for loss of office, not consistent with the remuneration policy approved by shareholders will be unlawful in the UK.

In Australia, where disclosure requirements are thorough, shareholders are able to get a much better understanding of the value of share-based incentives awarded.

The say on pay in Australia is accompanied by a two-strike rule, which can force directors off the board if 25% or more shareholders vote twice against the remuneration report.

Of course, even in countries where shareholders have an effective say, executive pay continues to increase exponentially. It's very possible that if we were to grant our own institutional shareholders considerably greater powers, they would fail to restrain donations to executives.

Some - mainly executives and their remuneration consultants - argue that this merely highlights the inescapable fact that an efficient market is rewarding valuable skills that are in short supply. Others might point out that the role of shareholder is played by institutions whose interests are aligned to those of the executives they are expected to oversee.

It is unlikely that an institutional fund manager, who is paid enormously attractive sums of money to act on behalf of thousands of beneficial share owners, will vigorously challenge the payment of similar amounts of money to company executives. The more so, given that such a challenge could compromise business prospects for the fund manager.

There's also the very considerable fact that supporting a system that helps to guarantee short-term share price increases - as executive pay does - is beneficial to the short-term performance of investment managers.

So toughening regulations would be just the first of a series of necessary moves.