Many South African companies still appear to be awarding their executives increases way above the rate of inflation. Max Gebhardt reports
SOUTH AFRICAN captains of industry have yet again rewarded themselves pay increases far above the rate of inflation. While calling on unions and employees to “take the pain” for the good of the economy, it appears they are unable to swallow their own advice.
The Wooltru board’s earnings rose by 54,5% for the 1995/96 financial year, including share options cashed in. According to the company, however, straight salaries rose by 10%.
Yet the retail group suffered a pretax loss of R55-million, which chairman Colin Hall blamed on strategic errors.
“We have not harmed shareholders’ wealth, nor have we borrowed money to fund mistakes,” Hall said after the release of the company’s results.
Wooltru was not available for comment as Hall had gone on leave, according to a fellow director.
Of the other big companies, Anglo American gave its executive directors a 25% raise, Anglovaal Holdings 24%, Anglovaal Industries 24%, Tiger Oats 14%, Sasol20%, South African Breweries 14%, and Pick ‘n Pay 28%. (Non- executives were excluded from the informal survey by the Mail & Guardian of the top 20 listed companies.)
Massive pay increases for senior executives are not only confined to South Africa. A recent report in Britain shows its senior executives received an average 27% pay rise, while non-executives have seen their pay boosted by 10%.
Salary increases awarded to South Africa’s top executives in the year to end-July 1996 were the highest since 1992, according to human resource consultant FSA-Contact. General workers saw their pay increase by 9,9%.
It is estimated that senior executives in South Africa receive on average more than R700 000 per annum.
However, there are the exceptions to the rule. Murray & Roberts slashed its directors’ salaries by R7-million to R3,3- million for the financial year 1995/96.
Group chief executive of Murray & Roberts Graham Hardy said the drop was the result of both a decrease in the number of directors on the board and a lower incentive remuneration – reflecting the decline in earnings after exceptional items by 8% to R375-million in the 1995/96 financial year.
McCarthy Retail also cut directors’ salaries – by 1,8% to R4-million for 1995/96.
Yet despite attempts made by the 1994 King Committee on Corporate Governance – which drew up a set of proposals on the disclosure of directors’ remuneration similar to the Cadbury Report in Britain – it is still extremely difficult to quantify senior executives’ salaries in South Africa.
The King Committee recommended that the remuneration of executive and non-executive directors be separated, with a full breakdown of their earnings in total.
A survey carried out by FSA-Contact of how remuneration of directors is tabled in companies’ annual reports, in light of the King Committee’s recommendations, discovered that 65% disclosed remuneration as a single global amount.
Only 5% said they gave a complete breakdown of total earnings of each board member, while 30% offered separate disclosure of executive and non-executive directors’ earnings as global amounts.
The salary packages are also structured so that many directors receive non-cash benefits as well as cash benefits. Added to this are performance-related incentive schemes and management share options.
According to Kris Crawford, remuneration executive at FSA-Contact, about 30% of the total remuneration received by senior management consists of non-cash fringe benefits – which don’t have to be disclosed.
Pick ‘n Pay, for instance, only lists what was paid to directors of Pick ‘n Pay Stores for services as directors and other managerial functions. The directors’ stake in the holding company is given, but there is no further breakdown of their packages.
Anglo splits executive directors’ remuneration under subheadings: fees (R469 000), benefits and other emoluments (R20- million) and performance-related bonuses (R5-million).
Mervyn King, who chaired the King Committee, said it didn’t believe there should be disclosure of individual directors’ salaries.
“We decided this for two reasons – firstly it is personal and secondly we felt there was evidence that such a disclosure could lead to acts of kidnapping and blackmail if criminal elements knew what directors were earning,” King said.
There is speculation though that disclosure of directors’ remuneration might be the subject of future legislation – either included in planned revisions to the Companies Act or as part of the Open Democracy Bill, which is still in the process of being drafted.
At the moment, Britain has the most stringent rules on disclosure compared to its counterparts across the Channel. French companies aren’t required to disclose directors’ salaries, while German companies are only required to disclose a global figure for the entire board.
Management consultants feel South Africa is slowly falling into line with international trends on disclosure. But as King pointed out, most South African shareholders are very apathetic about attending annual general meetings – where directors’ remuneration packages are discussed.
Mark Anderson of Labour Research Services, a Cape-based consulting firm, feels South Africa is still in the backwoods internationally when it comes to disclosure.
“We certainly don’t measure up to the United States or Britain on the breakdown in directors’ salaries,” he said.
Anderson believes there needs to be some measure to compare directors’ salary increases with their performance.
The Congress of South Africa Trade Unions (Cosatu) feels that the private sector is not doing enough at present regarding executive salaries disclosure.
“How do you expect a worker who is earning below the breadline to understand the salary of a director, if you don’t explain it to him?” asks a union representative.
According to Mark Durr, Johannesburg Stock Exchange (JSE) listing director, in terms of the JSE’s listing requirements, companies reporting for the financial periods after June 30 this year will have to publish a statement explaining whether they comply with the King Report on Corporate Governance.
But all this means is a simple note in the annual financial statement whether the company intends complying or not.