Eskom paid R24.4-million to its three senior executives last year, and rewarded its top brass with R62.8-million in performance bonuses since load-shedding first shut down South Africa’s gold mines in January 2008.
As businesses across the country stumble because of the effects of the electricity crisis, costs associated with power plants Medupi and Kusile continue to mount, and taxpayers are shaken by the reality that they may have to bail out the struggling power utility, Eskom’s board awarded its decision-makers with generous salaries and millions of rands in performance incentives.
Last year exiting chief executive Brian Dames took away R15.4-million. This included a termination payment of just over R5-million and three years’ worth of back pay for award performance shares and deferred bonus shares.
The payments had been put on hold, pending the outcome of an independent investigation into the remuneration policy of state-owned enterprises. In 2013 Dames took home R8.46-million.
Chief financial officer Paul O’Flaherty earned R5.89-million during the 2014 financial year. His package included back payments and a R3.27-million termination fee. The year before he took home R5.97-million.
Eskom’s current financial director, Tsholofelo Molefe, earned R3.17-million in the same year.
Although the executive directors received the greatest share of the compensation, the salaries of Eskom’s group executives – the next tier in seniority – ranged from R3.3-million to R4.8-million in 2014. The group of seven earned R28.6-million in 2014; in 2013, eight group executives earned a total of R36.6-million.
Eskom’s total payment to its senior band of employees (directors and group executives) in 2014 was R60.15-million; in 2013 it was R57.5-million.
‘In line with the market’
The power utility says the pay of senior executives goes through a transparent approval process. “As a state-owned company, Eskom … makes a recommendation on the chief executive to the shareholder minister for approval,” it said. The remuneration of all other executives is approved by the board.
Eskom says its level of remuneration is in line with the market. “International and local benchmarks are considered to ensure that executive packages are aligned with those offered by companies of similar stature to Eskom. We aim to remunerate so that we can recruit and retain the best management team to lead our business.”
Executive pay is made up of a guaranteed pay package of a fixed cash portion, medical aid and pension; short-term incentives that reward the individual on the achievement of set objectives and targets; and a long-term incentive scheme.
The latter allows shares to vest at the end of a three-year period, “only if, and to the extent that, targets are met”, according to Eskom’s 2014 Integrated Report. Targets are set in “financial and nonfinancial” areas.
They include: ensuring the business sustainability of Eskom; ensuring reliability of electricity supply to all South Africans; ensuring that the future power needs for South Africa are adequately provided for; and supporting the developmental objectives of South Africa.
Depending on how well the targets have been met, shares will vest at between 0% and 100%. If all conditions are met, the shares will vest at 50%.
For the 2014 financial year, shares vested at a rate of 53.48%, meaning that senior executives exceeded the targets in the conditions outlined. According to the report, this is “due to the achievement of nonfinancial performance conditions”.
Between 2008 and 2014, Eskom paid out R62.8-million in such performance shares to executive directors and members of the executive committee.
Eskom has defended its overall remuneration strategy as one that holds up to scrutiny at all levels. “The executive remuneration strategy is constantly reviewed to stay abreast of best practices,” it said.
“The incentives will vary depending on the individual and the organisation’s performance. The balance between fixed and variable remuneration and short- and long-term incentives is reviewed annually.”