With talk of instituting a wealth tax as a way of addressing inequality in South Africa, SABMiller’s top management may have reason to be feeling a bit jittery.
The proposed offer by Belgium- based brewer AB InBev to buy out SABMiller will potentially see the top managers at the target firm cash in a hefty $2.1-billion.
This is roughly 2% of the estimated value of the proposed deal and on par with all the wages and salaries the company paid out to its more than 68 000 employees for the 2014-2015 financial year.
According to research from investment research firm Sandford C Bernstein, SABMiller’s top management stand to earn $2.1-billion, with chief executive Alan Clark expected to take home in excess of $67-million thanks to his various share options and incentive schemes.
According to SABMiller, there are about 1 700 managers who own shares in the company.
Last week, SABMiller’s board agreed in principle to the proposed offer by AB InBev to buy the company at £44 a share, a premium of about 50%.
The windfall that may benefit senior leaders in the company comes at a time when other corporate heavyweights, such as Koos Bekker, have made headlines this year for record payouts. The chairperson and former chief executive of Naspers cashed in his extensive stock options in the company, raking in an estimated R20-billion. Bekker, it must be noted, did not draw a salary when he ran the media company, opting for shares instead.
The visit of popular economist Thomas Piketty to South Africa recently, and his suggestion that the country institute a wealth tax to address rampant inequality, has ignited further debate on the subject.
Research released in 2014 by Mergence Investment Managers revealed the severity of the yawning pay gap between South Africa’s richest chief executives and ordinary workers. South Africa ranked not far behind such top developed nations as the United States, Germany and the United Kingdom.
The average pay packet that a chief executive in South Africa took home was 73.1 times higher than that of their average employee and 144.6 times higher than the average wage in the country, Mergence said.
In the case of SABMiller’s Clark, he earned 169 times that of the average employee.
According to Brad Preston, portfolio manager at Mergence, the wage gap at SABMiller has increased to a ratio of about 290:1 in 2015.
“The current CEO was appointed in the 2013 financial year and so his total compensation has risen since then because performance-based rewards are generally lower in a first year of service,” Preston said.
The ratio at AB InBev appeared to be comparable to SABMiller’s, he added, but it was difficult to compare them exactly because of a difference in disclosure between the two companies on the value of long-term share incentives. The average cost per employee in 2014 was $34 900 at AB Inbev compared with $35 700 at SABMiller, he said.
Preston said that the potential payoff for the company’s top management had more to do with the share price moving higher and the revaluation of share options, and “was not an explicit payout based on the deal”.
It is common practice to give executives share options to align their interests with those of shareholders, he said. What is not common is the size of this particular deal and “the premium to the share price that the deal is proposed at”.
“These share options would have been in place prior to this deal and, [because] the company is being bought at a high share price, these options will realise a high value,” he said.
Richard Farnsworth, a spokesperson for SABMiller, said that because more than 98% of its employees are based outside the UK, with many in low-cost-of-living countries, particularly in Africa, Latin America and Asia, ratio comparisons were “not particularly useful on a global scale” for the business.
When the chief executives’ pay was compared with the average salary of a UK-based employee, however, Farnsworth said the ratio was closer to 13:1.
Clark also received a pay hike in line with UK staff, who saw their salaries rise by 3% in the 2014-2015 financial year. South African employees received a 6.5% increase to cater for the country’s higher inflation rate.
The company used UK staff as a basis of comparison between the pay earned by directors and employees because it makes sense for those employees based in the same location as the directors to take account of local living costs and average wages in that particular geography, said Farnsworth.