First appeared in Daily Maverick 168
I worked hard this year. Harder than ever before. In this, I am not alone. On the whole, when the lockdown began, those lucky to be employed put their noses to the grindstone and worked their proverbials off. In particular, I take my hat off to the healthcare workers, retail assistants, those in transport and countless others who kept the South African economy on the road – rough and stony as it is.
So a recent Stock Exchange News Service (SENS) statement announcing a generous top-up to the long-term incentive plan for the top three in property company Liberty Two Degrees stopped me in my tracks. I quote: “L2D faces a situation in which the interests of shareholders and all other stakeholders need to be protected by retaining and motivating the management team.”
Michael Treherne, a partner at Vestact, put it best: “What corporate bullshit.”
Basically, he says, the company is topping up the bonus pool to compensate the executives for money lost as a result of the negative impact of Covid-19.
“So shareholders take a hit because of a global pandemic but executives get a bonus top-up to stay motivated?”
And to add insult to injury, the board noted that “the achievement of the vesting criteria for the 2018, 2019 and 2020 LTIP [long-term incentive plan] awards may be materially affected by the impact of Covid-19; however, these vesting conditions are not being modified”. Are we supposed to be grateful for that? Why should executives be sheltered from the economic risks that everyone else faces? It’s called a “long-term incentive plan” for a reason.
If I had asked DM168 editor Branko Brkic for a “motivation” bonus equal to 100% of my pay he would have shown me the door – either to the street or to have my head read. (For the record, our esteemed editor believes that to stay at the top of your game, a journalist needs to be hungry, rather than overpaid and complacent.)
TeflonTom, a Twitter user, was equally outraged by the SENS, and suggested that L2D’s management should take a walk and “ask the average man in the street how +R9-million a year would motivate them”.
Remuneration, how to balance executive performance with reward and how much is enough is a complex and contested subject, possibly more so in SA, where grave inequality threatens to rip our society apart.
Effective executive leadership is a scarce skill, one not found in many individuals, and one for which it is worth paying a premium. But how much is enough is a tricky question.
Deloitte publishes a regular salary survey based on analysis of the top 250 companies listed on the JSE. Each report builds on analysis that spans about eight years. The last report, dated November 2019, noted that in general, a “very comfortable” lifestyle which could fund private education for two to three children, a second home and an annual holiday is achievable at the level of guaranteed pay. Bear in mind that executive pay is made up of three components: guaranteed pay plus short-term incentives plus long-term incentives.
More than doubling this reward through the variable elements of performance pay should only be justified and achieved through a high level of performance. And trebling it should only be achieved through exceptional performance not often seen, Deloitte says.
So, outperformance should be handsomely rewarded, but underperformance should not be rewarded.
No one is disputing that South African management at the executive level deserve to be well paid – most are working 80 hours a week, and the responsibility for the financial performance of the companies they lead rests on their shoulders.
But is it unreasonable to expect that there should be some correlation between value, performance and pay? After all, are executives not charged with delivering both financial performance and shareholder value over time? And herein lies the rub: According to Deloitte, in general, remuneration return outstrips both company and shareholder returns.
Whether L2D falls into this category is an open question. The company listed at R12 a share in December 2016, and in February, ahead of the pandemic, was trading at R5.02. Granted, the economy was already in recession and property had been feeling the pinch, but this is a company that includes the likes of Sandton City, Eastgate Shopping Centre, Nelson Mandela Square and Melrose Arch in its A-grade property portfolio.
Of course, the board’s decision was in accordance with the Restricted Share Plan approved by shareholders in May 2020.
With some notable exceptions – the Public Investment Corporation is one – shareholders tend to vote in support of companies’ remuneration policies and implementation reports. But perhaps this is changing. Two weeks ago more than 50% of Sasol’s shareholders voted against its proposed remuneration policy. The vote is non-binding, but it shows that shareholders are becoming more discerning about the quantum that executives get paid. Rightly so. BM/DM
"Thou almost make me waver in my faith to hold opinion with Pythagoras" ~ Shakespeare, Merchant of Venice