Opinionista Johann Redelinghuys 14 October 2013

Uncomfortable questions about Sasol’s hired gun

The Remuneration Committee of the Sasol Board defends this year’s increase in the annual compensation of the CEO, David Constable, of 68% - to R53.7 million - as bringing him in line with CEOs in other comparable international companies. Workers in the lower ranks of Sasol are getting increases in the same period of around 7.7%, however.

There is nothing wrong, on the face of it, with ensuring that a CEO recruited internationally and swimming with the big fish in the world pool of top international CEOs is treated appropriately. We know what we are in for when we go outside and what has to be paid to attract a big player to a job here. It is just that the number, 68%, seems so overwhelming in these constrained times that one wonders if the board could not have managed it differently.

The international market for leadership talent, as has been said before, works by supply and demand, just like any other market. For the rare skills needed to take on a business like Sasol there is no doubt that a special breed of executive is needed, and they don’t fall out of the trees.

But seeing this CEO’s numbers in the cold light of day and how they are made up causes some reflection. The basic salary of R12.1 million is high, but in the greater scheme of things, not beyond expectations. It is the R18 million sign-on bonus, just to take the job that sticks in the craw, and then the additional R22 million for “annual incentives” that one wonders about.

While it is standard practice for an overseas recruitment to pay for housing, relocation, travel etc., in this case the numbers do seem to be a little extravagant even for a CEO; R519,029 for relocation costs, and annually R597,230 for school fees, R1.4 million for accommodation and R561,852 for flights back to the USA. In total his benefits alone for the year 2013 amount to R19 million.

At the results presentation for the same year under review the CFO Christine Ramon says Sasol has concluded wage agreements with the unions representing most of the more than 35,000 employees for increases between 7.5% and 7.9%. The percentage increases are so precise and so different from the CEO’s numbers that one feels a sense of disquiet. Digesting it all makes one wonder how it can be fair.

The wage gap and the vast difference between the top and bottom ends of corporate hierarchies are subjects that are getting loud and rippling attention these days. Now that chief executive compensation has been forced out of the closet and sits naked in the annual report for all the world to see, there is no place to hide. The workers who are down in the lower reaches of the business know exactly what their bosses are getting.

An argument that they might wish to use is: if the boss has to be brought in line with other international companies, why are the workers, who are working in the same company after all, not also brought into “international alignment”? No matter where one is recruited.

It should be noted that Sasol and its CEO are not out of line in terms of Mr Constable’s basic salary. It is R12.1 million per annum, compared for example to the guaranteed basic compensation of Marius Kloppers when he left BHP Billiton – R31 million – and Cynthia Carroll just before she left Anglo American – R24 million. Mark Cutifani at Anglo is now on R16 million. The numbers when bonuses and shares are added are much bigger. Whitey Basson, chief executive of Shoprite, has a guaranteed R40 million per annum.

It is the trimmings around the main dish of the compensation package that make one sit up and take notice.

In the case of the Sasol CEO, there are also other factors. It’s a pity in a way that Sasol, which started as a quintessentially South African success story, but now playing very well on the international stage, had to go outside the company and outside  the country to find a CEO. And that with the Government Employees Pension Fund, a major shareholder, managed by the PIC, looking on. It also seems disappointing that Mr Constable has, with a somewhat tentative commitment, made it quite clear that this is a fixed-term contract for him and that he will be returning to the US when it is done. In the meantime he will presumably make hay while the sun shines, living off an extremely generous bunch of benefits which we must assume he personally negotiated – and now having instigated a 68% pay increase.

Do the stakeholders and the 35,000 employees have any sense of things being out of balance? South Africa has a patchy history of bringing international CEOs in, often as turn-around artists. Some have adapted and done well. Navid Kneale at Clicks and Steve Ross at Edgars come to mind. Others who have been less successful have at times been accused of not understanding the South African culture or our values. It is what was said about Cynthia Carroll, and if we want to go that far back, remember Coleman Andrews? Is there any sense that the CEO of Sasol with a let-them-eat-cake attitude might be out of touch with where South Africa and its people are right now?

Not everyone has the appetite of a Koos Bekker, who has become a billionaire by refusing to take a salary and only depending on the profits of Naspers. And we would in no way expect Mr Constable to do the same, but something with a better appreciation of timing and perhaps a little less greedy at this time would have played well.

Accountants say that when examining a balance sheet, they develop a sixth sense that tells them when something is wrong and the numbers don’t stack up. Things just don’t feel right. Is there some of that here? DM


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