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There’s nothing wrong with MTN CEO Rob Shuter’s eye...

Defend Truth


There’s nothing wrong with MTN CEO Rob Shuter’s eye-watering salary

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets.

The release of the MTN Group’s integrated report for 2018 was overshadowed last week by the news that its directors were richly compensated, led by president and CEO Rob Shuter, who received R42.9-million in remuneration. Contrary to the popular narrative, however, such executive pay is perfectly justified.

Intuitively, a world in which income is more equally distributed sounds attractive, especially if, like me, you’re pretty low on the income scale. Intuitively, however, a lot of things seem true that are not so.

It is hard to comprehend the lavish salaries enjoyed by senior executives. It sometimes seems like they’re earning stupid money for doing not all that much more than anyone else who puts in an honest day’s work. This view is sorely mistaken, however.

When the MTN Group released its integrated annual report for 2018 last week, several media houses led with the sensational news that the group’s executives and prescribed officers were very well paid.

MTN boss gets R42-million payday,” blared MyBroadband, referring to Rob Shuter, who turns 52 in 2019 and is leading the group out of tough times since he took up his post in March 2017.

MTN bosses rake in rich rewards,” wrote TechCentral’s Duncan McLeod, even though as a member of the recently launched Capitalist Party of South Africa, executive pay probably does not alarm him at all.

MTN’s top brass cashes in millions,” echoed ITWeb the next day.

Each article reported the salaries and bonuses of the MTN Group’s top people, seven of whom (including Shuter) earned more than R20-million.

Two days after its first story, MyBroadband piled on again, with an article headlined: “How long it takes the average South African to earn Rob Shuter’s salary?”

In it, the unnamed author admits:

While many South Africans may complain about the high salaries of these executives, the responsibilities they hold and the targets put before them are exponentially more strenuous than a normal 9-to-5 job.”

Yet they proceed with the “interesting exercise”, and conclude that earning a salary of R255,000 a year, it would take the average South African 168 years to earn what Shuter did in one year.

Let’s do some other comparisons, though. Shuter’s pay cheque would keep the South African government running for a mere 12 minutes. Shuter would need to work 42,657 years to earn as much as the government spends in a single year.

His pay is 0.03% of the MTN Group’s revenue, 0.45% of its after-tax profits, and 0.18% of the group’s total tax contribution. It is 18 cents for every subscriber MTN has, and it is about R2-million for every country in which MTN operates in Africa and the Middle East.

Shuter certainly delivered the goods for MTN. According to McLeod, its prospects are looking up, as it reported a great set of financials in March. The group is profitable and growing.

In the company’s remuneration report (p. 69ff.), it notes that 93.8% of shareholders voted in favour of its remuneration policy, and more than two-thirds approved of the implementation of that policy. It published a detailed list of concerns that were raised about remuneration and how the company responded or intended to respond to those concerns. In general, however, shareholders appear to be quite happy with the pay packets handed to the company’s senior officers and other staff.

That policy, says Shuter, could earn up to 400% over his base salary of R15.3-million, of which 200% is based on short-term performance incentives and another 200% on long-term incentives. That means his total pay package could have been almost twice as much as he actually earned. As it was, he earned R25.3-million in bonuses, which, with benefits, amounts to a total package of R42.9-million.

Performance bonuses are not restricted to top executives, of course. They are available to all employees. The average employee at the MTN Group cost the company more than R500,000 a year in 2018, or R42,000 a month. That is twice what the average South African earns, but still, Shuter earns 85 times more.

Yet if Shuter’s pay was equally distributed among the MTN Group’s employees — assuming his share options were realisable for cash — everyone would take home an extra R189 a month, or R104 after tax. If it was equally distributed among all South Africans, everyone would receive 75 cents. Once.

But we wouldn’t have MTN if you did that. If MTN’s employees begrudged their CEO his pay, they wouldn’t be motivated to deliver the performance for which bonuses are awarded.

Without a successful CEO to guide corporate strategy, take the big risks, and make the hard decisions, MTN wouldn’t be growing and profitable for investors, who otherwise would withdraw their capital and move it somewhere more productive.

Consumers wouldn’t have a company that is able to sell a smart feature phone for R249. They wouldn’t have a company that can use its mobile reach to provide the unbanked with financial services. They wouldn’t have an employer that could pay its employees again next year. They wouldn’t have a halfway decent competitor to keep Vodacom in line.

Executives are paid what they are worth. Hiring an executive is no different from any other economic transaction. To do so, you need to outbid rivals who also want that executive’s services. Price is a function of scarcity.

There are very few people who have the education, experience, character and drive to run a large organisation, and even fewer who can do so successfully. Such people take extraordinary personal risks, including being legally liable for a wide range of things that can go wrong. They usually work longer hours than anyone else in the company. They rarely, if ever, get time off. The median tenure of a CEO of a large company is five years and declining, although they admittedly have a way to go before becoming as disposable as football managers, who on average spend only a little more than a year in the job.

People who are able and prepared to do such jobs are in short supply and, therefore, highly in demand, not only within their own country, but globally.

MTN has to match what Shuter could earn elsewhere, locally or abroad, or make do with someone who cannot demand as much pay. Shuter has extensive experience in both banking and telecoms, so the pool of potential rivals for his services is large. If MTN had been able to find someone of Shuter’s calibre for a lower price, they would surely have jumped at the opportunity.

The pay of executives works just like the pay for any other employee. What you can ask depends on your skills, your experience, your past performance, and your responsibility. If a company is not prepared to pay as much as its rivals are, you will likely decamp for said rivals without undue delay. The more common your skills and experience are, the less you can demand, and the rarer they are, the more a company will have to offer to recruit you.

What Shuter gets paid is a simple matter of economics. As soon as he falters, and fails to deliver on the performance targets set for him, you can be sure he’ll be gone faster than you can say “executive search”. As long as he produces the goods, he has earned the pay to which the shareholder-approved remuneration policy entitles him. It works no different from anyone else’s job.

The average MTN employee probably can’t conceive what it’s like to earn R42.9-million in a year. But then, there are millions of South Africans who can’t conceive what it’s like to earn the average MTN employee’s salary of R500,000 a year. Or even what it’s like to earn the average South African salary of R255,000. That doesn’t mean those salaries are not deserved.

In fact, those who earn more than you actually make all of us richer, by helping to build an economy that can employ more people as it grows, and by providing services that otherwise would have cost more, or would not have been provided at all.

Rob Shuter’s pay may make the rest of us jealous, but there’s nothing wrong with it. DM


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