Corporate Governance Climbs The Boardroom Agenda

Corporate Governance Climbs The Boardroom Agenda

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With corporate governance climbing up the boardroom agenda, companies are expected to increasingly be scrutinised and challenged when they pay executive directors. So finds the PwC’s third edition of the Executive directors’ remuneration – practices and trends report, 2011.

“Directors’ remuneration has constantly made headlines, as remuneration paid to employees differs quite largely to that of the executive directors of a company,” says Gerald Seegers, the human resources services director of PwC Southern Africa. “Now that corporate governance, King III and more recently the introduction of the new Companies Act have infused boardrooms across South Africa, executive remuneration has not been spared,” he adds.

Remuneration levels seen in the market depend on both the industry that company operates in and the size of the company itself. For example, a majority of mid to large-cap companies listed on the JSE have seen increases in both short-term incentives and the total guaranteed packages, while small-cap companies paint a different picture.

“In some industries, some small-cap companies may have experienced remuneration growth levels while others saw declines, which collectively have led to a decrease at the median level in both total guaranteed packages and short-term incentives, falling 6,7% and 29,5% respectively. However, large-cap companies total guaranteed packages increased 23,3% at the median level, while short-term incentives was 57,5% higher,” adds Seegers.

In South Africa, the executive pay gap has been quoted as being 300 times more than another employee. Seegers cites data provided by REMchannelR database for the national all industries sector shows, which compares the highest level for base salary and total guaranteed package at each quartile with the lowest level at that quartile: “It shows that the lower quartile  total guaranteed package was at 95,11 times compared to the upper quartile total guaranteed package of 153,41 times.”

Seegers adds that there is increasing pressure on companies to disclose the executive pay gap because there is a widening chasm between South African low minimum wage levels and executive director remuneration. This shows that employers may not be addressing market concerns over equitable remuneration.

However, he cautions that it’s not about closing the gap once it’s disclosed, but rather understanding what the gap is to rather focus on job creation and poverty alleviation. “The focus needs to be on paying employees fairly: top management needs the recognition to attract the best skills at top level, and at the bottom employees need to be given a fair wage for the job they have performed.” With a call for change by corporate governance policies and regulation implemented following the global financial crisis, a number of South African companies have embraced the latest King Codes of Corporate governance.

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