Corporate SA could soon have the “most onerous law” on public company remuneration in the world, according to Vodacom and other written submissions on the Companies Amendment Bill.
The bill, before the parliamentary portfolio committee on trade, industry & competition, suggests multiple changes to the Companies Act and tries to give shareholders more influence over how much listed companies pay their top executives.
Currently, votes by shareholders on how much CEOs earn in SA are advisory, with little consequence. They are also advisory in the UK and US.
The Companies Act allows shareholders two votes on executive pay and when one or both votes does not get the required 75%, companies must meet dissenting voters. In many cases, firms struggle to identify who the unhappy shareholders are as they do not come forward, rendering the opposition meaningless.
The new bill proposes giving shareholders a binding vote on pay, meaning that if more than 50% do not agree to executive CEO and a CFO and non-executive remuneration they will not be paid these amounts.
Quite how this would work in practice is not clear as shareholders vote on pay once a year, after it has happened.
As Ansie Ramalho, chair of the King Committee, told parliament on Tuesday: “It is ineffective to unscramble the remuneration egg. It is a fait accompli when it gets to voting [on pay].”
But the need for consequences for failed votes is perhaps clear when in many cases they fail year after year. For five consecutive years, TFG, owner of Foschini, Markham and @home, has seen one or both votes on CEO and CFO pay fail.
The new draft law proposes that if a single vote does not get more than 50%, the remuneration committee must step down immediately. The committee will remain on the board as non-executive directors but will have no more say on pay.
Criticism on this proposal was unanimous.
“Nowhere in the world does this happen,” the JSE said in its written submission before it appeared before parliament to voice the same concerns.
Even firms that supported other measures in the new bill have criticised the severe consequences for directors who decide on remuneration when a single vote fails to garner a majority.
Mr Price, Coronation Asset Managers, Sasol, Vodacom and Old Mutual were among those who criticised it. Stepping down should only be considered “in situations where there are consistent and repeated failed votes”, Old Mutual said.
Ramalho and the JSE’s director of issuer regulation, Andre Visser, said booting out the remuneration committee after one failed vote would mean it would be hard to attract anyone to stand on such a committee. It would also lead to company leadership instability.
“It needs to be pointed out, as was done by the JSE, that executive remuneration is a specialist area of discipline. It’s a scarce skill.”
Speaking for the King Commitee, she said “the second reason why we don’t believe that these consequences will actually achieve the aim of the bill is because it will have a negative impact on the reputation of SA as an investor-friendly country”.
Vodacom said in writing that “in aggregate, the amendments if implemented as proposed in the draft bill go too far in propelling SA to the most onerous remuneration governance regime in the world”.
PSG, a financial services group, was also opposed to the measure and said so in writing.
“Preserving the calibre of directors serving on SA boards remains a paramount concern. We believe the provision declaring all remuneration committee members ineligible to serve for three years after a single failed vote is unduly adversarial towards directors.”
Law firm Bowmans said “shareholders wishing to express discontent would instead be forced to vote in favour of a remuneration report for fear of loss of a good nonexecutive director and fears there would not be a capable replacement”.
This would undermine the purpose of the vote on pay in the bill.
In Australia, the two-strike rule means directors are kicked off the committee after two failed votes, something the JSE was more in favour of.
What the JSE has also proposed to parliament is that the Companies Act be changed to force those who vote against pay to disclose themselves so they can meet the company to discuss their dissent.
The current law requires unhappy shareholders and firms to meet or engage over email, but in many cases the firms cannot find out who voted against pay and why.
Listed private schooling group Curro earlier this year put out a statement saying it had failed to track down anyone who had voted against its pay policy and thus could not hold the required engagement.
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