Old Mutual and shareholder activist Just Share say the vote by shareholders on executive remuneration should be binding to help narrow the income gap in SA and reduce inequity.
Speaking at the impact investing forum on Tuesday, Old Mutual’s head of responsible investing, Jon Duncan, said it was “ludicrous” that shareholders’ vote on pay policies was non-binding in SA, and challenged asset managers to collectively change this.
In SA, votes by shareholders on company pay policies do not give them the final say because the votes are only a non-binding advisory. To mitigate total disregard of how shareholders feel, the JSE’s listing requirements compel companies to engage shareholders if more than 25% voted against their pay policies. By contrast, in countries such as Australia, UK and Netherlands, companies are bound by the shareholders’ vote on this matter.
High levels of executive pay in SA have been a contentious issue for years. In 2019, companies in which shareholders voted against executive pay resolutions include Old Mutual, where 69% was against the company’s remuneration implementation report.
Comair and Datatec are two examples where more than 30% of shareholders voted against remuneration resolutions at their annual general meetings and will thus need to embark on a comprehensive consultation process with shareholders.
“If there is one thing you can do today, go there and champion the JSE, push people to start making more noise around getting this legislation changed to provide for asset managers to have a binding say on the pay at the AGM, this in a country that has the highest Gini coefficient,” said Duncan.
According to the World Bank, SA’s Gini coefficient index — a measure of income and wealth inequality — stood at a coefficient of 0.63 in 2015, increasing from 0.61 in 1996. The closer the index is to 1, the higher the inequality is in that country.
Duncan said asset managers must not be “absent landlords” and should actively shape how companies tackle inequality in SA through their remuneration policies, among other things.
“As much as asset managers need to challenge companies [in terms of financial performance], they also have an important role to play in fixing the broader marketplace,” said Duncan.
Just Share director Tracey Davies said while the blame on rising inequality was usually placed at the door of the government, companies, through their executive pay and excess profits, are just as much to blame.
“Despite all of the problems that South Africa has had and continues to have, the post-apartheid economy has generated extremely high levels of corporate profits, and relative pay for South African executives is among the highest in the world.”
She said while there had been “sporadic efforts” by some asset managers to challenge “obscene” executive pay in listed companies lately, investors need to go a step further by asking executives to explain how their remuneration fared against that of other employees in their companies.
“Why do institutional investors not demand a binding shareholder vote on executive remuneration? And how can we even tell if executive remuneration is fair or excessive if we don’t have any idea what the rest of the people in that organisation are earning?” asked Davies.
She said there was a “treasure trove” of data sitting with the department of employment and labour as part of the Employment Equity Act, on how much salaries vary between the lowest- and highest-paid employees in companies that employ more than 50 people.
Davies said institutional investors know this data is available to help them gauge the pay disparity but are not interrogating companies enough because they “see themselves in the same social fabric as companies they are invested in”.
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