The JSE Ltd — the financial services firm that operates the largest stock exchange in Africa — says remuneration disclosures should apply to all companies, not just publicly traded and state-owned entities.
The bourse’s comment comes as the government on Friday gazetted the Companies Amendment Bill for public comment, which among other things seeks to compel companies to disclose the wage differentials between executives and workers. This contentious proposal specifically targets listed companies and state-owned entities.
Big business has already highlighted some of its concerns about the bill, pointing out that high CEO pay is crucial to attract top talent in a competitive global market. It also says the obligation to disclose wage differentials is not useful and will only lead to acrimonious and destructive conflict without leading to a rise in labour prices.
The government is of the view that addressing the “excessive” remuneration issue is necessary to tackle the ever-widening income inequality gap. A recent report by global professional services firm PwC on executive remuneration found that the median pretax package for a CEO of a listed company was R5.2m in 2020, and R2.8m after tax. That was 100 times the national minimum wage and 35 times the median pay for unskilled workers in big business
Andre Visser, the JSE’s director of issuer regulation, told Business Day the firm has always been supportive on remuneration transparency.
“However, on the basis that the Companies [Amendment] Bill has just been published for public comments, the JSE has yet to study these provisions in detail. Noteworthy to mention is that the JSE is of the view that remuneration disclosures should apply to all companies, and not listed companies alone. We believe that this approach will enhance the much-needed transparency around the topic of remuneration,” Visser said.
The amendments to the Companies Act seek to implement stronger governance of excessive director pay and enhanced transparency of ownership and financial records.
According to the bill, companies will be required to publish details of their highest- and lowest-paid employees, average and median remuneration, and the gap between the top 5% highest-paid and the bottom 5% lowest-paid employees.
The bill provides that where remuneration and benefits are received by company directors or prescribed officers, such executives must be named in the annual financial statements. This is, however, limited to companies that are required in terms of the existing act to have their annual financial statements audited.
The bill also provides shareholders with better tools to respond to how remuneration issues are dealt with in companies. It proposes the insertion of a new section obliging public companies and state-owned companies to prepare and present a directors’ remuneration report for approval by the board.
Visser said the JSE mandated the disclosure of directors’ remuneration as far back as 1999.
“The JSE was a leader at the time regarding this disclosure and believed that it was required to bring much-needed transparency around remuneration,” Visser said.
The JSE only requires the disclosure of remuneration of directors in the annual report.
“The JSE listings requirements prescribe a non-binding advisory vote for shareholders to vote on the remuneration policy and implementation report at the AGM [annual general meeting]. If either resolution is voted against by 25% or more of shareholders, then the listings requirements prescribe that the company must engage with shareholders on these matters,” Visser said.
According to the bill, shareholder approval will be required for the company’s remuneration policy, which is not currently the case, though there have been occasions when shareholders have objected to executive pay at AGMs.
The government believes that regulating pay by disclosure is a powerful tool because it provides shareholders with an effective means of responding to dissatisfaction with excessive remuneration. In addition, it has a so-called “shrinking effect”, which influences company boards and senior executives to refrain from awarding and receiving excessive pay for fear of adverse reputational consequences.
With Linda Ensor
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