Much of the coverage of the proposed amendments to company legislation has focused on disclosures aimed at shining a light on pay differentials within firms. While some have suggested this will be met with resistance from big business, this may be an exaggeration if one considers the main areas of alignment between shareholders and policymakers on this matter. Executives and some fund managers and remuneration committees might not be as happy about the changes. Understandably so.
While a concern globally, it certainly seemed over the past few years that SA institutional investors did not take scrutiny of pay packet decisions seriously. In 2017 financial journalist Ann Crotty lamented the “seeming unwillingness to engage on executive pay”. Crotty found it concerning that excessive pay awards to executives were likely to receive nearly 85%-95% approval by some of the most well-known professional fund managers.
When in October 2018 the Jobs Summit Framework Agreement captured the agreement of social partners to address these issues, I recall many suggesting that pushing for more disclosure would make SA uncompetitive in the global market for executive talent.
Fast forward a few years and it seems broader opinion has changed. Global shifts towards greater company disclosure, Covid-19 and the unavoidable social consequences of unsustainable inequality may have turned the tide somewhat. Votes on remuneration policies in the past few years at MTN, MultiChoice, Steinhoff, TFG, FirstRand and Shoprite have indicated shareholder disaffection with executive pay decisions. It’s a signal that some SA firms operating in different markets have taken seriously already. We recently heard that Woolworths has committed to increasing pay at the bottom end of the distribution by almost a quarter in the next two years.
Some suggest the recent furore about executive pay, not only by agitators and activists concerned about our unsustainably high levels of inequality but by shareholders, is a classic case of the “principal agent problem”. This is a challenge of asymmetric information between owners of firms (in some cases you and me, through our pensions) and those who manage these firms.
Ironically, the mix of cash, long- and short-term incentives and share awards to managers was intended to solve this problem. Yet it is clear from the recent concerns about pay awards that disclosure might overcome the information asymmetry and place greater public scrutiny on the relationship between pay, performance and distributional equity.
The requirement under the proposed amendments to engage dissenting shareholders and take steps to address the issues raised by dissenting shareholders may place pressure even on unlisted firms that may not have been subject to these requirements before.
A further development in the draft Companies Amendment Bill of 2021 worth considering is the shift towards harmonisation between company and labour legislation around the disclosure and compliance requirements on small businesses. The shift to reduce financial reporting requirements for small businesses with low public interest scores harmonises company reporting requirements with labour law-related disclosures such as the Employment Equity Act, which designate firms based on headcount and revenue, thus exempting firms with fewer than 50 employees or below a sectoral turnover threshold.
Viewed as a whole, the amendments in the companies legislation aim to overcome distributional contests between different economic actors by first trying to understand who gets what. The complementary policy objective, of reducing the compliance rigmarole for small business, lays the basis for a more harmonious industrial relations framework.
It remains to be seen whether the public response, beyond that of shareholders, will call for not only greater disclosure on pay but greater participation in the decisions that affect the workplace and the broader economy.
• Cawe (@aycawe), a development economist, is MD of Xesibe Holdings and hosts MetroFMTalk on Metro FM.
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