If a politician failed to be elected four times in a row, one might suggest they find a new career. Similarly, if your child failed a test four times, they may need some extra lessons or a new teacher.
After all, there are consequences to failure.
Not so with remuneration votes on the millions of rand CEOs and CFOs earn annually in SA, a country of vast and widening inequality.
Once a year at a listed company AGM shareholders must vote twice on whether they agree with head honcho pay levels.
But if one or both of the votes fail to attract a 75% majority, the consequence is that the company must engage with the unhappy shareholders.
The votes are non-binding and so the result of engagement is hardly one at all.
This consultation has become more meaningless than one might think because exactly how a company should meet dissenting shareholders is not detailed by the JSE. And so all some companies do is ask unhappy shareholders to send an email with their feedback.
In some cases, even an acknowledgment that the email was received may be rare, says Mike Martin of Active Shareholder, a proxy voting service that votes on behalf of various unions’ investments.
He says things have got worse than before the pandemic because then firms actually held calls or physical meetings with dissenting shareholders.
Is it any surprise that these toothless votes continue to fail?
Both remuneration votes at retailer Clicks failed in 2021 and 2022, with one of two votes failing in 2019. Retailer TFG has had at least one vote fail for the past four years.
Both the pay votes at Mr Price’s 2021 AGM failed and it then asked for “correspondence” from shareholders after expressing its disappointment with the outcome.
Well, the firm must have been disappointed again in 2022 when one of the two votes failed.
But it is not entirely clear why one of the pay votes at Mr Price’s AGM failed last month. In fact, if an observer or shareholder wants to know who voted for or against remuneration and why, they may never find out.
Asset managers may release their voting decisions months after the AGM when everyone has moved on and forgotten about the consequence-free votes.
With repeated failures and a lack of clarity over who voted and why, it doesn’t take much to conclude that perhaps the non-binding votes serve little purpose.
The corporate world knows consequences are needed and use this idea everyday. They provide ordinary staff with performance or sales targets. Retailers block customers in arrears from further purchases on credit. Banks charge fees even when the very first debit order bounces. Consequences abound in the business world.
But when it comes to shareholder dissent about the huge wage gap between bosses and workers, there are no consequences.
In France, if the shareholder pay vote fails, then the variable pay of bonuses cannot be paid over to the bosses. And in SA, variable pay is significant. Take Sibanye-Stillwater CEO Neal Froneman’s R300m salary this year, made up largely of long-term share payments.
In Australia, the two-strike rule was introduced in 2011 as a way to hold directors accountable for executive salaries and bonuses. If pay votes fail twice, shareholders need to hold a vote on whether the directors can stay on the board. The threat of directors being booted out of their comfortably paying positions seems to drive real engagement about pay, according to some Australian reports.
The two-strike rule has been suggested as an amendment to the Companies Act by Aeon Investment Managers but failed to gain traction.
There are some easy wins in SA.
Perhaps the JSE needs to specify what suffices as engagement after failed votes, and if an email is sufficient.
A commission into pay in Australia suggested plain English summaries be provided of remuneration reports. Remuneration reports in annual reports in SA are complicated and difficult to read in tiny font replete with jargon. It would help if the report was written to be understood instead of deciphered.
But in the end, while pay votes remain non-binding, they merely give the appearance of shareholder input on astonishingly high pay. They offer no real stick or incentive to adjust pay. One wonders why bother with them at all.
Little changes because little has to.
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