Lindiwe Sebesho, Managing Director, and Leila Stevenson, Co-lead of Executive Reward Consulting at Remchannel
With the amendments to the Companies Act of 2008 signed into law this past weekend, scrutiny of executive remuneration relative to the lowest income earners in publicly listed companies and State-Owned Enterprises (SOEs) is expected to intensify.
The April 2024 Remchannel Salary and Wage survey shed light on the readiness of companies to disclose this information: “We found that 80% of companies conduct pay gap analyses annually. Concerningly, only 52.7% of these organisations disclose the outcome to their remuneration committee (Remco), and an even smaller percentage of 32.7% disclose it to their board of directors,” says Lindiwe Sebesho, MD of leading reward management consultancy, Remchannel.
She says that the Companies Amendment Bill will significantly influence pay transparency practices. “Part of a global movement towards greater corporate accountability regarding pay, this legislation aims to achieve equity between directors, senior management, shareholders, and workers while addressing public concerns about high levels of social inequality.
“It focuses on enhancing disclosure requirements, filling a regulated pay transparency gap, which may lead to the redefinition of social responsibility strategies and impact investor expectations about fair and responsible pay,” says Sebesho.
Leila Stevenson, Co-lead of Remchannel’s Executive Reward Consulting unit, views the new law as a positive development for South African institutional investors vested in the sustainable performance of listed companies and state-run enterprises.
“However, the introduction of the new disclosures may increase the risk that executive remuneration is regarded as ‘excessive’ if not properly structured, or explained and justified,” cautions Stevenson.
She underscores the critical role of remuneration committees and boards: “The Remco and the Board should not only regularly benchmark executive pay in terms of quantum and structure but also ensure that a robust approach to fair and responsible pay is adopted. This approach includes analysis that goes beyond the newly introduced disclosure requirements to ensure a complete understanding of the issue. This understanding is crucial for providing context to the new disclosures and facilitating genuine positive change.
She says the Companies Amendment Bill also introduces enhanced enforcement mechanisms, notably a stand-down requirement tied to shareholder voting. “Specifically, if shareholders do not approve the company’s remuneration report at two consecutive Annual General Meetings (AGMs), the members of Remco or the committee responsible for remuneration would be required to stand down.
“This and the newly introduced binding vote on policy adds a significant layer of accountability from a shareholder perspective, introducing direct consequences for the Remco based on shareholder satisfaction,” says Stevenson.
Sebesho agrees that it is critical for professionals and consultants tasked with designing and supporting organisations in the development and implementation of remuneration strategies to guide them in conducting, interpreting, and effectively addressing the results of pay gap analyses and communicating these effectively to stakeholders.
She adds, “Such disclosures are crucial not only for regulatory compliance but also for developing fair and responsible pay strategies that enhance trust and confidence among employees, investors, and the public at large.
Studies examining pay transparency suggest that there are risks when transparency is poorly implemented. “In some instances, this openness could potentially affect how attractive an employer is perceived to be and could, therefore, impact the company’s ability to attract and retain top talent.
“Empirical evidence shows that while pay transparency may reduce inequities in the long term, it is crucial for companies to carefully design and implement policies that mitigate potential short term downsides,” concludes Sebesho.
ENDS
