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Sep 18, 2012

Govt considers capping salaries of State company execs

Denel|Eskom|Public Enterprises|Transnet|Service|Kenneth Sinclair|Malusi Gigaba|Tshediso Matona
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The Department of Public Enterprises (DPE), which is planning to finalise new remuneration standards for State-owned companies (SoCs) during October, is considering a range of policy interventions, including capping remuneration for a period, until the gap between executives and workers has narrowed.

A moratorium had been placed on increases until the new ‘Remuneration Standards’ had been adopted.

Responding to a Parliamentary question posed by Kenneth Sinclair of the Congress of the People, Public Enterprises Minister Malusi Gigaba indicated that his department was in the final stages of developing new standards for SoC executive and nonexecutive directors.

Once adopted, these standards would be “enforced on the SoC with no deviation”, with implementation anticipated during the current financial year.

The DPE has direct shareholder oversight for eight SoCs, including large entities such as Eskom, Transnet and Denel, and their financial years begin in April and conclude at the end of March.

“It is important that changes to existing remuneration policies be phased-in with the transition taking account of existing employment contracts,” Gigaba said.

The standards would be informed by a set of guiding principles that would be “rational, transparent and require consistent application” and they will seek to strike a balance between the State’s national objectives and the company’s commercial imperatives.

Future packages would be based on issues such as economic impact and the company’s funding model and performance would be measured and aligned to the shareholder’s compact.

“This exercise has entailed considering various policy objectives such as the capping of remuneration for a reasonable period, until the gap between executives and ordinary workers has narrowed,” Gigaba revealed.

The statement was in line with recent utterances on the issues by DPE director-general Tshediso Matona, who said the new model would seek to strengthen the link between performance, as defined by shareholder compacts, and remuneration.

A challenge, was how to respond in instances where remuneration levels had already breached certain thresholds. “[In those circumstances], what do you do? Do you undertake a massive across-the-board reduction of remuneration levels, which are bound in contractual relationships? Or, do you temper the rate at which these remuneration levels are rising? I think the answer lies between those two extremes,” Matona said.

In future, bonuses needed to be justified by “demonstrable achievements” of the company and its executives against the shareholder compact.

There was also a need to de-emphasise the monetary rewards and re-emphasise the public-service dimension, while “not making remuneration incentives so unattractive as to place the companies themselves at risk”.

Edited by: Creamer Media Reporter
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