Remuneration committees are facing increased responsibility, time commitments and risks in the face of new regulation, governance standards and disclosure rules, PwC noted in a statement released on Tuesday.

Nonexecutive directors are being called on to justify their companies’ remuneration policies, and the implementation thereof, directly to shareholders. This is expected especially where a company has experienced poor financial performance, but executive pay levels have continued to climb.

“There is a strong perception among major South African institutional investors that remuneration committees are not approaching shareholder engagement properly, need to do more to upskill themselves to properly execute their duties and should not place an over-reliance on external consultants and advisers,” PwC Africa People and Organisation head Gerald Seegers said.

PwC’s twelfth edition of the ‘Non-executive directors: Practices and fees trends report’, again reviewed the fees paid to nonexecutive directors of JSE-listed companies, as well as several African stock exchanges and an analysis of nonexecutive fees paid to FTSE 100 companies.

This year, a central theme of the report was the role of remuneration committees in corporate South Africa and whether they were fit for purpose.

The report also considered the role of sustainable development in the future and how companies needed to do more to engage with the Sustainable Development Goals (SDGs) when crafting their key performance indicators (KPIs).

In addition, it examined the ethnic and gender composition of all listed companies, by conducting an analysis of 4 945 positions at board, executive and management levels.

INSTITUTIONAL VIEWS

PwC hosted a recent roundtable event for major institutional investors and governance institutions to gauge their views on executive pay in South Africa.

While some expressed the hope that some strides had been made in terms of remuneration governance over the past few years, others were concerned at the current state of executive pay and called for stronger remuneration committees.

Overall, institutional investors stated that remuneration committees needed to engage with investors directly, and continuously, regarding the company’s remuneration policy and the implementation thereof.

Remuneration committee chairpersons should demonstrate a full understanding of their company’s remuneration policies and how they were linked to the entity’s business strategy, and not rely heavily on remuneration consultants or executive management, PwC pointed out.  

It was noted that some investors believe the legislative framework around directors was not strong enough to hold them to account, and was hard to enforce. The question arose whether there was room in South Africa to introduce a governance code that could strengthen the enforcement of good governance principles.

2019 BOARD AGENDA

The suitability of skills, experience and independence of individuals serving on boards were the biggest areas of concern for South African directors when it comes to general perceptions of governance.

PwC highlighted that there had already been examples of schisms between investors and the boards of listed companies, particularly in the face of a stagnant financial performance.

The report also suggested that there was a strong case for including Millennials on the boards of South African companies.

However, some critics are of the view that, although the digital skills that Millennials can bring are valuable, they should sit on a mirror board, rather than the main board.

Companies are placing more focus on inclusive diversity; with international research showing that diversity and inclusive decision-making yields better business performance.

In South Africa, female representation among nonexecutive directors remains well below 50%.

Diversity in corporate leadership structures is a global imperative, which is recognised in the corporate governance codes of multiple jurisdictions. Given the South African social and economic context, and the proven financial and strategic benefits of a more diverse and inclusive boardroom and corporate culture, boards are promoted to set concrete goals to promote diversity throughout their organisations.

ENVIRONMENTAL AND SOCIAL INVESTING

The introduction of the SDGs heralded a major change for both businesses and governments, whereby acting responsibly is no longer a choice, and businesses need to embrace the SDGs and sustainable practices.

According to a PwC study of 729 companies from 21 countries, only 23% of organisations disclosed meaningful KPIs and targets related to the SDG goals.

The report suggested that, while there was a clear appetite for embracing the SDGs, many organisations still lacked the strategy, tools and culture to transform these commitments into tangible business actions.