The concept of fair and responsible remuneration is gaining traction in South Africa, with companies beginning to embrace this, but more needs to be done to turn this into a reality, including raising awareness nationally, says professional services firm PwC.

Evidence of this acceptance is found in some companies having even adopted and disclosed a living wage above the national minimum wage.

Moreover, the adoption of malus and claw back is seeing rapid growth, with companies expected to demonstrate the contingency plans they have in place to recover incentives paid to executives who have overseen considerable corporate failures.

These findings are outlined in the eleventh edition of PwC’s ‘Executive directors: Practices and remuneration trends’ report, released on Tuesday.

The report focuses on the role of the CEO and what factors companies should consider when determining their philosophy towards CEO pay.

It also explores the role of the CEO in setting the remuneration strategy of the organisation.

Moreover, the report focuses on gender parity, diversity and ethics of pay.

Key findings from the report indicate that 29.5% of executive directors are black African, compared with 40% that are white; 3.3% of CEOs at JSE-listed companies are women; and the median pay for CEOs in 2018 across all sectors was R5.4-million, compared with R5.2-million for 2017.

Another finding was that the median total guaranteed package (TGP) for the CEOs of large-cap companies in the financial services sector showed a moderate increase of 5.4% to R9.6-million, while the median TGP for CFOs increased by 5.5% to R5.15-million.

Speaking at a media briefing outlining the findings of the report, PwC Africa People and Organisation head Gerald Seegers emphasised the value that an effective CEO could add to a company, given that it was a high-profile position, especially in a listed environment.

CEO PAY

Generally, a similar total reward package structure is provided to most CEOs. This usually includes a guaranteed portion, a short-term bonus and a long-term incentive – this is usually considered the “best practice reward model”.

This engenders the question of whether different reward models should exist for different types of CEOs operating in different environments.

The report considers several different pay models.

PwC senior manager Anelisa Keke indicated that a CEO’s remuneration package cannot be determined by the board in isolation, but should constitute several factors.

This includes the nature of the incentive payments made to him or her, the performance conditions applicable to their short- and long-term incentives, how an unjustifiable pay package which is divorced from the concept of pay for performance can compromise the company’s approach to fair and responsible remuneration, and whether they are doing enough to create an inclusive culture in their businesses that effectively embraces women and people from diverse backgrounds, she noted.

INVESTOR INFLUENCE

A positive aspect highlighted in the report is that South African remuneration committee chairs are embracing investor expectations around shareholder engagement and regular training.

However, there is much work to be done before remuneration committees are fully equipped and able to execute their duties in line with King IV and best practice.

Overall, some investors were more positive about the state of remuneration practices in South Africa.

However, the quality of some boards of listed companies, and the general lack of knowledge among remuneration committees, is noted as a pressing concern.

GINI COEFFICIENT 

The South African Gini coefficient of the employed for this year is at 0.436, which is an increase of 0.011 compared with 2018.

The pay ratio of the largest South African companies now ranges from 12.77 to 66.91 (2018: 12.7 to 64.7).

Signs of encouragement are found in companies in the top 40 beginning to embrace the concept of a living wage and the provision of essential benefits as part of the employee value proposition.

However, more needs to be done to fully realise the ideals of fair and responsible remuneration in South Africa.

GENDER PARITY

The report shows that only 3.3% of CEOs on the JSE during the period under review were women.

The gender pay gap is the gap between what men and women are paid at TGP level. It refers to the median yearly pay of all women who work full time and year-round, compared to the pay of a similar cohort of men.

According to the report there is no sector in which female executive directors are paid more than men.

The largest pay gaps are in healthcare at 28.1%, followed by consumer discretionary at 25.1%, technology at 22.9% and financials at 21.8%.

EXECUTIVE DIRECTOR PROFILES

The report found that since 2018 there has been no meaningful change in the average age of executive directors, at 56.

Particularly highlighted was that 29.5% of executive directors are black African compared with 40% that are white.

Segars said this showed that some progress was being made in transformation in some levels of companies, especially when compared with the racial profiles of CEOs and CFOs.