Good example or dangerous trend? The chief executive, managing director and finance director of Investec have each announced that they will forfeit their bonuses and take a pay cut of nearly 90 per cent in 2012. This decision follows disappointing results, with a 17.4% drop in operating profit. The South African bank is admirably sticking to its stated principles: rewards must be linked to performance.
This Ceo Stephen Koseff and MD Bernard Kantor in 2012 will take home £450,000 instead of the £3.4m they had received in 2011. Finance director Glyn Burger takes an even bigger cut in his salary, from £3.1m to £370,000, while non-executive directors are set to receive a pay increase. Koseff was South Africa’s highest-paid banker last year.
Analysts and economists agreed it was the right thing to do. “It’s very shareholder friendly and a sensitive move at a difficult time,” said Karl Leinberger, CIO of Coronation Fund Managers.
“The move by the Investec executives is an encouraging sign that there is an increased awareness of the responsibility to be accountable to shareholders and other stakeholders regarding executive pay,” says Ansie Ramalho, chief executive of the Institute of Directors. “There is no doubt that there is increased scrutiny of companies’ level of remuneration of executives.”
Despite increased public scrutiny, shareholder activism and the threat of tighter regulations, though, executive pay levels in South Africa actually increased in the last year. A survey by PricewaterhouseCoopers SA shows that total guaranteed packages increased by between 10.7% and 12.2% in the financial services sector.
The reason is that the lack of skills is so acute and the talent pool so shallow that banks need to incentivise their executives to stay, otherwise they will be swiftly poached by a rival or will move abroad. “Determining pay for an executive is quite complex and goes according to the rules of supply and demand,” says Martin Westcott, MD of P-E Corporate Services, a management consultancy.
Retaining talent without overpaying is a difficult balancing act, but the practice of linking pay to performance is gaining momentum in South Africa as elsewhere. Koseff and Kantor are remarkable for the size of their pay cut, but last year Standard Bank Ceo Jacko Maree and his deputy both gave up their bonuses after disappointing results. Maree also vowed to donate 10% of his income to charity.
Inevitably South Africa will end up “following global trends,” says Gerald Seegers, HR services director at PwC SA. “We have already seen shareholders and institutional investors becoming more vocal than ever regarding perceived excessive payments made to executive directors.”