Telkom executive remuneration
Corporate governance analysts will be watching closely to see how the Public Investment Corporation (PIC) votes at Telkom’s coming annual general meeting (AGM), to see if the country’s most powerful fund manager will demonstrate any concern about executive remuneration that seems excessively generous.
One leading analyst remarked that last year, the PIC had expressed its antipathy towards what it deemed to be overly generous remuneration packages by voting, wherever it had the opportunity, against resolutions put to shareholders at a number of AGMs.
In Telkom’s case, the new chief executive, Reuben September, was paid R19.2 million for financial 2008, of which R13.2 million represented “fringe benefits”.
Whatever way it is categorised, the package is substantially higher than the R3.9 million paid to Papi Molatsane in the previous year and three times larger than the R6.6 million paid to Sizwe Nxasana in 2006. It also appears to be out of kilter with the group’s operating performance: during financial 2008 Telkom’s profit dropped by 7.6 percent.
The PIC’s website reveals that it took an extremely tough stance against companies on directors’ remuneration. In every instance in which firms requested shareholders for retrospective approval of remuneration paid to directors, the PIC voted against the necessary resolution.
When approval was sought for individual directors’ remuneration, the PIC voted against increases of more than 10 percent.
In the case of Liberty Group, the PIC voted against several resolutions that related to remuneration increases of more than 15 percent.
The executive remuneration details that were revealed by Telkom last week appear to be totally at odds with the objectives set out in the PIC’s corporate governance guidelines, released late last year.
In these guidelines, the PIC urges remuneration committees to “be sensitive to the gap between executive remuneration and the average wage or salary per employee”.
It recommends that compensation policies build long-term shareholder value, reward success and correlate executive increases with enhanced value within a specified period.
The PIC, which manages the Government Employees’ Pension Fund, has a holding of 15.5 percent in Telkom, making it the largest shareholder after the government, which has 39.76 percent.
This holding allows the PIC to appoint one member to the board of directors. PIC chief executive Brian Molefe is on the Telkom board.
Telkom shareholders will not be asked to vote on directors’ remuneration at the AGM, but analysts say the PIC could indicate its displeasure at the remuneration developments by voting against the special resolution, which is seeking shareholder approval to permit the board to appoint additional directors.
The PIC has not disclosed any details of the way it voted at Telkom’s AGM last year. Since April, the PIC has publicised on its website the way it voted in the previous 12 months at the AGMs of the companies in which it holds shares.
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