FirstRand Ltd. started a new incentive program to retain top managers after the economic fallout of the coronavirus pandemic hit earnings and sank share-based rewards.
The ripple-effect of the Covid-19 outbreak could cause managers to lose out on their share awards for years, possibly resulting in “talent leakage,” Chairman Roger Jardine said in the Johannesburg-based lender’s annual report.
South Africa’s largest bank by market value started the program last month, according to the annual report. The incentives don’t come with any performance conditions, and will lock in participants for the next three years, FirstRand said.
Senior managers weren’t granted salary increases and cash bonuses for the financial year through June in line with guidance from South Africa’s central bank for lenders to conserve cash due to the uncertainty surrounding the virus.
FirstRand’s short-term incentive pool fell 43%, and rewards for executive directors and prescribed officers dropped 48%, the report said. Non-executive directors’ fees won’t increase in 2021. Should incentives granted in 2018 and 2019 vest, the employee will be paid the higher sum of the two programs.
As South Africa entered a lockdown to manage the spread of the coronavirus and most businesses were forced to close, FirstRand’s executive directors and prescribed officers waived 30% of their salaries for three months and donated the money to a support fund.
“Management should be recognized for navigating a severe operational challenge,” Jardine said.
Africa’s most-industrialized nation was trapped in its longest downward cycle since World War II even before the coronavirus struck. Lenders responded to the outbreak by restructuring loans for companies and consumers struggling to meet their obligations, and payment holidays.
“This pandemic clearly illustrated why public-private partnerships must be at the core of South Africa’s national policy responses,” Jardine said. “The private sector was not sitting on the sidelines during this pandemic, it was actively engaged in assisting government with its health care and social responses.”
FirstRand, which owns an investment bank, consumer lender, and South Africa’s biggest vehicle-financier, is also reviewing its business models to include a greater focus on climate change, the company said.
While the firm is in the process of improving disclosure related to fossil-fuel lending, its main loan-exposures are as follows:
- Fossil fuels of 19.7 billion rand ($1.2 billion), making up 1.5% of group loans.
- Renewable energy of 17.9 billion rand, accounting for 1.4% of group loans.
- Electric utilities of 8.7 billion rand, making up 0.7% of total loans.