Just Share executive director Tracey Davies has called on the government, the JSE, and asset managers to address the problem of exorbitant pay packages for poor-performing CEOs.
There are many examples of executives who have caused tremendous damage to their companies and who still received large pay packages.
Former Eskom CEO Brian Molefe, for example, was paid R8.9 million for the eight months he served as CEO of Eskom in the 2016/17 financial year.
Molefe left the company after a public outcry following the public protector’s State of Capture report which contained damning allegations against him.
The official position of Eskom was that Molefe took early retirement in 2016, and he was paid out R30 million in pension benefits.
Former Steinhoff CEO Markus Jooste, in turn, received almost R34 million in bonuses without the required approvals shortly before the company collapsed.
The latest executive to receive a large pay package despite costing his company large amounts of money is Woolworths CEO Ian Moir.
Moir was partly behind Woolworth’s disastrous acquisition of retailer David Jones which resulted in billions in impairments.
So tainted was his reign at Woolworths that the share price jumped nearly 10% when his resignation was announced.
To many people’s surprise, Moir received a very generous exit package on his departure despite the damage he caused shareholders.
He received an exit package of close to R44 million, with another R35 million on the cards if he upholds his restraint of trade agreements.
High executive pay packages
A good CEO like Steve Jobs or Whitey Basson is worth billions to a company and deserves a big salary package.
They have unique skills which help to grow companies, create employment, and add tremendous value for shareholders.
The inverse is also true. A poor CEO can cause severe damage to a company, cost many jobs, and destroy shareholder value.
This raises the question of why executives who destroy shareholder value still receive high pay packages.
Tracey Davies, executive director of shareholder activist group Just Share, said a small group of very elite people with close relationships are behind the high executive pay packages.
“Any significant lowering of executive remuneration rates, claw backs, or salary drops will affect the whole group,” she said.
She said every person on the Woolworth board, for example, is a highly paid executive in their own right.
The remuneration consultants, which advise companies on how much to pay their executives, are also earning very high salaries.
“We are looking at a very small, very cozy group of people who are immune and deaf to the context in which they operate,” said Davies.
How to solve the problem
Davies said the simplest way to address the problem of high executive pay despite poor performance is a binding shareholder vote on executive pay.
“This is something the JSE or the Department of Trade and Industry could implement tomorrow,” she said.
If the JSE or the Department of Trade and Industry is unwilling to do this, a strong call from asset managers is another option.
She added that it is a myth that there is a tiny pool of competent directors in South Africa.
What these companies need, she said, is a much broader base of directors, including younger people and directors with different backgrounds, experience, and world views.
“Until we change board composition, this thing is never going to change,” Davies said.