Trying to convince shareholders that executives are paid competitively is becoming trickier for SA’s large banks.
Four of the country’s largest banks held their AGMs in May and June, with Capitec and Absa bearing the brunt of shareholder discontent over executive salaries. In the case of Capitec only 52% of shareholders voted in favour of its remuneration implementation report, while for Absa the figure was 59%.
The unhappiness prompted Intellidex, a research consultancy, to do some peer analysis of executive remuneration for 2021 at the five big banks. Nolwandle Mthombeni, senior banks analyst at the consultancy, compared the pay of the five CEOs as a percentage of the revenue and market cap of their banks at end-December.
Nolwandle Mthombeni, senior banks analyst at Intellidex, compared the pay of the CEOs as a percentage of the revenue and market cap of their banks
Intellidex also looked at total executive pay as a proportion of staff costs.
“Standard Bank offers the highest pay,” Mthombeni concluded in her report released earlier this month.
“This might be expected given that the size of operations is the largest (though we would prefer profitability to be the key driver). Absa had the lowest pay in three of the four positions, however Absa’s pay may be distorted by the resignation of the CEO, resulting in pay being for acting roles.”
Standard Bank CEO Sim Tshabalala received R28.6m in pay with an additional R20m at risk if the bank misses certain targets, such as profitability growth. Nedbank CEO Mike Brown received R26.5m with an additional R12.7m at risk, whereas Capitec CEO Gerrie Fourie was awarded R23m with a whopping R69.7m at risk. Absa had an acting CEO for much of its previous fiscal year. Jason Quinn, currently CFO of Absa, received R23m in pay with another R12.5m at risk.
“Overall, Absa was ranked the best, having scored most favourably in four out of the five categories,” said Mthombeni. “This implies that the group isn’t overpaying executives relative to the size of operations.”
On the other hand, Nedbank was ranked the worst “with executive pay not reflective of its smaller operations”, she found.
Interestingly, the Intellidex report gauges whether long-term incentive share awards for executives are “in the money” or “under water”. In other words, is the current share price higher or lower than the price at which these shares were awarded in years gone by. The analysis tracks share awards in the three years from 2020 to 2022, though FirstRand, whose financial year-end is in June, was excluded from consideration in 2022.
The incentive schemes for all five banks issued in 2020 and 2021 were “in the money” on July 26. However, awards made to execs this year were “under water”. This year’s awards were made at substantially higher prices after solid profit growth last year.
But are the CEOs of SA banks paid too much? “In terms of their responsibilities, their pay is on par,” Tinus Baard, MD of executive search company Baard & Partners, tells the FM.
“Ask yourself why, even as many banking licences are issued, there aren’t more Capitecs out there,” he adds. “Pay the right people enough and see where the company goes.”
Pay the right people enough and see where the company goes
— Tinus Baard
While Fourie clearly took home a bulging pay packet last year, Capitec has undeniably made investors rich, too. Over five years, the overall JSE banks index is up 25%; Capitec stock has gained 160%. Over a little more than 10 years, Capitec is that rare beast — a tenbagger, while the banks index is only 99% higher.
Whether all shareholders agree that Fourie deserves his pay cheque isn’t clear. Capitec’s remuneration committee had to engage institutional shareholders on why they voted against its remuneration implementation report at last year’s AGM. This year, the implementation report narrowly passed shareholder muster.
SA banks aren’t alone in facing shareholder discontent. In May, JPMorgan Chase, one of the world’s largest banks, saw shareholders shoot down long-standing CEO Jamie Dimon’s proposed $84.4m pay package. They also said no to a $26.6m one-off award to COO Daniel Pinto.
If shareholders are getting riled about executive pay, it could make it harder for the big banks, which play a crucial role in keeping the economy oiled, to hire the right people.
“It’s tough,” says Fay Voysey-Smit, managing partner at international executive search firm Boyden. But, she adds, “It’s across all industries, not only banking.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.