Here’s a thought: what if labour representatives were required to sign off on every executive remuneration-related payment? Not just the actual package awarded to the executives, but everything relating to executive remuneration. That would include fees to members of the remuneration committee as well as payment for the screeds of advice these committee members are constantly drawing on.
Assuming such labour representatives were not corrupted by the process, which seems to happen quite a lot, and were able to spot dodgy self-serving arguments — about marketplace dynamics and executive talent shortages — for what they are, their involvement in the process could upend things.
For starters we probably wouldn’t have to put up with annual remuneration reports like the one recently released by PwC. Hard-nosed labour representatives, who know the true value of money, would look at this report and wonder why anyone is paying consultancy fees to an entity that has such a trivial insight into remuneration issues.
Here we have a report titled “Executive directors’ remuneration trends, 2022”, yet it refuses to make any sort of statement on the key trend: the percentage increase between 2021 and 2022. It says it is not appropriate to use the analysis to determine increase trends for executives “as the constituents of the group used to determine the analysis do not remain consistent year on year due to market movements”. And so, it concludes, “a percentage movement from 2021 to 2022 has not been provided”.
Not even a “We think executive pay might have increased again in 2022”, just a “Well, it’s a bit complicated, so we can’t say”.
Would anyone, including a labour representative, care to hazard a guess? When you add in all the incentive bells and whistles the increase was very likely substantially above inflation.
PwC seems to think that by it not making a statement, none of us will be any the wiser.
It’s as bizarre as its attitude to valuing the full remuneration package awarded to executives. For a long while PwC focused on discussing only the total guaranteed package (TGP) as though this was all that executives received. Then it just became too laughable, so PwC started to include short-term incentives (STIs) as well, but continued to steer clear of long-term incentives (LTIs).
The fact is TGP represents less than one-third of the value of an executive’s remuneration. The STIs (or annual bonuses) account for another third. The LTIs generally add at least another third, but frequently they are like remuneration rocket fuel and propel the executive’s pay to another stratosphere. Recall Neal Froneman’s R300m package. In PwC’s strange world, R264m of this did not exist because it was the value of the LTI awarded three years earlier. In PwC’s hazy world Froneman’s remuneration was a reasonable R30m or so.
It seems one of the world’s top four audit firms believes the value of LTIs is too uncertain as it is contingent on the executive reaching certain targets as well as on the future share price. That is true. But it is also true that there are established ways of valuing LTIs and furthermore there appears to be no record of an executive of a listed company not receiving a bonus.
So PwC really should make an effort to establish a range of possible values for LTIs. It’s surely not beyond its capabilities to come up with a reasonable estimate.
Of course, if it did it would make the remuneration package — and the remuneration problem — larger and this might not go down well with its target market, the members of remuneration committees. For this market the report has the great advantage that it does not challenge any of the establishment thinking on the issue of remuneration; it reinforces it entirely and it serves to reassure the committee members, their executives and cronies that they are all together on the right road. As it happens, it is also precisely what renders the report useless to anyone outside the remuneration industry bubble.
Imagine if the target market weren’t the already enthusiastically converted but a labour representative. It would probably be a much more vigorous document. We certainly wouldn’t have to read through the screeds of mindless management-speak that litter the 68-page document.
Take this, in chapter 3 on “turning the wage-gap tide”: “We have, particularly in the last few years, noted real action in SA boards towards taking active steps on their fair pay journey.” There’s an awful lot of travel and journeying there, but not much sense of urgency. Pages later, it’s still difficult to know where all this journeying is headed.
But don’t worry, for executives who are concerned that the world might not be aware of their commitment towards this “fair pay journey” PwC offers (at a price no doubt) the ultimate solution, the “Equal-Salary” certificate.
Now that’s something a labour representative wouldn’t need an overpaid consultant to provide.
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