The South African Reward Association (SARA) welcomes the decision made by Minister Lynne Brown on suspending the remuneration increases of the Eskom executives.
“We are all in the same boat and brand South Africa needs to be repaired. This can be achieved via many vehicles, one of which is better labour-management-government relations,” says Dr Mark Bussin, Executive Committee member at SARA. “As much as we welcome labour’s call for a balance between excessive wage demands and job security, we welcome Minister Brown's intervention on pay increases for executives. This is an opportunity for all to contribute to brand SA.” “We acknowledge executive leadership’s conundrum of retaining and motivating top specialists and staff who achieve their business targets. When done though, we need to get better at showing the link between these pay increases and bonuses and the contribution made. Strengthening the link between executive and company performance, individual contribution and customer satisfaction and clear communication to stakeholders on these issues will go a long way to better understanding and relationships.” Audio file caption: Dr Mark Bussin, Executive Committee member at the South African Reward Association, says it is important that communication is stepped up in order to better understand the link between pay and performance. To listen to the audio file, please visit this Dropbox link ENDS MEDIA CONTACT: Cathlen Fourie, 012 644 2833, cathlen@thatpoint.co.za, www.atthatpoint.co.za For more information on SARA please visit: Website: www.sara.co.za Twitter: @SA_reward LinkedIn: South African Reward Association Facebook: SARA – South African Reward Association
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Establishing the parameters of executive compensation within an organisation is a complex task. The board needs to craft a package which is in line with business strategy and performance and which is of significant value to the executive, or there is a risk that value is lost by both. Compensation is a tool which can be managed to align company success with executive deliverables so as to benefit the bottom line and inspire business executive performance.
Reward expert, Laurence Grubb, Exco member of the South African Reward Association (SARA) explains: “There are three basic types of long term incentive schemes which align shareholders and executive interests and work best over a period of between three to five years.” Performance share/unit scheme This type of scheme offers the executive shares or ‘full value’ units which are linked to the value of the company. The total value of the shares or units offered is aligned to the value of the executive’s package. When these vest (become available to the executive), the performance of the company is compared to the performance objectives set at the time they were offered and this determines the number of shares or units that vest and the executive receives the full value. “The executive is therefore driven to improve the share price or unit value and to ensure the company meets or exceeds the performance objectives set,” explains Grubb. Share option/appreciation unit/rights scheme This is similar to the previous scheme but instead of full value units, the executive is offered options/units/rights where they benefit from only the growth in the value. So they only receive the difference between the value at vesting and the value at commencement. There may be performance objectives attached to the vesting or a hurdle, such as a minimum level of company performance, below which nothing vests. These schemes should ignite executive commitment as benefits are closely tied to the success of the business. “The challenge with this type of solution is that the share price can be impacted by factors outside of the executive’s control and it can be tricky to set the performance measures today for market conditions and organisational objectives in three to five years,” says Grubb. Share Purchase Schemes “The third type of scheme aligns executive interest with shareholder interest. Executives are asked to invest their own money into shares so they are completely engaged with the shareholder vision.” “The ways in which the schemes are structured depend on who the shareholders are and what they prefer, the executives and the expertise within,” says Grubb. “Some companies have their own reward departments with specialists on board to advise them. In other instances executives seek the expertise of outside consultants on how best to construct and manage their packages. In both cases it is essential that the final package align with company strategy and ensure executive buy-in.” “Linking incentive to reward and reward to performance is an art form and many companies and reward specialists spend a good deal of time and effort in identifying and implementing the best solutions for their business,” concludes Grubb. “You need to define performance and establish which measures – financial and other – evaluate that performance. Companies need to be focusing on making sure that performance criteria are well-defined and that they are as relevant in five years as they are today.” ENDS MEDIA CONTACT: Cathlen Fourie, 012 644 2833, cathlen@thatpoint.co.za, www.atthatpoint.co.za For more information on SARA please visit: Website: www.sara.co.za Twitter: @SA_reward LinkedIn: South African Reward Association Facebook: SARA – South African Reward Association The importance of getting an executive remuneration policy right has once again been highlighted with the recent vote against the CEO and executive remuneration policy of South African food retailer Shoprite.
Investors voted against Shoprite’s policy arguing that the structure of the CEO’s package is mainly based on fixed remuneration and that there was insufficient provision for performance. Shoprite CEO Whitey Basson is paid just over R50m in salary and benefits. However, the fixed part of the package amounts to around R49m. Dr Mark Bussin, Exco member of the South African Reward Association (SARA) says executive pay is more complex than meets the eye. “A strategic take requires research that looks beyond how much executives earn.” This contrast of attraction, motivation and retention of good executives versus tough business control and media spotlights, place remuneration decision-makers in a difficult position. “Generally, executive pay in South Africa is linked to performance and our governance is on par with international standards,” says Dr Bussin. “The international trend of linking more of executive pay to performance is a good principle. Our executive bonus percentages are not out of line with international standards.” According to Dr Bussin, there are certain guidelines for setting CEO and executive pay. The most common factors to consider when devising a policy include the size of the organisation, the company’s performance, specific factors relating to the executives such as age, experience and career path, the structure of the organisation and job complexity. He adds that the remuneration committee must above all be able to defend their policy; there must be a direct link between the pay and the value that is delivered. One way of assessing a policy is to compare it to the market norm. Dr Bussin says “impeccable governance” is mandatory in the creation of a remuneration policy. “The board’s remuneration charter should acknowledge responsibility for setting the framework and reviewing the policy.” This requires all committee members to be aware of local and international trends relating to CEO and executive remuneration. It also requires constant engagement and a clear understanding of the company’s needs and future goals. ENDS MEDIA CONTACT: Cathlen Fourie, 012 644 2833, cathlen@thatpoint.co.za, www.atthatpoint.co.za For more information on SARA please visit: Website: www.sara.co.za Twitter: @SA_reward LinkedIn: South African Reward Association Facebook: SARA – South African Reward Association |
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