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.
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