South African Reward Association

8 March 2018

Reward Association launches King IV Guide to Remuneration Governance

The South African Reward Association (SARA) has launched A guide to the application of King IV™: Principle 14. Governance of Remuneration. The guide was co-authored with the Institute of Directors in Southern Africa (IoDSA) and is intended to help reward specialists – as well as members of governing bodies and other stakeholders – better understand and apply the principles of King IV in regard to remuneration.

“Many reward specialists struggle with the practical application of the remuneration principles and recommendations of King IV,” says Martin Hopkins, Master Reward Specialist and Exco member of SARA. “A particular sticking point is the reporting of the organisations’ remuneration policy and the implementation report, especially given King IV’s emphasis on increased disclosure.”

Hopkins joined his fellow SARA Exco members and Master Reward Specialists Morag Phillips and Laurence Grubb in launching the Guide at a breakfast attended by 150 reward professionals who are responsible for the design, development and implementation of reward strategies, policies and processes that will support organisational strategies.

King IV is only applicable to integrated reports relating to financial years ending after 1 October 2017. The first King IV-compliant remuneration reports are only now being published. These reports will be the first examples for professionals to learn from.

One of King IV’s most notable innovations is the requirement that the remuneration disclosure should reflect a single total figure of remuneration for each member of executive management relating to the reporting period. This single figure should encompass the salary, benefits, short-term and long-term incentives and any other remuneration elements. The values for the short and long term incentives should be reflective of the period of performance covered in the annual report and not necessarily of the time of payment. The idea being that the reader can relate the payments to the performance during that period.  

The single figure follows broadly the principle established in the United Kingdom, and now part of its company law. It is intended to make it much easier for stakeholders to establish what remuneration an individual received during the reporting period, and to compare this with performance. The single figure also makes it easier for readers to compare remuneration across reporting terms.

A fundamental principle of single-figure disclosure is to identify when remuneration is received or receivable, in order to enable this comparison between remuneration and performance during a specific period.

King IV also requires unvested awards to be reported, again in order to promote transparency and to give stakeholders a clear indication of future liabilities contingent on the performance targets being met.

Establishing these values can be complex, says Hopkins, because many performance incentives have a number of variables, such as vesting dates and valuations, and may refer to share prices or other measures. The Guide details the principles informing how each of these elements should be disclosed.

More broadly, the Guide contains detailed notes on each of the Recommended Practices relating to King IV’s Principle on remuneration (Principle 14).

Remuneration is an important performance driver, but a remuneration policy that is unfair or is perceived to be unfair can negatively impact an organisation’s sustainability and it’s shareholder voting. King IV aims to provide a framework for achieving a fair and effective remuneration policy that can be defended convincingly.

“However, it is a complex area and sufficient implementation will only be achieved over time and as the result of focused effort by the remuneration committee. This Guide is designed to provide practical help to achieve the outcomes envisaged by King IV.”



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