SARA calls for centralised remuneration committee for SOEs

South African Reward Association
7 March 2022

The litany of serious governance failures laid bare in the published elements of the Zondo Report is a wake-up for South Africa, and remuneration issues are at the heart of the problem—and it’s solution, argues Dr Mark Bussin, Executive Committee Member of the South African Reward Association (SARA).

“In many instances, inappropriate remuneration is the coalface of corruption and incompetence in our state-owned enterprises (SOEs) because, after all, it boils down to money,” he says.

“If we sort out remuneration, we are half way to putting our SOEs back on the path for growth, with tremendous knock-on benefits for the economy as a whole.”

A major contributor to the problem comes from the way in which Ministers often appoint CEOs directly. Best practice as recommended in King IV’s Supplement on SOEs advises that Ministers only appoint CEOs from a shortlist compiled by the board.

Bypassing the board reduces it—and its committees, including the remuneration committee—to a mere rubber stamp. A CEO that is appointed directly by the Minister is in a position to instruct the remuneration committee to approve unjustified and excessive pay hikes and bonuses as has been done in numerous SOEs.

Another key issue that emerges from the Zondo Reports is the negative impact of cadre deployment. With political connections counting more than competence or ethics in many of these deployments, many remuneration-committee members are incompetent even if they are not actively corrupt.

This means they cannot properly interrogate remuneration benchmark studies and ask the right kind of searching questions.

“In fact, these incompetent but politically connected individuals can easily be led to a foregone conclusion,” he says.

Dr Bussin believes that too many board members rely on their emoluments from a single board, inclining them to adopting a passive role when it comes to controversial issues, such as the perennially vexed question of executive pay.

To preserve their independence, non-executive directors should not be allowed to earn more than 20% of their income from one company, he says.

“The real culprit here is cadre deployment which simply loads overheads onto companies for scant benefit. One way to attack this problem would be simply to do away with individual SOE remuneration committees, and institute a central one under the auspices of National Treasury,” he says.

A similar approach was evident in President Ramaphosa’s 2022 State of the Nation, which indicated that moves were afoot to implement a centralised shareholder model for SOEs to improve governance. Many commentators pointed out that in essence the plan suggests that the only way to bring the sector under control is to impose governance from above.

A centralised remuneration committee would immediately eliminate the need for hundreds of expensive board posts—a quick win for cash-strapped SOEs.

“More important still, this approach would re-establish the link between remuneration and executive performance and value delivered to the company. It would also make being a deployed cadre much less attractive to incompetent and corrupt individuals,” Dr Bussin concludes.

“Centralising remuneration could be accomplished easily and the payoffs would be large and immediate.”


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