PwC report highlights need for 'ethical' executive remuneration
HR execs will have to pay close attention to how the debate unfolds.
The recently released PwC report on executive remuneration suggests that it is perhaps time for companies to put risk-adjustment mechanisms whereby the impact of corporate failures can be reflected in executive remuneration. The report questions The report considers the effect a breach of fiduciary duties or misconduct may or should have on the remuneration of executives whether companies should be able to claw back incentives paid to or vested in culpable executives in the event of a corporate failure.
Non-executive directors have an important contribution to make to the proper running of companies. By being independent, they bring a degree of objectivity to the board’s deliberations, and play a valuable role in monitoring executive management. However, in light of South Africa’s significant inequality, the subject of remuneration packages for executives of companies listed on the stock exchange, in particular, has been a hotly debated one.
HR leaders will have to pay attention to how the debate unfolds because, while there is a need to reduce the inequality in the country, executive remuneration is based international benchmarks, meaning that this is what companies have to offer to attract the best executive talent.
In 2017, the report states, the average pay for the CEOs and CFOs of the ten largest JSE-listed companies was R24.9 million and R15.1 million For executive directors, the average was R8.7 million.
According to this report, the Gini coefficient of the employed has declined slightly to 0.429 in 2018 from 0.431 in 2017 and decreased significantly from 0.44 in 2014 when PwC first measured this indicator. It also finds that the average pay ratio for a company - which is the ratio between the total remuneration of the CEO of a company and the average of the total remuneration of all other employees of the company - has increased from 61.8 in 2017 to 64.7 in 2018.
Reads the report: “Executive directors face a number of challenges that evolve every year, and their companies are increasingly being held to account for their contribution to social upliftment in the face of pervasive inequality. The boardroom discussions over the past few years around sound corporate governance standards have recently been thrown into sharp relief, and corporate failures across the world are a very real consequence of poor corporate governance.”