<\/p>\n
You can also listen to this podcast on iono.fm here.<\/p>\n
SIMON BROWN: I\u2019m chatting with Leila Ebrahimi, partner, Executive Reward, Tax and Legal Services at PwC South Africa. Leila, always appreciate the time.<\/p>\n
The new Companies Act \u2013 we have talked around it; it is now law. It came into effect last month, as I understand. What does this mean for companies? Is it effective immediately? Is there a grace period for implementation?<\/p>\n
LEILA EBRAHIMI: Hi, Simon. Yes, exciting times indeed. The most controversial part of it, I suppose, is the fact that there isn\u2019t a grace period. It is essentially effective immediately. You are right, it came into effect on the 22nd of May 2026.<\/p>\n
No transitional arrangements. We weren\u2019t expecting them. We had been given forewarning that there weren\u2019t going to be. But of course, there\u2019s always a bit of hope.<\/p>\n
So there were some companies, interestingly, that were sort of caught between having published their remuneration report in their notice of AGM, but not yet having had the AGM, who suddenly didn\u2019t know what to do.<\/p>\n
Read: Companies Act: What firms need to know on new remuneration disclosures<\/p>\n
Our advice as PwC has been, well, you\u2019re expected to comply. But obviously there\u2019s an element of practicality, and of course there were some companies who sought legal advice as to whether it was possible to comply, especially if their AGMs were in a couple of days.<\/p>\n
SIMON BROWN: I get your point. In fairness, I get the company \u2013 a bit of a surprise. We\u2019ve been talking about it for a while, but then suddenly it gets signed by the president and we\u2019re not sure about that date.<\/p>\n
There\u2019s a lot in it. The big one, of course, is around executive remuneration policies, the annual remuneration reports. These are put to a vote, but the vote has always been non-binding. This now becomes a binding shareholder vote. What is this process? What happens if shareholders vote against it? We see this from time to time.<\/p>\n
LEILA EBRAHIMI: We do. It\u2019s not very common; we can speak about that maybe a bit later. But in terms of what happens I think it\u2019s important to first \u2013 and I always do this to you \u2013just break up what the Rem [remuneration] report contains. The Rem report usually contains your three different sections, and that\u2019s now of course mandated by law.<\/p>\n
So we have the background statement, where your remuneration committee chairperson sort of talks you through decisions during the year and those sorts of things, the context.<\/p>\n
Then we have the remuneration policy, which now has a binding vote on it, which I\u2019ll explain now.<\/p>\n
And then we have the implementation report, which is sort of reporting on the prior year\u2019s outcomes and decisions taken and all of that.<\/p>\n
And then the second vote that the shareholders now get is on the whole remuneration report. In the non-binding advisory regime, the second vote was just on the implementation report. And now the way it\u2019s been phrased is that it\u2019s actually on the whole report.<\/p>\n
So the first vote is the binding vote on the policy, which means you need to get your remuneration policy approved by shareholders \u2013 so ordinary resolutions, 50% or more, if you want to implement it.<\/p>\n
Read:
Navigating the RemCo annual cycle: Core steps for effective remuneration governance
SA\u2019s corporate pay shake-up: What new disclosure rules mean for workers and CEOs<\/p>\n
And then the second vote is the sort of what do you think of how we implemented it; but also, as I mentioned, it\u2019s on the whole report. And the implications of that are very interesting. So that remuneration report vote is sort of what we call the \u2018two-strike rule\u2019.<\/p>\n
So if the report is voted down, also an ordinary resolution; if you fail that one year, then nothing really happens. But the Remco members, the remuneration committee members have to stand for re-election at the next AGM.<\/p>\n
So fast forward a year. At that AGM, explanations have to be given [as to] what did we do about the negative feedback? And also your Remco members need to be elected to the Remco, which is quite anomalous.<\/p>\n
And then if you fail that vote again at that second AGM, then those Remco members are actually disqualified from serving on the committee for two years.<\/p>\n
SIMON BROWN: Okay, so we\u2019re not blocking pay or policy, but this is giving some proper teeth to shareholders, if perhaps in a bit of an abstract rather than direct way \u2013 if that makes sense.<\/p>\n
LEILA EBRAHIMI: Well, I would argue that it is actually blocking pay policies in the same manner as the UK. So that binding vote on the Rem policy, the implication is the shareholders have the power to block a policy that they disagree with.<\/p>\n
If you don\u2019t pass that ordinary resolution you\u2019re essentially not allowed to make any payments in terms of that policy because you don\u2019t have an approved policy. So you would need to fall back on a previous policy, or you would need to revise your policy and go to a special general meeting.<\/p>\n
Read: Pay equity matters: Top priorities for remuneration committees in 2025<\/p>\n
SIMON BROWN: And if you look at last year, over 80% of policies were approved by shareholders, which is a big number. The flip side is that almost 20% were not approved, and that maybe is the real big number.<\/p>\n
LEILA EBRAHIMI: Yes. So most policies get approved at the moment. But of course we have the 75% threshold, so 25% or more negative. And then you don\u2019t fail. So now of course \u2013 I keep repeating this, but it\u2019s important \u2013 it has moved to the ordinary resolution.<\/p>\n
So we don\u2019t expect many companies to fail that 50%. I mean it really is anomalous. It\u2019s when something massive has happened, we normally see that occurring mostly on the sort of Rem report vote.<\/p>\n
So if you think about it, decisions taken during the year we weren\u2019t happy with, rather than saying, \u2018We\u2019re not happy with your policy and how you want to pay\u2019.<\/p>\n
But of course, we\u2019ve seen a couple of AGMs in the last, I\u2019d say, a week or so, where the 75% essentially failed; and it was sort of sailing close to the wind in some parts on that 50%. So it might very well be that we\u2019re going to have different voting outcomes now and it\u2019s going to be taken more seriously.<\/p>\n
But any level of dissent is significant, and one needs to be very proactive in addressing shareholder concerns, regardless of what the threshold is.<\/p>\n
SIMON BROWN: Agreed, 100%. I take your point. Shareholders, as much as boards and Remcos, will perhaps give more thought to the whole process. It\u2019s then about \u2013 and this is the challenge to Remcos \u2013 optimising between sort of fairness and competitiveness.<\/p>\n
I\u2019ve never sat in a Remco, but I appreciate, I think, it\u2019s probably a lot more effort than a lot of people out there listening really think. And the one really great stat from your report is that only 39% of execs see long-term incentives as sort of effective motivators.<\/p>\n
Yet they\u2019re often the large part, which means that boards \u2013 and in particular the remuneration committees \u2013 need to have a really strong look at the whole overall structure and how we make it fair. How do we make it competitive? This is a tension that kind of needs to be threaded.<\/p>\n
Read:
Ex-Capitec CEO scores R155m payday
New Woolies CEO gets R100m carrot to double share price
Absa\u2019s Kenny Fihla gets R98.5m buyout award after joining from rival<\/p>\n
LEILA EBRAHIMI: Yes, absolutely. And I love this topic. This is the whole psychology of pay. I always say to my clients, \u2018You\u2019ve got to make sure you\u2019re getting bang for your buck in these long-term incentives\u2019.<\/p>\n
We love to design these fancy things and then effectively, if nobody understands them, you\u2019re not motivating the right behaviour, you\u2019re not actually locking in your executives, et cetera, but we are paying a lot of money for them. So that\u2019s 39%\u00a0stat.<\/p>\n
We had very fascinating research in the UK \u2013 our PwC firm did \u2013\u00a0which basically surveyed a lot of executives and looked at how they valued their long-term incentives. Are they discounting it psychologically? That\u2019s how we talk about it.<\/p>\n
And we decided, you know what, it\u2019s about time that we replicate this research in the South African market \u2013 which we have then run in the last 12 months.<\/p>\n
It is the same. In fact, it might even be more pronounced in the South African market. And the more complex your LTIs \u2013 or your long-term incentives \u2013 are, and the more deferred they are, the less they are valued, which seems obvious. But I think we used to think that executives can sort of understand and do that risk-return trade-off.<\/p>\n
Actually if there\u2019s enough return in it, they don\u2019t mind the deferral. We didn\u2019t think the discount would be so pronounced.<\/p>\n
So it really should impact the way that you design your long-term incentives for executives if you want to get that lock-in which you\u2019re looking for, and you want to drive the right behaviours \u2013 which essentially should be a win for your executives and a win for your shareholders, that sort of growing the pie for all that I like to talk about.<\/p>\n
Read: Were it not for caps, Investec CEO\u2019s R180m pay would\u2019ve been higher<\/p>\n
SIMON BROWN: Absolutely. And it is going to be that fine line. I agree with you. I think it\u2019s solvable. Everything is solvable. It just needs to be, I suppose, tackled.<\/p>\n
The last part of the question is this. Part of the disclosure process for the new act is the wage gap ratio between the top and bottom 5% of earners at a company. We\u2019ve actually seen some companies already talking about this. It certainly is going to make some giant exciting flashing headline numbers, et cetera.<\/p>\n
Is it going to be meaningful? The one thing is we could just outsource low-income staff. Is this going to be meaningful because the headlines are going to be screaming at us? But I don\u2019t know about the practicality.<\/p>\n
LEILA EBRAHIMI: I don\u2019t know. I think transparency always has some sort of effect in terms of behaviour \u2013 whether it has the right effect or the wrong effect, which is debatable. And I think that we encourage, of course, all companies to really look at the purpose of the amendments, what they were trying to achieve, and take actions which accord with that.<\/p>\n
But I really do encourage companies that are disclosing these ratios not to just disclose a cold ratio with no context, and also not to just disclose the ratio as a compliance exercise. This is really an opportunity to dig in.<\/p>\n
We do a lot of this, looking into fair and responsible pay and saying, where are their opportunities? Because ultimately what we\u2019re trying to do here is we\u2019re trying to create prosperity for more.<\/p>\n
Read: South African executive pay rises amid global talent race<\/p>\n
We\u2019re trying to grow the pie for everyone, and we\u2019re trying to improve the lives of South Africans at all levels.<\/p>\n
And I think if we approach it in the right way, this is really an opportunity to demonstrate all of the amazing things that companies are doing, because so many companies are doing amazing things and creating amazing opportunities, creating employment, creating upliftment and career progression and all of these things.<\/p>\n
And I\u2019m hoping that a lot of that comes to the forefront with these discussions, and a lot of that becomes the focal area rather than just a very simplistic focus on the ratios.<\/p>\n
SIMON BROWN: I like that \u2013 you know, conversations \u2013 and we\u2019ve talked before around what are living wages versus minimum wages and those sorts of debates, and rise those to the fore. They might not be as headline-grabbing, but I take the point. This is what companies are there for.<\/p>\n
We\u2019ll leave it there. Leila Ebrahimi, partner, Executive Reward, Tax and Legal Services, PwC South Africa, always appreciate the time.<\/p>\n
#Executive #pay #Navigating #South #Africas #Companies #Act<\/p>\n","protected":false},"excerpt":{"rendered":"
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