FIFI PETERS: The average salary of CEOs of some of the biggest companies on the JSE was almost R11 million, according to the PwC Executive Pay Report. The pay package for CEOs on the rest of the continent wasn’t too shabby either, with executives there earning on average around R4.1 million. Also chief executives in Nigeria are among some of the highest paid on the continent.
We have Makhosazana Mabaso, a senior manager in PwC’s people and organisations division, to talk us through the key findings of the report. Khosi, thanks so much for your time. While most workers had their pay cut during the pandemic owing to companies saying that it was tough and they had to make tough decisions, the numbers that you have presented now in the C-suite, do they represent an increase in pay or a cut in pay?
MAKHOSAZANA MABASO: Thank you so much, Fifi, for just affording me this opportunity. I would like to say that if you look at the at the numbers now, comparing them to last year – even though we do indicate that it wouldn’t be prudent to do so, especially because of the impacts of Covid-19 – we do see that, with reference to the R11 million that you referenced, it’s actually a decline from the prior year and it’s impacted by the fact that there were executive directors who took pay cuts, even though they weren’t permanent pay cuts. We’re yet to see whether executives will continue taking pay cuts in the years that come.
FIFI PETERS: Remind us again what it declined from, this R11 million.
MAKHOSAZANA MABASO: You made reference to the R11 million, and that’s specific to the basic materials industry within the large cap. If we had to compare those in the prior year it was R19.48 million, and this year it’s R11.71 million. But, like I said earlier, we can’t necessarily compare these numbers, specifically because of the impacts of Covid-19.
And then another thing to note here is that the large cap (sector) also has global companies that form part of this and with the global companies forming part of this, we need to become aware of the fact that these numbers are impacted by exchange-rate fluctuations as well.
FIFI PETERS: All right. That is why you also guide in your report that, on average, if we look at the global and the local, and we get an average between the two, it’s around R5 million – that’s where the salary comes in.
MAKHOSAZANA MABASO: Exactly. Yes.
FIFI PETERS: And who were some of the biggest paid CEOs? Which sectors did they come from?
MAKHOSAZANA MABASO: We are looking at the basic materials sectors, as I said earlier, with the financial services industry as well. And then in terms of averages we are also looking at the consumer goods industry that is paying CEOs quite a lot. But I’d like to (give) the average as well, because averages are very much impacted by but the number of constituents that form part of the data that we analysed. I also wouldn’t say that people should use this for benchmarking purposes.
FIFI PETERS: Like what – what are the constituents that impact the average?
MAKHOSAZANA MABASO: If you’re looking at the large cap, for instance, it would obviously be impacted by the JSE top 10 companies that form part of that. From a basic materials perspective you’re looking at your Anglo American plc, Anglo American Platinum.
From a financial services (point of view), like I said, because they’re also one of the industries that pay on the higher end, you are looking at your FirstRands of the world that form part of that constituent.
FIFI PETERS: All right. So by basic materials you’re referring to the mining companies?
MAKHOSAZANA MABASO: The mining industry yes.
FIFI PETERS: Okay. And then talk to us about the situation outside South Africa in Botswana and Kenya and Ghana and Nigeria, where you also surveyed the pay of executives.
MAKHOSAZANA MABASO: What was quite interesting for me here is the fact that when we compare it to prior years, it looked like the numbers didn’t necessarily increase by that much. As you noted earlier on, Nigeria being one of the biggest economies in Africa, pays its CEOs on the higher end. Compared to South Africa, historically we are used to see that South African executive directors used to be paid at a significant premium when you compare them to the other sub-Saharan countries – over recent years we’ve kind of seen that that premium is decreasing.
FIFI PETERS: So what does the decline in that premium mean?
MAKHOSAZANA MABASO: The premium was associated with the fact that talent was just in South Africa, purely in South Africa. It just means that the talent pool is widening outside South Africa, so you can get directors from the other countries as well.
FIFI PETERS: So the C-suite has become a lot more competitive. I think that your survey is suggesting that the fat salaries that South African executives have become used to might need a bit more negotiation going further, given that there is talent elsewhere.
MAKHOSAZANA MABASO: The talent pool is definitely opening up. Whether it’s sufficient – that’s a story that we still need to assess in the future, but the talent pool is getting wider.
FIFI PETERS: You know, Khosi, often when the remuneration report comes out, people look at whether the pay packages that some of these top executives are getting match the profits that they are creating at the companies they lead. Previously what has been the case is that there’s been a mismatch. Sometimes companies have even been making losses, and yet CEOs and CFOs and COOs have seen their pay increase. What have you seen this time around?
MAKHOSAZANA MABASO: Like I said, in terms of the fixed-pay element of it, it’s generally stayed the same; a lot of directors haven’t received increases. We have observed that some of them have taken pay cuts; whether temporary or permanent, they have taken pay cuts.
And then in terms of incentive structures, being your bonuses and your long-term incentive plans where they get shares, we’ve seen a variety of things happen. This is where the remuneration comes into play and they have to apply discretion.
So in terms of bonuses, one of the things that we have seen is that sometimes Remcos (remuneration committees) have applied their discretion and said that, if bonuses were due to executive directors, we will reduce them because we haven’t made sufficient profits. And they’ve even gone to the extent of saying that if we’ve met some of our targets but we haven’t paid a dividend, we will not pay bonuses to our executive directors or anybody in the company.
We’ve seen companies doing things such as deferring a portion, or the entire bonus, for executives and saying we will not pay it now, we’ll pay it later. This is just to align the executives to the shareholder and have everyone [feel the pain] because you can’t have shareholders only feeling the pain.
The remuneration committees have had to apply their discretion. Obviously there have been instances where we found that no discretion at all was applied. However much the bonuses were calculated [at], they were just paid out to executive directors.
And then we have seen guidance as well from where it has been indicated that, specifically for the financial services industry, where the Prudential Authority put out a guidance note indicating that in the event that the company hasn’t declared a dividend or is not paying out a dividend, they wouldn’t advise that companies pay any bonuses to the executives or material risk-takers. And they generally followed that that guidance.
And then in terms of long-term incentives, what we have seen companies doing is postponing the allocation of long-term incentives. And again, Remcos now, in the event that long-term incentives were vesting to executives and employees, meaning that they had to pay them out, we found that they were applying their discretion just to make sure that executives are not gaining too much as a consequence of Covid.
So we’ve seen a variety of responses and all the companies that we have assessed are accordingly looking at the situations as specific to them.
FIFI PETERS: As you say, it will be interesting to see if some of these cuts have been temporary or if they are more of what we should start getting used to in terms of the level of pay. But what were some of the highlights and standouts of this year’s report?
MAKHOSAZANA MABASO: The other highlight for me – and again it speaks to building trust between the companies and the stakeholders – was that article that we wrote on engaging with your shareholders, making sure that you’re transparent, and you are giving them the relevant information. But with that being said, it means that shareholders also need to come to the fore in just communicating their policies to these companies and indicating when they’re unhappy with something. For me that really stood out because it meant that if you are communicating with your stakeholders, you can have a good relationship and basically a trust relationship.
And then another thing for me, being female especially, was just the different methods that companies could use in order to make sure that they bridge that gender pay gap and they basically ensure that there’s more representation in terms of gender within leadership in companies. These include things such as sponsorship programmes, things such as mentoring, and just making sure that whatever skills-development programmes companies have in place are specific to the employees that they have. In addition to the numbers, that is what stood out to me.
FIFI PETERS: Being female as well, I’m going to go in on that angle, because it looks like the situation is still bleak – 13% or so of the boardroom seats in the top companies listed on the JSE are occupied by women. Not good, not looking good at all. Why has progress in your view been so slow?
MAKHOSAZANA MABASO: It’s definitely not good. But as we’re doing this and we’re looking at what’s been happening globally, what stuck out to us is that it’s not just in South Africa. It’s … locally and globally that these numbers have been very much stagnant. Part of the research that came through kind of indicated that it could have been as a result of Covid – like everyone is trying to understand what the impacts of Covid will be – that gender diversity kind of took a step back. But we’re hoping that it’s going to come [to] the fore going forward.
If you look at the race numbers, you can see that they have improved. And if companies were to put as much effort into gender diversity as we’ve seen on racial diversity, definitely numbers will get better and the gap will narrow.
FIFI PETERS: And then what about that pay gap? I read a report the other day that said that it will take about a hundred years or so, maybe even more, for the gap between what men earn and what women earn to be closed. Obviously men are leading in this race, and I’m thinking a hundred years or so – that’s my age and probably your age and the age of a listener and their child combined – who’s going to be around for that long? So what’s the situation looking like when it comes to pay and making sure that we get a fair cheque, both men and women?
MAKHOSAZANA MABASO: Again, it’s not looking great, specifically when you look at the medium-cap companies where it’s wider, sitting at 46% on a median basis. This is when you’re comparing the median TGP (total guaranteed package) of a female to the median TGP of a male, and it basically says that females get paid 46% less. But for me what stands out is representation, and if you fix representation we should get to a better point. Again, race is an indication of this because on a racial perspective we’ve got better representation and as a result it looks like the pay gap is getting better.
But with that said, what was very encouraging to note is that looking at the basic materials industry, being the mining industry, even though it’s marginal it does look like they pay a 4% premium to their females when compared to their male employees.
FIFI PETERS: All right. Not good news at all, Khosi, our being paid 46% lower, I think you said as females compared to men. This is why the 50:50 equation doesn’t work in my world – but that was a cheeky comment! I will leave it there.
Khosi Mabaso is senior manager in PwC’s people and organisations division.