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CEO pay machine continues to play a merry tune

For the select few. Ching-ching.
A pocket full of … wry? Instead of actual performance, it seems those at the top are paid generously in the hope they will deliver generously. Image: Shutterstock

Naspers’s remuneration committee includes individuals with impressive-sounding CVs, so it’s disappointing that the best they can do to justify the egregiously generous remuneration ladled out to CEO Bob van Dijk and CFO Basil Sgourdos is repeat the same tired old excuses.

In its recently released remuneration report the committee says it believes in “pay for performance” and that it is “comfortable with bigger rewards for those that make the highest contribution”, which is why the two executives are R276 million and R158.3 million richer respectively.

Just in case you think the pay-for-performance and comfortable-with-bigger-rewards explanations are remarkably trite in the context of eye-watering remuneration packages, the committee goes on to explain that its “reward system” must help attract and retain the best talent around the world “in a fair and responsible way”.  What bland, self-serving, uninformative tosh.

Naspers’s results for financial 2020, excluding Tencent (over which the executives have no influence), were at best pedestrian.

The committee evidently operates on the basis that if its remuneration levels are among the best in the world, then its lucky executives must be among the best in the world. Essentially, they are being paid generously in the hope they will deliver generously. What lucky sods they are to be so comfortably entrenched in what US commentator Steven Clifford describes as the “CEO pay machine”.

Is Tencent’s world about to change?

Talking about Tencent, can it be much longer before international investors face restrictions – legal or otherwise – on investing in China-controlled Hong Kong-listed companies?

It was all well and good to pile into variable-interest-entities such as the extremely attractive Tencent while Hong Kong had a semblance of independence from China, but that has all changed.

Read: Tencent shares set for record high after $305bn rebound

Leaving aside the fact that the bulk of Hong Kong residents had severely limited rights under British rule, international opinion is turning against the Special Administrative Region since China has introduced tough new security laws.

Establishing the pecking order 

On more prosaic matters, it looks as though the guys behind Country Bird are heading into another bidding war over a chicken-and-egg investment. A few weeks after Country Bird bought up Zeder’s 30% stake in Cape-based Quantum Foods at R5 a share, with the possible intention of going for control, another bidder emerged out of the blue.

Read: Rights issues, competition issues, and a food fight

Luxembourg-based investment fund Silverlands was the buyer behind the recent purchase of a 32% stake from a variety of institutions. If it teams up with Quantum management, Silverlands will be part of a block controlling over 50% of the company. That would put an end to any control ambitions Country Bird has.

Four years ago, after a long drawn-out and fractious battle, Country Bird was also thwarted in its bid to get control of Sovereign Foods. If it can sell out at R6 a share it will have done well out of its brief investment. Or might we be in for another drawn-out affair?

Quantum has been a great if understated investment, even for shareholders who didn’t manage to sell out when the share recently reached a high of over R7.

Another round for the winners in M&A

News that Steinhoff is selling Conforama France for a nominal sum is a reminder, if one was needed, that the undisputed beneficiaries of mergers and acquisitions are the advisors, lawyers and bankers.

Read: Steinhoff agrees to sell stake in Conforama France to Mobilux

They scored when Conforama was purchased not too many years ago in a widely celebrated deal, and they’ll score again as it is sold off.

The Steinhoff shareholders didn’t do quite so well.

One of those shareholders is Christo Wiese who must have spent much of the past three years ruing the day he ever clapped eyes on Markus Jooste or thought Steinhoff was a great vehicle to use for the international expansion of his business interests.

Last week it seems Wiese’s bank funders forced him to sell off around a third of his remaining stake in Steinhoff.

About two months after the December 2017 meltdown Wiese’s banks sold a huge chunk of Steinhoff shares that he had used to secure margin loans.

That forced sale took Wiese’s stake to 6% from 20.52%. Last week’s forced sale of another 2.3% of Steinhoff’s shares takes his stake to just under 4%.

Telkom splurging on its execs

Telkom isn’t letting minor issues such as rising debt levels and declining profits stop it from splurging out on share repurchases. Last week it spent R233.6 million buying back shares, which will be used to back the inappropriately generous remuneration packages awarded to its executives.

The shares were repurchased at between R29 and R35 a piece, up from the recent low of R15 hit in March, but well off the pre-Covid lockdown trading levels.

Even though the share repurchase may appear attractively priced it is galling that the shares will now be dished out to a management team that has failed for so long to come up with a profitable long-term strategy.

As with Naspers’s  remuneration, this seems neither fair nor responsible.

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Which is why I always vote against the remuneration policy. Pity 100 shares doesn’t move the needle.

The executive didn’t start the company and they aren’t taking the risks so they shouldn’t be getting these rewards

But quite happy to enjoy the booming share price in your stock portfolio though right?

People still seem to think execs make the compensation from a salary when in reality the vast majority of it comes from long term incentives for hitting ambitious objectives.

These include increases in revenues, profits and share price. This benefits me (the shareholder) greatly and I am more than happy to handsomely reward the execs when a company and share outperforms consistently. Judging by how shareholders vote for exec compensation shows that most agree with this approach too.

I am only against exec bonuses and rewards when a company has been consistently flat or in decline – that to me is egregious!

You obviously “missed” M&R, SASOL, Tongaat and Steinhoff etc. I certainly missed their “booming share price”.

Last night, after the president scolded us like children, there was a repulsive bit of regime praise singing by one Adriaan Basson, online editor of News24. Given the odious role of the media in supporting the regime, I have less than zero sympathy for the Naspers journos who are facing the axe.

I also vote mostly against the remuneration clause, especially if I see that the workers only got inflation adjusted increases, but the management board sometimes in double figures.

It goes far beyond any logic in any case, if the management board gets remuneration 10X more than the highest skilled workers’ pay. Then it really becomes very difficult to justify that pay gap.

Ann has it so right.

And this becomes even more relevant now: https://ventureburn.com/2019/06/the-silent-naspers-coup-opinion/

Bob is nothing spectacular or even needs to be paid what he’s getting. If he was visionary or had initiative sure, but the best coming out of Naspers is to buy EBay. Really?! (The B-team will become the A-team again?) Smacks of using ‘our’ money to fund a bunch of mates if you ask me.

Even the split listing hasn’t fixed the ‘rump’ issue.

He should not earn off of any Tencent upside.

Just my 5c

He doesnt earn off any tencent upside. Please research a bit before you make baseless assumptions

https://www.msn.com/en-za/kids/other/naspers-extraordinary-salaries/ar-AAEIgwN

“Awards will not vest annually, but on a once-off basis after three years and will be measured on the three-year CAGR on the valuation of the Ecommerce SAR plan, excluding Tencent, relative to an appropriate equity index.”

“The first component of the LTI is based on share appreciation rights (SARs) which are measured on the difference in total value of the discrete assets within the e-commerce scheme (excluding Tencent) over a four-year phased vesting period. This accounts for 41% of the incentive.”

Pieter:

Who values the E-commerce SAR plan?

There is a simple way : the change in the negative value the market ascribes to ECommerce SAR portfolio. So last year the market said that everything else the 10c Share Certificate Custodians did was valued at negative 100 billion. This year is is negative 90 billion. So management reduced the discount ascribed to them by 10 billion – pay them 100 million makes a huge amount of sense in that warped world I suppose.

Very simple : Fire the lot, give away their pizza delivery to ANYBODY that will take it for R1 or for less than asking R100b to haul it away. Then distribute the 10c shares to their rightful owners.

If these execs like their food delivery so much they would assumedly jump at the opportunity to convert the value of their listed equity into direct equity in the underlying shares. Maybe they want to MBO the unlisted entities!

Who is responsible for the high CEO remuneration?

The CEO’s themselves have questionable characters and the board members as well.

The fund managers have for decades failed in their fiduciary duty to look after their members interests by voting for these CEO packages.

Anyway, Old Mutual have recently shown that if the CEO cannot carry on, the number two takes over and usually does a sufficient job on a more “normal” salary package, calling the high CEO package into question.

Seems the better option is that the shareholders approve the size of the “Total Company Salary Budget”, and then a democratically elected committee from the EMPLOYEES, decide on the appropriate allocation of these funds amongst everyone (including the directors!).

That way, the wages are more equitably distributed amongst the employees doing the real work.

And the employees themselves also have a vested interest in keeping the competent executives that their continued employent depends on.

Seems a win-win for reality?

End of comments.

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