FirstRand exposes a vulnerability in South Africa’s financial system

The banking sector is seemingly being held hostage by a relative handful of people able to cope with its complexities. But there is at least one way around this.
The industry’s executive placement strategy leaves everyone else – from the banking public to shareholders, even the Reserve Bank – horribly exposed. Image: Dwayne Senior, Bloomberg

It might be that, a few years down the track, FirstRand’s ‘Covid instrument’ proves not to be the most generous executive pandemic perk made available to the top echelon at JSE-listed companies.

Most of the largest companies have allocated share awards at Covid-knockdown prices to their executives. Assuming economic conditions and share prices trend back towards normal over the next few years, those share awards will become extremely valuable.

And then it will become very obvious that we weren’t all in this together. In the medium- to longer term executives of listed companies will emerge considerably better off than most of us.

Covid and executive opportunism will have aggravated inequality.

That FirstRand’s remuneration plan scored an unprecedented 56.7% opposition from shareholders is an indication that even large institutional shareholders are weary of the usual self-serving explanations for executive largesse.

Read: FirstRand hopes to return to dividends next year

FirstRand’s explanation was self-serving, but the accompanying narrative provided at last week’s AGM by its remuneration committee chair Louis von Zeuner was particularly forceful.

Remarkably, at various stages during the meeting members of the FirstRand board seemed to suggest that failure to compensate executives for the Covid-induced hit to their long-term bonuses could affect South Africa’s financial system.

“FirstRand is a large systemic institution and the custodian of billions of rands of savings of the South African public and business community with a customer base of eight million,” said Von Zeuner in response to questions about the innovative ‘Covid instrument’ that will compensate executives for the Covid-related impact on their long-term incentives.

For example CEO Allan Pullinger received a R19.3 million boost to his 2020 reward thanks to the Covid-instrument.

This makes up for much of the lapse in long-term awards that were made during 2017 but not for the absence of short-term bonuses in 2020. The long-term incentives lapsed because of the economic fallout from Covid-19 and the consequent lockdown, which meant that return on equity in the 12 months ended June 2020 was far short of the target needed.

Lip service

As Tracey Davies, director of non-profit shareholder activism organisation Just Share, pointed out to those attending the AGM: the thinking behind the Covid instrument appeared to be at odds with commitments made by FirstRand earlier in the year, when President Cyril Ramaphosa asked business leaders to make sacrifices given what was at stake.

Eight months later there’s little sign of sacrifice from the bank’s executives.

Or almost any other executive of a listed company for that matter.

No doubt, like all the rest of us, the executives have taken a hit. How sustained and how hard will only be known a few years down the track. But it’s worth noting that the FirstRand share price has already recovered significantly from the worst of its early Covid knock and next year’s earnings should benefit from the non-repeat of the “conservative front-loading of impairment charges”, which accounted for much of the earnings knock in 2020.

This means the Covid-instrument share-based awards allocated during the last few months are already looking considerably more valuable.

The difficulty for shareholders and probably a vast chunk of FirstRand’s eight million customers is the sense of entitlement that underpins the creation of the Covid instrument.

Executives evidently believe they are entitled, not just to generous levels of guaranteed pay, but to long- and short-term bonuses, regardless of what happens. In this world a bonus is no longer something over and above normal expected payment; it is a part of the expected payment.

Tall-order jobs

“This is an institution that is complex and important to the broader SA economy and the skills set to run a business of this nature is limited,” said Von Zeuner.

Implicit in Von Zeuner’s explanation for the Covid instrument was the suggestion that if FirstRand’s senior executives are not compensated for the Covid hit to their remuneration, they will accept the apparently limitless number of job offers available to them – not only from South African financial institutions “but even global institutions”.

When asked by Just Share’s Emma Schuster if FirstRand would share the information that Von Zeuner referred to when talking about fears of senior executives leaving the group, the remuneration committee chair seemed to bristle – as though he suspected Just Share wasn’t entirely buying the explanation.

He launched into an aside on the group’s integrity. “Our value system and integrity are not negotiable.”

As proof of that integrity Von Zeuner pointed out: “We didn’t change the vesting rules.”

Remarkably, the remuneration committee has the discretion to alter the vesting rules to ensure executives get paid bonuses regardless of what happens. (Changing the vesting rules is the option Standard Bank has chosen in preference to FirstRand’s Covid instrument route.)

It seems Just Share and any other concerned stakeholder will just have to take the bank’s word.

The ‘systemic institution’ aspect

Group chair Roger Jardine added to Von Zeuner’s systemic warning, explaining to shareholders that the board is aware that the issue of inequality is “a burning platform” in our society but that it is also “mindful that FirstRand is a systemic institution.” And, as though trying to console shareholders, he added: “We looked around the market and by no stretch of the imagination are our executives remunerated way ahead of our peers.”

Jardine explained that the board wanted FirstRand to be standing strong post-Covid.

“We think the measures we’ve taken will go a long way to ensuring that.”

If Jardine and fellow director Von Zeuner had been trying to comfort shareholders, they failed spectacularly.

The vote against the remuneration implementation report was an unprecedented 56.7%, a sharp hike from the 19.5% that opposed the report at the 2019 AGM.

“Very clearly shareholders aren’t pleased with the Covid instrument as constructed,” concluded Jardine.

Bigger issue

But perhaps the bigger issue raised during the 2020 AGM was how vulnerable South Africa’s financial system is to being held hostage by a relative handful of executives.

The danger is not just that these executives might head out the door in droves but that even if they don’t go, they’ll be so distracted by the knock to their remuneration that they won’t be able to do their jobs properly.

“It is extremely important that we retain our talent and get them to focus – without being concerned about rewards – on the task at hand,” explained Von Zeuner.

Simple solution …

There is no doubt – thanks to rapidly-changing technology, increasingly detailed regulatory oversight, and complicated and ever-changing accounting standards – that banking in the 21st Century is complex.

But this complexity hasn’t just arrived on FirstRand’s doorstep; it’s part of an ongoing process.

Chief investment officer at Aeon Investment Management Asief Mohammed, who attended the AGM and described FirstRand’s response as tone deaf, said the group should be constantly building a large talent pool.

With 50 000 employees, there are surely systems in place designed to identify and train enough people to ensure there are at least a handful of potential candidates available to replace every disgruntled executive demanding more money?

If not, then perhaps the executives and directors in charge of nominations and risk need to be overhauled.

Executive replacement strategy

From Von Zeuner’s description it appears that the entire financial system’s executive placement strategy is based on poaching.

This of course is the easiest and most attractive option for the incumbent executives. It requires less effort from them and, by guaranteeing a continued skills shortage, can be used to underpin steadily increasing levels of remuneration.

But it leaves the Reserve Bank, shareholders and the banking public horribly exposed.

Read: Redirect the focus of exec remuneration at banks and maybe save SA

As for Von Zeuner’s comment that it will be interesting to see how other banks respond to FirstRand’s ‘Covid instrument’, in the copycat world of executive pay, that response is entirely predictable.

Standard Bank and Liberty have already moved to protect the remuneration of their executives from real world events. And thanks to FirstRand they can justify their largesse by referring to pressure from competitors.

Read: One for the people, and 10s of millions for the executives (Absa)

For Von Zeuner and his remuneration committee colleagues it is a self-fulfilling defence that enables an ever-upward ratcheting of executive pay and guarantees growing inequality.



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I think large corporate execs earn TOO LITTLE…especially in relation to South African politicians within the connected ANC elite.

If one measure the real worth of a politician, the disparity grows even bigger….they’re not worth much (and all they do as parasites are to damage the economy through poor leadership). Many connected elites don’t even pay their fair share of Income Tax in their tenderprenieurial multi-billion ventures.

Bank execs are on payroll at least….and can’t escape SARS. I have seen the odd exec’s IRP5….you’ll be shocked to see the amount of PAYE deducted. We need such taxpayers to keep the wheels of the economy oiled. They know how to spend money 😉

PAY THEM MORE!! The wealthy need to benefit more…create businesses and more competition. To hell with the poor!

SA’s problem: we have too few wealthy people.

But why can’t these executives deal with the temporary issue of dropped share price impacting their vesting? They could have just delayed the vesting date I am sure? Why do they need to be given a lot more shares?

Speaking of politicians, are these execs actually bad with money like Jacob Zuma who claims he is poor while getting a near R3 million pa (pre tax) pension, so that’s why they need more money now that their vesting outcome is lower?

None of these people, execs and Mr. Zuma are bad with money.

From what I have read and seen on TV, Mr. Zuma beats them all in diversifying his funds.

His funds have the best stealth, not even the SARS super delux champion computer could track his money.

I suspect that even if you were to take a hard copy evidence of his overseas assets to SARS they will do nothing about it.

First rand Exco suffer of major greed, while they underpay other tiers of their Staff.

Oh please – This is a publicly traded Co – There is ZERO risk for the directors – Unlike a private Co they have no skin in the game – I’m a FNB client and the service levels keep going down and pricing keeps going up – After reading how the exec’s look after themselves I will be moving my account next year.

FYI – They the most expensive bank in town…. if you do the calculations properly.

You can tell some maleficence is on the go when they deflect questions to off-topic assertions about their integrity.

As for the constant reminders of the “systemic” risk of not having their cabal of koshuis cronies well bucksed-up, what nonsense. There are plenty seasoned campaigners from within their ranks and outside to continue the great “systemic” role they’ve been playing in keeping SA on the straight and narrow. Who were Bosasa and Steinhoffs bankers again?

Perhaps its because of their unique ” systemic” insight into the risks of SA that they are lining their weasaly pockets now

Methinks all the unhappy shareholders and account holder should go and bank at VBS bank – Oh ja they closed ne so then go to Postbank !!!

Casper – why don’t you go get a life! What does VBS have to do with this? Or Postbank. Are you hard of reading?

Great reporting! I cannot help, but get the impression that the down side is socialised, however the positive/upside these individuals are entitled to?

Not aimed at just FNB here, many others are guilty
The questions that should also be asked, the staff tier just below that top exec’s, what are they getting by way of incentive for working through this difficult period .
Let me guess, something like 2 %, we can show the shareholder/owners that we are not in touch with SA economics and pass small increases, but the top are the top aint it .
HR will spin tribe mixed with no content we care, we are so inclusive, but inclusivity means nothing when it comes to equitable distribution of income at year end ….

The fact that they opted for a convoluted incentive package rather than just validating the existing schemes provides a clue as to whether the lower rung staff participated equally.

If the jokers who head up the banks in SA think they will find an equally well paid job overseas they are deluded. The standards that SA banking operates too are very different from major international markets – for instance they have a thing called competition. Most people here would switch banks if they felt they weren’t at risk of moving from the frying pan into the fire. Witness the success of Capitec – the rocket scientists at the big four banks have lost thousands of clients and seem incapable of providing a competing package to win them back.

Most of us experience poor service from the major banks for which we pay high fees. I have an offshore bank account which offers superior service in every aspect of its offering and I pay no fees. SA banks meanwhile go backwards every year, the regulatory framework offers much less protection to consumers and yet these people think they should be even more richly rewarded.

Wake up, you’re more than adequately paid and should be thankful you have such a wonderful lifestyle in a country experiencing dire economic problems. Stand up and for once show the leadership that your supposed to be being paid to exhibit.

Mr Mohammed delivered a knock out blow to Messers Jardine and von Zeuner who clearly are not up to the job. In a huge organization, attracting many top people a pool of talent should be developed and either it isn’t (a big shortcoming)or the statements by the Chairman and director Von Zeuner are incorrect(an even bigger shortcoming).

Both should resign-the positions are bigger than both of them

CEO’s at most don’t do a lot of the grind/hands-on work. First Rand won’t fall apart if some of them left. If all leave at once – yes, problem… one or two won’t have any effect on anything. I say, make an example and let those who want to go, go! Those that want to stay stay and make a difference and earn that huge salary of yours by creating value, not demanding without earning!

The share price of SBK and FSR got smacked yesterday, -4% in one day.

The CEO and management PAs should be linked to share price performance and dividend payment also.

Just because South African politicians have a very bad reputation does not mean these guys can now also help themselves.

They work for the private sector and the laws and rules are enforced.

I can buy and sell their shares when I want to, I can also move my money to any bank I want.

I dumped my SBK shares last week in response to their attitude towards not paying dividends anymore.

Easy, my feet do the walking.

Under the fractional reserve banking system, there is no way to circumvent this situation where profits are privatised in the pockets of managers and shareholders, but losses are “nationalised” between shareholders and the general public. The managers own a free call option. They only share in profits. The Reserve Bank steps in to save bankers from their own mistakes in the case of a financial crisis. The Reserve Bank does not have money stashed away, it simply prints the money, thereby devaluing the purchasing power of the currency for everyone.

As we have seen in the 2008 Great Financial Crisis, the financial system incentivises banks to increase their risk profiles to the point of instability, and when the paw-paw hits the fan, they send the bill to Joe Public. Under the instruction of the IMF, they have even changed the law to move away from bailouts towards bail-ins. This implies that the fragile and exposed depositor actually guarantees the solvability of the bank.

Heads- the bankers win, tails- the shareholders and the public lose.

Great comment – one thing about bail in that few people know. There is a layer of debt between equity and deposits that is issued by the banks to help with a bail in. Asset managers have taken on that debt and placed it in their portfolio’s because of the yield and they have no understanding of the risks involved. Have a look in your portfolio to see if it’s there!

Achieving financial success and financial freedom should not be viewed as a sin in the name of inequality. If someone has invested their blood, sweat and tears during a lifetime of toil and sacrifices, they deserve to be rewarded for their efforts. I’m sure that FirstRand are pretty good at selecting the right calibre of leadereship. As far as I can see, the results speak for themselves.

I’m curious? What exactly do you think they’ve done that is extraordinary?
1. Have they 10x’ed the company (nope), have they done anything different than industry leaders overseas haven’t done (also no)?
2. So would you class First Rand execs in the realm of Steve Jobs, Elon Musk, Henry Ford, Bill Gates, etc?

Just because someone has worked their entire life towards something does not entitle them to rewards. For every grey haired bank exec out there, there is an oupa who has being tilling his subsistence farm his whole life too. Unfortunately for that oupa – mielies don’t grow by annuity.

Some people really are divorced from reality. We live in a country where average C-grade no-name-brand executives demand extra-ordinary packages. Our politicians see this and demand the same.

So Alan and gang … have come up with a thing called customer centricity (whatever the hell that means) …

… they gonna lump all products together (across product houses into save, invest, credit, insure, etc) and then push it to the customer … across his life stage.

…. any high school kid could come up with this polony.

Any thing Amazing??? Any innovation? ZILCH

Great article
Already the service from FNB Private Wealth is drastically on the decline… something will give sooner or later

Not to worry : Its being Transformed !!!

The vulnerability in South Africa’s financial system is that people believe that cryptocurrency is a legitimate investment.

Many people are going to lose their houses and cars with crypto.

Be warned.

So wonderful to see you sticking the horns into this syndication Ann.

I banked with FNB from the age of 4. By 38 I had paid down an access bond and had net worth of over a million. That’s when the banking wheels began wobbling…

Duplicate accounts opened in my name, fake transactions, expenses to one account, payments never reflected in the other. When push came to shove they produced an ID for a person with my name and ID no. but a different skin colour!

Had to be an inside job.

They would put everything right then a year later the same things would happen all over again.

Eventually, I closed all accounts and moved elsewhere- including my access facility of nearly 1/2 a bar. That is the NAV they were hunting for…

This is a bank who can help you only if you are indebted from cradle to tombstone with them and their mob You’d do better-stuffing notes in your mattress.

After 2 years at the ombudsman, I got a “neutral” decision- they could see I had paid the amounts, but could also see the bank had other accounts opened in my name- go figure!

So, I would have to pay extortionate legal fees to take the matter further.

Well done for taking them on, me and the ancestral spirits are with you as we continue resiliently on our organic growth path. Viva the 4th Industrial Revolution- great job comrade!

Has anyone asked the remuneration committee how many execs have been laid off due to the bank preforming badly/ And then why are the same execs reducing “normal” workers by number and salary.
I find it strange that it is not an outside committee that looks at the execs pay, even if they pay 50% in taxes it is still far beyond the “slaves” that work for them.

Mr. Von Zeuner, please do us a favor and sail into the sunset and accept your apparently limitless number of job offers. Just another professional director, overestimating his worth. I know many people, that are able to do what you do, if not better at a quarter of the price (if not less). Also, do you have skin in the game? Do you buy shares with your bonusses. A few years back I decided I will never bank with Standard Bank due to their handling of Mr. Hart. I think, I will never bank with this bank either.

“We looked around the market and by no stretch of the imagination are our executives remunerated way ahead of our peers.”

All that you saying in this statement, Mr Jardine, is that everyone is creaming off from the profits together; not that you are in any way more ethical. Rather disappointing rationale coming from a person in your position.

The problem is that Remuneration Committees make decisions using Remuneration Surveys which do not provide them with meaningful data. Remuneration Managers prepare documents which reflect how their Execs are positioned relative to other Executives in the “market”. If a few companies award large increases the rest will follow suit. It is a case of follow the leader and everybody is happy.
Senior Executives might compete on a business front but they have a vested interest in their competitors being paid well. It provides the ammunition for their own large remuneration packages. Qualitative comparisons are needed.

I think that there should be a shareholders Executive Review Panel.

It really is a perverse incentive. So now the execs know that they will get richer if the share price falls. How’s that for alignment with shareholder interests ? Next thing you know – now that the share price has recovered a bit – a few million free put options will be added to the package.

Corporate thieves and Louis …you know better

End of comments.



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