The FirstRand board spent most of its 90-minute annual general meeting on Wednesday trying to defend its “Covid-19 instrument”, which was designed to shelter its top executives from the adverse impact of the pandemic on the value of their long-term incentives.
For financial 2020 the “Covid-19 instrument” boosted CEO Allan Pullinger’s remuneration package by R19.3 million.
The majority of shareholders were not persuaded, with a hefty 56.68% voting against the remuneration implementation report.
During the meeting the banking group’s remuneration committee chair Louis von Zeuner told shareholders that FirstRand’s remuneration was not out of line with other players in the banking industry.
Executives ‘shouldn’t have to worry’
“We believe our executives are well-remunerated and fairly remunerated but they are not at the upper end of the scale,” said Von Zeuner. He said it was important that the executives were able to get on with their work without having to worry about the loss of value of their long-term incentives.
He explained that the earnings knock resulting from Covid-19 and the lockdown meant that many of the long-term incentives awarded in 2017 did not pay out in 2020. Von Zeuner said it is also possible that long-term incentives awarded in 2018 and 2019 will not pay out and that this could result in top executives being lured away from the bank.
Tracey Davies, director of non-profit activist Just Share, indicated that this approach seemed to be at odds with commitments made earlier this year when Pullinger said the group believed that President Cyril Ramaphosa was right to ask business leadership to step up and make sacrifices given what is at stake for our country.
“The [Covid-19 instrument] bonuses are not linked to performance, are in addition to management’s already extremely generous remuneration, and dwarf any salary sacrifices made in response to the president’s call,” said Davies during the meeting.
Chief investment officer of Aeon Investment Management Asief Mohamed also queried why management substantially benefits when things go well – “but do not share in the downside pain when profits are under strain”.
Von Zeuner said the remuneration committee had undertaken a thorough exercise and concluded that the Covid bonus payment would be to the benefit of the bank as it would lock executives in for four years.
He said the need to lock-in executives is underpinned by research suggesting they would be enticed away from FirstRand.
When asked if the bank would share that research, Von Zeuner said he would not commit to making it available but stressed: “Our value systems and integrity is non-negotiable.”
When asked if the board was not concerned about the levels of inequality in the country, chair Roger Jardine said: “I am very aware that the issue of inequality in society is a burning platform … our concerns are reflected in the numerous initiatives we undertake.”
But he said the board had to be mindful that FirstRand is a “systemic institution” and that by no stretch of the imagination were its executives paid “way ahead of the market”.
He acknowledged that it was apparent that shareholders were not happy with the Covid bonus.