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Hanratty’s gift from Sanlam

New CEO to get R161m worth of Sanlam shares.
The author has calculated what the new CEO is likely to receive in the coming five years. Image: Moneyweb

Anton Botha, Patrice Motsepe, Karabo Nondumo, Sipho Nkosi and Shirley Zinn.

These are the members of the Sanlam remuneration committee that decided to award recently appointed CEO Paul Hanratty R161 million worth of Sanlam shares.

In a Sens statement released last week the 102-year old insurance group said the three million shares will vest in five years’ time assuming certain unspecified performance targets are met.

At that stage the shares will likely be worth considerably more than R161 million. The R161 million is based on the R56 at which the share traded last week when the award was made.

Sanlam share price

Given that the share price is currently at a several-year low – due to Covid-19 as well as prolonged weak economic conditions – it is almost inevitable that Hanratty’s shares will be worth significantly more by the time he takes ownership of them in five years. Some estimate that over R100 is a reasonable share price target. If so, it would mean Hanratty is in line for a R300 million award.

Read: Sanlam raises R7.7bn in impairments

This would propel Sanlam into a new and more extravagant category of remuneration practice not seen for almost 10 years when former CEO Johann van Zyl was granted generous share awards. (Van Zyl, who remains a director of Sanlam and is CEO of African Rainbow Investments, attended all of last year’s Sanlam remuneration committee meetings.)

Pay practices have become ‘absurd’

Bishop Jo Seoka, chair of Active Shareholder, an NGO that advises trade unions and civil society organisations on voting at corporate AGMs, told Moneyweb that pay practices across the corporate sector have become absurd. “They are irresponsible and immoral.”

But there is more for Hanratty. Although the new CEO has to attain certain performance targets before he can take ownership of the shares in five years’ time, during the five-year period he will receive all the dividends paid on the shares.

Sanlam’s most recent remuneration report confirms that individuals who receive Restricted Shares are entitled to receive dividends from the date of award. Assuming, conservatively, that last year’s dividend of 334c a share is maintained for the next five years Hanratty will receive R10 million in dividend income each year. This will be in addition to the approximate R10 million annual guaranteed pay he can look forward to – that’s assuming Sanlam will not make a significant change to the guaranteed portion of remuneration it has paid out in recent years.

Indeed, there is even more for Hanratty.

Sanlam told Moneyweb over the weekend that the three million share awards announced last week are the first part of a planned five million award and are part of a five-year employment arrangement with the new CEO. So it could be that Hanratty, who has spent most of his working life getting considerably less well paid at Old Mutual, is in line for a sparkling R500 million-plus share package from Sanlam.

Hanratty took over the top job with effect from July 1, after Ian Kirk surprised the market earlier this year by announcing that he would be leaving the group at the end of 2020.

Read: Sanlam appoints new CEO, to take over by July

Hanratty’s annual cash remuneration, which has not yet been disclosed, is fixed for the full employment period and, apart from the five million Restricted Shares, he will receive no other incentives or bonuses during the five years. Vesting of the Restricted Shares will only happen to the extent that the performance hurdles are met, Sanlam told Moneyweb. Any shares that do not vest will be forfeited.

“The remuneration package associated with this predominantly share-based arrangement supports and is aligned to the delivery on the short, medium and long-term strategic objectives set for the Sanlam Group by the Sanlam Board,” said Sanlam.

Shareholders will have to wait until the release of the group’s annual report next March for details of the performance hurdles.

Read: Sanlam raises R7.7bn in impairments

In a recent media interview to discuss Sanlam’s results for the six months to end-June Hanratty referred to a strategic review undertaken by Sanlam that identified growth opportunities in South Africa and internationally. He said there are “enormous opportunities” to grow earnings in South Africa.

“We intend to do this in partnership with Ubuntu-Botho and African Rainbow Capital.”

Ubuntu-Botho, which is headed by Patrice Motsepe, is Sanlam’s BEE partner and controls African Rainbow Capital (ARC). ARC has just completed the acquisition of a 25% stake in Sanlam Investments, which has R450 billion under management.

Seoka said the award seems particularly insensitive given how many of Sanlam’s customers had been forced as a result of the Covid lockdown to withdraw prematurely from retirement funds. “Do they despise their customers?” asked Seoka.

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This should make a few existing shareholders feel a bit ratty.

He gets dividends – even before owning the shares?

WoW!! Great deal..

He will, of course, declare dividends (or get board to agree to it) and Motsepe will collect as well………lovely deal that may just work well for shareholders.

What a bloody disgrace !

It has become time that companies like the insurance industry, banks and asset managers will be obliged to appoint a minimum of 33% of the compliment of its board members from the amongst the ranks of its existing customers base (not necessarily being also shareholders) that are after all the reason for their existence and the cause of their profits. Such customer representative directors should bring a welcome balance to the mix between corporate ideals and the priorities of customers.

Shareholders should have no problem granting outsized awards FOR OUTSIZED PERFORMANCE.

So in this example, the R56 strike price should be indexed to a basket of Sanlam peers. If the basket is up 40% in 2025, then the strike is R78 not R56. No free ride on rising tides

The current model of the hired help taking tens of millions for merely arriving and not burning down the palace is offensive.

The lessons are not being learnt. Don’t remunerate with shares as the CEO becomes share price focused and not business focused.

And I was just thinking yesterday that it might be time to dump my Sanlam shares – have held them for 7 years and they have done absolutely nothing over the long term (now I see why…thank you, Moneyweb, for the heads up on how shares are being dished out like candy, while many of us had to pay more for them than their actual long-term diluted value.

From an insider in the insuarnce “industry”. There is a perception that the gravy train is running out of puff so climb in while you can; with all your maaitjies.

I’ve worked for a number of these investment companies over the last decade or so.

The one thing that becomes very apparent that they sell their naive and blindly loyal employees on is that they somehow offer something of value to their customers.

What is always forgotten is how these institutions lobbied so hard to legislate everyone into prescribed contribution pension funds after they realised that they were too useless to be able to run successful defined benefit funds.

I no longer work for companies like this. I have a moral issue with them. When you look past all the BS, all that it is about is egos and people charging fees on funds given to them be those who are legislated into those funds and trusting that they will have pensions at the end of the day – which they don’t.

You will be lucky if what you get out is what equivalent to what you put in. It is highly unlikely that you will get out more than what you would have had you kept the same money in an interest-earning bank account.

These people who charge you percentage fees on they money that they have of yours whether they make a loss or a profit are immoral.

It should be made illegal to charge fees if you do not earn a minimum positive return.

Looks like the house always wins. The partnership with ARC (actually a Mauritian company) fits the bill it would seem. ARC have just done a capital raise of R750m – some of the proceeds to be used to settle outstanding Fund Management Fees (R205m). Existing shareholders are paying so that management can get fees? There is also the question of the NAV of their unlisted investments.
The pattern repeats itself in a number of ZA listed firms. The CEO gets remuneration which does not reflect shareholder returns and the board abdicates responsibility. The majority shareholders remain silent or complicit. Another ZA firm becomes uninvestable?

Say for instance he does not meet the unspecified targets in 5 years: does he pay back the dividends he earned in the mean time? With interest I presume?

Why is his actual salary being withheld from the shareholders ….? Should this not be public knowledge?

It’s a bloody disgrace! Incentives should be based on company performance and nothing else! No performance – no bonus!

Its invested. Nothing will be left of it. It is being sucked dry.

I don’t care much about it though. They all deserve to have nothing left.

This is absurd. Its long overdue that shareholder votes on executive remunerations become binding.

Is that structure of receiving dividends on unvested shares normal? Do they carry voting rights? I think SARS could take a view that if your shares have all the rights of issued shares (vote, dividend, price appreciation) then the right amounts to an interest free loan. It sounds like use of a car without the right to sell the car.

Thank you Sanlam, now I can expect my Sanlam RA to do even kukker in coming years

This is one of the biggest changes to the corporate world over the last 3 decades, that CEO are a shareholder operating in the business rather than a fellow employee. It informs how they treat staff and make decisions

I think somebody needs to take a proper look at the whole ARC/Ubuntu-Botho/Sanlam relationship as well as the connections of the so-called “independent” non-executive directors who aren’t really independent, all the funding given to ARC and its directors, the appointment of Motsepe aligned executives at Sanlam, etc etc.

Any reward is justifiable given the risks set. What are the risks taken on by the new CEO? Has he pledged personal surety? Has he committed to increasing all shareholders’ wealth/value tenfold?
What does the CEO stand to lose?

A business owner stands to lose everything, including the house? The same business owner is paying the Sanlam premiums which in turn pays claim and salaries and in this case bonuses!

There must surely be a limit to distributing other peoples money?

Did any of the Sanlam director repay shares, bonuses, etcetera to Sanlam when Sanlam and affiliates invested and represented Steinhoff under their watch? Or is the risk purely that of the other shareholders?

Lastly, the remuneration committee is inclusive of Sanlam clients being ARC.

So how much of my RA Premium is going towards funding this as opposed to funding my retirement?????????????????????
I think this is a shocking article and Sanlam should look at itself and ask what part of this is normal or acceptable.
If I was a Sanlam policy holder right now I would seriously be reconsidering the value in keeping that policy running.

Arrogant SANLAM board who is doing this because this is the way the ‘network’ works to scratch each other’s back. The same board that allowed van Zyl to give a loan to Jooste for the horses and just nothing happened! Not a single board member spoke out on this disgraceful acts. Hanratty wont mind that is coming his way,,, he just take with a smile and the board awaits their turn to get the back again. King IV or what ever wont help this bad attitude and behavior of greedy people

Patrice and ARC bribing the CEO to send more deals their way. Corporate capture at its best.

This is obscene! I can’t believe even Paul thinks he is worth this much money. How utterly depressing thinking of how much good such a sum could do if deployed for the benefit of poor communities / healthcare / schools (and not just for the benefit of a single person).

The article indicates that the shares will only vest after five years dependent on performance hurdles being met. However in the sens announcement it indicates that the shares have already been issued to him ? How does that work ? Do the shares get taken away from him and he pays back the dividends paid?
They also state that no short term bonuses will be paid during the five years. This sounds great , however the dividends will be in effect a short term bonus.
Sanlam should be disclosing the full value of remuneration and how it was determined .

End of comments.

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