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.
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.
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.
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.
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.