You are currently viewing our desktop site, do you want to download our app instead?
Moneyweb Android App Moneyweb iOS App Moneyweb Mobile Web App
Join our mailing list to receive top business news every weekday morning.

One for the people, and 10s of millions for the executives

‘Unfortunate’ timing of Absa incentive share announcement.
Given the recent share price slump, the bank's executives could face liquidity problems as a result of tax liabilities related to previous long-term incentive share grants. Image: Moneyweb

Just days after announcing that its top executives would follow President Cyril Ramaphosa’s example and donate an effective one month’s salary to community support programmes, Absa released details of its latest long-term executive incentive scheme which reveal that the same executives are set to score tens of millions of rands in bonuses.

Absa last weekend fell into line with other banks that had announced they would back the president’s pay-cut initiative, saying that the group’s executive directors and prescribed officers had decided to make contributions in their individual capacities.

Read: Vodacom, Absa bosses donate some pay to coronavirus relief

The bank’s top five executives said they will forego 33% of their monthly salaries for the next three months and donate the amounts to the Solidarity Fund as well as the group’s Covid-19 community support programmes.

“The scale of the challenge requires that we work together to find solutions that can help us fight this massive threat to public health and our economic prospects,” said group CEO Daniel Mminele.

On the basis of the 2019 remuneration figures available in the recently released annual report, the donations would be equivalent to around R750 000 for the CEO and up to R500 000 from each of the other executives.

Timing

Mike Martin of Active Shareholder, which advises NGOs how to vote at AGMs, says the timing of the incentive share announcement was “unfortunate” for Absa.

“Presumably it is part of the executives’ employment contract and has to be disclosed timeously.”

He adds that while the Covid donations are significant, they do pale against the tens of millions of rands each of the executives stands to gain from the long-term incentives.

The share-based incentives, which will vest over a three- to five-year period if performance conditions are met, are valued at a combined R51 million for the five executives.

Mminele, who took up the top position in mid-January, was granted R15 million worth of shares; Jason Quinn and Arrie Rautenbach were granted R12 million of shares each; and Charles Russon was granted R9.1 million.

The executives are also set to collect a combined R22 million worth of deferred awards if the performance conditions are met.

The payouts could be considerably more generous given that the R51 million figure is based on a grant price of R92. Absa says the number of shares awarded is fixed with reference to the 20-day volume-weighted average price preceding the grant date, which was April 1.

The Absa share price slumped to a 10-year-plus low of R72 on March 27.

 

Absa share price

 

For much of the past five years it has traded above R150, reaching a high of R200 in March 2018.

This means that if the Absa share price does nothing more than recover to levels seen last year, the value of the long-term incentive payout will be over R100 million and the deferred awards will be worth R44 million.

The long-term incentives and deferred awards are only part of remuneration packages that also include substantial annual salaries and short-term incentives.

The performance conditions attached to the grant of the share incentives and the deferred shares require Absa’s return on equity to be above its cost of equity and its growth in headline earnings per share to be significantly above nominal GDP growth. A third financial metric deals with the bank’s cost-to-income ratio.

However Absa has warned shareholders that the performance targets, which are contained in the latest annual report, could be revised. “As we review and rebase our medium-term plan to take account of the impact of the Covid-19 pandemic, it may be necessary to review the targets … to ensure that these are appropriately aligned to the revised plan,” said Absa.

Global concern 

Investors across the globe have raised concerns about companies granting long-term incentives during the most severe market crash seen in decades.

If the market rebounds from the current levels for no reason related to specific company performance, executives are in line for potentially huge and undeserved windfall gains.

Such gains could lead to widespread public backlash.

Martin warns that remuneration committees will have to guard against such gains while also ensuring that they retain motivated and effective executives.

He points out that the recent slump in the share price has reduced the value of previous long-term incentive share grants and could create liquidity problems for executives facing related tax liabilities.

Active Shareholder will be voting against both the remuneration report and the remuneration implementation report, citing a number of concerns in its proxy advisory note, including the limited link between the bank’s performance targets and its stated strategy.

AUTHOR PROFILE

COMMENTS   27

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

The executives are also set to collect a combined R22 million worth of deferred awards if the performance conditions are met.

With reference to the above: – for how long must these performance conditions be met??

also please don’t tell me when covid19 flies out of the sa window and activities return to normal it was due to the skills of absa’s directors and their management style

In my next life i want to become a Banker (Actually, no)

I heard someone saying “they work hard, they deserve it!”

I’m an entrepreneur and without sounding too condescending, i work just as hard, if not harder. I don’t have a big brother paying me, i am big brother, the slave, the job creator and the risk taker.
Together with thousands of SMME’s, we are the result of them having a job and earning the millions.

And i have to prove my worth to these bureaucrats dressed in designer suits when i need assistance to grow my business

The so called credit manager, who is oblivious to the challenges of the real business world sits in his flyffy air-conditioned office and makes a call on what he was taught to make, deciding my business for me!

Sitting with my proposal presented to him by a so called “ relationship” manager (invariably a light weight) like he’s being served a meal and he himself will judge the quality thereof.

Thank goodness for alternative finance in this day and age, banks just don’t do it for me anymore

Well said Seve, however, alternative funding may not always be as safe and as transparent as a bank loan.
Sharks are out there to milk entrepreneurs DRY!!! But I somewhat agree, that banks can be assholes when it comes to judgement on business viability, they really can improve in that practice.

To be fair, this is ordinary transparent capitalism.

If shareholders don’t like the deal, they can force management to change. Or they can sell their shares and buy another banks stock.

On the flip side there is way way worse corruption and theft going on in the public sector that ordinary citizens can do nothing about except try get their money out of the country.

Yeah sure, we’ve seen this with Tongaat, Steinhoff etc. Most of the “shareholders” are investment houses using other people’s money and with similar “bonus” schemes where they get to loot regardless of real world performance. Besides these guys are mostly good chums with similar backgrounds, cross-pollination, connections and politics. They are not going to rock any boats.

Can’t be bothered to think to hard about this. There is only one word and that is DISGRACEFUL!

Very similar to the way government works, serious disconnect between the mouth and the brain plus the left hand does not know what the right hand is doing.

Pay these guys what is due to them. Don’t be sour about their remuneration packet. Giving all their money to Corona 19 efforts won’t make a dent in the problem.

You vote with your feet and don’t have ABSA shares nor use their products….

That is if you can’t get people to listen in AGMs, you can sell out.

How would shareholders prefer them to be compensated? Because its really just up to them.

SA’ns fed up with ANC – yet they re-elect them

SHareholders unhappy with management – yet they dont use their voting at AGM or other forums

one word APATHY

THE MANAGERS AND THE GOVERNMENT COUNT ON IT.

Don’t be jealous guys, they worked for that money.

Anyway for the whole financial year they paid you guys over R9 billion in dividends. R9 billion.

Largesse in a time of desperation

Just unbelievable? But that’s the world today!

These so called “performance” schemes are management scams to loot the shareholders:
1. They themselves think out the conditions
2. With a bit of luck you will get a drop in share price to buy in cheap
3. The performance criteria are set so low they can hardly be missed.
In ABSA’s current situation is management taking responsibility for the drop in share price from R150 to R72?
Noooooo, that is the result of a situation beyond their control.
On that basis the recovery to R150 is also a wind fall and should not attract a performance bonus.
Disgusting and disgraceful (as RHM so aptly put it)

Well said.

One thing’s for sure. These bank CEOs have never tried calling their own bank because if they did they would discover the firewall of vast indifference behind which they operate.

Guess where their focus lies?

I’m sure the Execs plan to include ‘bonuses’ in the one third cut in salary. Bonuses are part of salary package. Timing is perfect.

The problem is the FUND managers managing our pensions and investments dont bother to vote against these perverted so-called incentives. We as regular minority shareholders have no voice as we are dwarfed by the funds that hold these company shares.
We should start putting pressure on these idiots to vote against all these cases of grand theft.
I am disinvesting from ABSA not that it would do anything because all the banks are the same.
this is why capitalism has such a stinking name with larges parts of humans.

In George Orwells Animal farm..the pigs are warm mash and brewed beer while the less “equal” animals starved.

‘’Heads I win, tails you lose’’

We all know that during a coin toss, the coin is thrown into the air such that it rotates edge-over-edge several times. Either beforehand or when the coin is in the air, an interested party calls “heads” or “tails”, indicating which side of the coin that party is choosing. The other party is assigned to the opposite side.

But not Absa –they always win, as every time they flip a coin they are, in some capacity, performing a Schrödinger’s cat experiment where the coin can be considered simultaneously both heads and tails.
In essence, something that seems probabilistically simple (e.g. a coin toss) actually relies on a cascading series of processes with a nearly exponentially growing level of uncertainty – but I think Absa designed their system to nullify this and they just don’t believe that classical probabilities can be collapsed into quantum probabilities hence the ‘’fat cat bonuses’’ they award themselves

.

The very sad thing about what these Execs are doing is that they are extremely self centered and operate on a pure greed basis. The issue is that no Group CEO of a large Corporate really adds much value other than being the mouthpiece. Most actual revenue generating process’s are already in place and long term structures and plans are also put in place by the middle rank and file – so the CEO simply rubber stamps this in between the Golf, Lunches and Overseas “business” trips (usually with perennial PA in tow).
My wife gave 6 years of her everything to ABSA working 10 hours a day in an AVP Projects position but never got a single cent as a thank you. No pension, no medical – nothing. Her immediate boss earned R150k/quarter based on my wifes deliverables.
And then 2 weeks into lockdown – boom. Sorry all Contractors to be bulleted (memo from Head of HR). No thanks, no here is a thank you token. Nada.
And to make matters worse there is no opportunity to try and find alternate work in these desperate times.
And then Maria gets paid R3,8m for 2 month work – really. Is a person really worth that much for 30 days work of rubber stamping!!!
ABSA is the most disgusting and disgraceful bank in SA and they remind me of the HSBC Bank that was set up to do laundry work for Organized Crime. They are criminals.

the banks are poking the SARB. It relaxed their banking rules and provided liquidity with a suggestion that banks cancel bonuses and defer dividends. so much for calling on bankers to do the right thing.

The execs are giving up one third of three months = one month. Millions of South Africans are doing the same!

thousands of private company owners are quietly and without tweets and posts paying ALL THEIR STAFF full salary.

As many here said : shareholders deserve exactly what they allow the hired help to get away with. I am not an absa investor and closing last remaining absa account ASAP.

Your comment is so true and I am still waiting for ABSA to re-instate me previously paid up overdraft so that I can do the RIGHT THING BY MY STAFF. Bunch of Idjuts

You know you have absolutely no clue on how business works IF you are complaining and/or think it’s “unfortunate” of ABSA to announce, as required, executive’s compensation. The “reasoning” of such complaints by pointing out so-called “timing” just makes it worse.

Pay somebody to do their job is expected.
Giving obscene ‘incentive’ bonuses because they are doing their jobs that they are being paid to do, is a scam on the customers and the shareholders.
Research has raised troubling questions about the practice of dangling rewards in front of people to get them to do what we want. It doesn’t matter whether the people in question are male or female, children or adults. It doesn’t matter whether the rewards are stickers, food, grades, or money. It doesn’t matter whether the goal is to get them to work harder, learn better, act nicely, or lose weight. What the studies keep telling us is that rewards, like punishments, tend not only to be ineffective—particularly over the long haul—but often do undermine the very thing we’re trying to promote

Voting with my feet. Cheers guys.

After transferring 99.99999% of the funds in your absa account, I wonder if they have a customer service desk for closing accounts in lockdown? I do hope they have a section for saying why you are leaving so that I can post a link to this article.

I am scheming : leave R1 in the account and wait for them to try and levy those monthly fees. Then let them try and prosecute repayment of the overdraft on an account that has no overdraft facility. It sounds like a great script for a Monty Python short story.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

NEWSLETTERS WEB APP SHOP PORTFOLIO TOOL TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: