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EXECUTIVE PAY BAROMETER
11th Edition

Detailing the period from July 2017 – December 2017

This is the 11th edition of the Executive Pay Barometer

The barometer uses publically available financial data (from listed companies’ financial and remuneration reports for the most recent 6 month period) to report on:

  • Executive annual increases
  • Executive variable pay ratios to total guaranteed pay:
  • Short-term incentives
  • Long-term incentives
  • Prevalence of types of share schemes
  • Executive remuneration components by company size
  • Executive remuneration components by industry
  • Wage gap analysis by company size and industry

Introduction

The South African economy has remained under pressure. Since the last issue of the 21st Century Executive Pay Barometer was released, the South African economy has experienced renewed investor confidence as a result of key political and economic events.

The economy grew by 1.3% in 2017, which exceeded National Treasury’s expectation of 1% in real terms.

 

Employment has continued to be under pressure and the unemployment rate currently stands at 26.7% (Q4 2017). The most recent labour statistics indicated that 503 000 South Africans of working age exited the work force. A large contributor to this was workers that have become discouraged and given up seeking employment.


  • CFOs received a median increase in excess of what was received by General Staff.

  • Executive Directors received the largest median increase in their total guaranteed package.
  • General staff received a median increase between 6% and 7% (according to the 21st Century Increase report).

  • The strong positive correlation between executive pay and company size continues to be present.

  • CEOs remain the highest paid across all three sizes.
  • Executive Directors and CFOs earn similar total guaranteed packages to each other at each company size.



  • The positive correlation between the Wage Gap and company size persists. A large contributor to this is that larger organisations will have a CEO with a higher job grade than that of smaller organisations. The larger salary attached to the higher job grade contributes to this positive correlation between company size and the wage gap.
  • The Wage Gap at each company size has declined as compared to the previous edition of this report.

The Wage gap has been calculated by dividing the CEO Total Guaranteed Package (TGP) by the median of the A, B and C-band workers (general staff) Total Guaranteed Package (TGP)


  • Apart from small cap CEOs, all kinds of executives across each company size experienced an increase in their median LTI as a percentage of total guaranteed package. A contributor to this is the renewed wave of investor confidence which has had a positive impact on share prices
  • There is a positive correlation between company size and the median long term incentive as a percentage of total guaranteed package across all company sizes
  • Large cap companies received the highest median STI as a percentage of total guaranteed package
  • The small and medium cap companies have an inconsistent relationship with each other (small cap is sometimes larger than medium cap)
  • CEOs had the highest median STI as a percentage of total guaranteed package across all company sizes

 


  • Since the previous report, the percentage of executives that received full shares either increased marginally or, in the case of CFOs, remained constant
  • Appreciation shares remain the dominant form of shares which are issued to executives.

The current methodology allows for both types of share schemes to be administered to a single incumbent and therefore the sum of the two percentages can exceed 100%.


  • Similar to the Wage Gap by company size analysis, all industries have experienced a decline in their wage gap.
  • The overall trend of the Wage Gap by industry remains the same as in the previous report with the Distributive Services industry being the most unequal, followed by the Extractive industry and the Personal Services industry.


  • In general, the Extractive, Producer Services and Personal Services industries experienced an increase in their median LTIs as a percentage of total guaranteed package.
  • In contrast, the Transformative industry experienced a general decline in their median LTIs as a percentage of total guaranteed package.
  • In general, the median short term incentive as a percentage of total guaranteed package remained relatively unchanged within the Extractive, Producer Services and Personal Services industries.
  • The Transformative and Distributive Services industries experienced a general decline in this ratio.

  • In general, all industries CEOs experienced an increase in the prevalence of full shares received and a decline in the prevalence of appreciation shares
  • The CFOs experienced mixed fortunes regarding the prevalence with which they received full and appreciation shares.
  • The prevalence of full shares issued to Executive Directors increased within the Extractive, Transformative and Producer Services industries.
  • Appreciation shares remained the dominant form of shares issued across all industries and kinds of executives.

The Sustainable Remuneration Model measures how executives are remunerated relative to their performance against the triple bottom line:

  • People (Social)
  • Profit (Financial)
  • Planet (Environmental)
  • The CEO of each company is represented by a single plot point which is plotted against their performance percentile (Y-Axis) and total earnings percentile (X-Axis)
  • The thick red line is referred to as the line of sustainability. This line represents what the scatter plot (Sustainable Remuneration Model) would look like if every CEO was remunerated at the same percentile as their performance. The further away from the line of sustainability a CEO is, the less sustainable is their remuneration.
  • The blue line is the trend line for the actual scatter plot.
  • The equation in the top left hand corner of the scatter plot represents the dimensions of the line. The slope of this line is 0.7368 which means that for every 0.7368 of a percentile that a CEO improves their performance by, they move up an additional one percentile in the total earnings percentiles (The SA market trend). In other words, total earnings position increases at a faster rate than performance position.
  • The area between the two thin red lines represents the target area within which a company would want to be. This area indicates that the performance position and total earnings position are sufficiently similar to be on the correct path towards sustainable remuneration

Conclusion

  1. The Wage Gap decreased universally compared to the previous edition of the Executive Pay Barometer.
  2. Executive Total Guaranteed Package increased by between 6.5% (CEOs) and 7.6% (Executive Directors).
  3. Improved market sentiment has had a positive effect on the values of long term incentives.
  4. The first edition of the Sustainable Remuneration Model indicates that the slope of South Africa’s trend line is 0.7368. Better alignment of pay and performance will improve this and move the slope of the line closer to one (perfection).

Thank you for your interest in the
21st Century Executive Pay Barometer

Print/download – Executive Barometer (pdf file)

Written by:

 

Bryden Morton
Executive Director
B.Com (Hons) Economics
bmorton@21century.co.za

 

Chris Blair
CEO
B.Sc Chem. Eng., MBA – Leadership & Sustainability
cblair@21century.co.za

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2018-04-24T13:49:04+00:00