wage gap

Dissecting JSE Executive Remuneration in South Africa

Why is the valuation of CEO salaries so high?

An article published by Bloomberg stated that South African CEO’s have the highest pay ratios in the world when comparing their earnings to the gross domestic product per capita (GDP) adjusted for purchasing power parity (Average JSE Top 40 CEO pay was listed as $7 140 000).

This claim was met by heavy criticism from the South African remuneration fraternity.

Many remuneration experts believe that the valuation of shareholding had been one of the larger reasons why the valuation of CEO salaries was so high.

Simply multiplying the number of shares held by a CEO by the share price does not yield the true value of the shares as this would be assuming all shares are full shares which have vested.


The 21st Century Executive Pay Barometer was recently launched and the findings of this report are consistent with arguments put forward by the remuneration fraternity. 


The graph below illustrates the median Total Guaranteed Package (TGP) of JSE listed companies by company size for CEOs, CFOs and Executive Directors (all directors, other than CEOs and CFOs, have been grouped within this category).

*Excludes executives paid in foreign currency
All three categories have a positive correlation with company size and CEOs have the largest median pay at each company size. Over the course of the last year, CFOs received the highest median salary increase of 8% of TGP, CEOs followed closely with a median of 7.6% and Executive Directors had a median increase of 7%. All three of these medians are in excess of the median for general staff employees according to 21st Century’s increase report.


The wage gap also has a direct correlation with company size. The wage gap is defined as the CEOs pay (TGP) as a ratio of the median general staff worker’s pay (TGP). This relationship is detailed in the graph below.

TGP is an important part of executive remuneration but it is only one piece of the 3 piece puzzle that makes up executive remuneration.


Variable pay is a significant part of an executive’s pay structure and consists of short term incentives (STI) and long term incentives (LTI). Short term incentives are typically made up of cash pay outs for reaching short term goals (usually less than one year) whereas long term incentives are commonly paid out in the form of equity in the business for long term performance (usually 3 years or more). As a result, the valuation of unvested LTIs has been a point of contention which has been fiercely debated in many circles. Unvested LTIs are the equity held by a participant that has not reached the date of maturity for payment.  


The graph below shows the mix of annualised STI and LTI payments as a percentage of TGP – the annualised figure is calculated as the portion of variable pay that will be paid out annually if all performance conditions are met. This highlights the importance of variable pay to executive total earnings as it makes up a large portion of the Total Earnings for an executive.

CEOs receive the largest percentage of STIs and LTIs at each company size. This is compounded by the fact that CEOs also received the highest median TGP at each company size – a larger % on a larger guaranteed pay.


CFOs and Executive Directors are comparable in terms of their median percentage of STIs and LTIs, although generally CFOs receive a larger percentage of variable pay than Executive Directors. This results in CFOs having larger median total earnings compared to Executive Directors, even though Executive Directors had a marginally higher median TGP at each company size.


If we sum the ST and LTI component to show the complete variable portion of pay as a percentage of the Guaranteed Pay (being 100%), we notice that it certainly is significant in all company sizes as shown below. 

The mix of vehicles used for compiling a LTI offering also requires analysis as the conditions attached to an LTI scheme can significantly affect the value of these shares. Full shares place the full value of the share in the hands of the recipient and can be sold at full face value at the time of sale. Appreciation shares are given to the holder at a particular strike price (deemed value at point of award) and the holder is only entitled to the difference between the strike price and face value at the time of sale.


The chief difference between these two types of shares is that full shares still have value even if the price of the share declines whereas appreciation shares only have value if the share price is above the strike price. A rule of thumb at present market conditions is that 3 appreciation shares approximately equal one full share in value at vesting.

The dominant form of shares awarded to executives at each company size is appreciation shares (even if the vested value is taken into account). Large companies have the highest prevalence of awarding full shares to their executives – which coincides with the higher percentages of LTIs given to each kind of executive in large companies. 


*Note: The Share mix can exceed 100% as some executives receive both kinds of shares.


Understanding the vehicles which make up the executive pay mix is only one part of the puzzle in executive pay. Understanding the value added by these individuals versus the quantum paid out is equally important.


Often, the source of public outcry lies in the value of the pay-out made to the executive without having full knowledge of the value created by the executive to earn this pay-out.

A larger emphasis should be made on how an executive has earned their pay rather than what they have been paid.

King IV seeks greater transparency of remuneration practices across organisations and this could potentially lead to greater understanding of how executive remuneration was earned. Greater transparency and understanding are crucial factors in closing the gap between what executives earn and how the public perceives what they earn.

Written by:


Bryden Morton
Data Manager
B.Com (Hons) Economics
[email protected]


Chris Blair
B.Sc Chem. Eng., MBA – Leadership & Sustainability
[email protected]

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