EXECUTIVE PAY BAROMETER
12th Edition
Detailing the period from January 2018 – July 2018
This is the 12th 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 by company size and industry
- Sustainability
Introduction
The wave of optimism which surrounded the South African economy at the beginning of 2018 has slowly dissipated as the harsh reality of poor economic data has affected the economy. The economy has entered a recession after reporting two consecutive quarters of negative economic growth (Q1 -2.6% and -0.7% in Q2). This contributed in part to the Rand’s recent depreciation and has placed increasing pressure on consumer spending.
Since the previous Barometer (March 2018), the unemployment rate has deteriorated further to 27.2%. Compared to Q3 2017, the number of discouraged workers has increased approximately 17% which indicates that citizens of working age are viewing the labour economy in a more negative light than they did previously.
CFOs had the largest annual increase compared to September 2017.
- CEOs and Executive Directors received a median increase of 6.8% and 6.5% respectively.
Size remains positively correlated with median total guaranteed pay across all kinds of executives.
- CEOs remain the highest paid in terms of total guaranteed package, followed by Executive Directors and CFOs.
- 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 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)
- Large Cap Executives received the largest STI as a percentage of TGP across all kinds of Executives.
- In general the Small Cap and Median Cap Executives earned significantly less STI as a percentage of TGP compared to their Large Cap peers.
- STI percentages are currently quite low compared to typical design principles as a result of the subdued economy.
- As with the other elements of pay, LTIs as a percentage of TGP are also positively correlated with company size across all kinds of Executives.
- One exception does exist, where currently Medium Cap CEOs received a smaller median percentage than Small Cap CEOs.
- CEOs in Large Cap companies earned the highest percentage of LTIs as a percentage of TGP, followed by CFOs and Executive Directors.
- CEOs and CFOs currently have the same prevalence of full and appreciation shares.
- Executive Directors had the highest prevalence of appreciation shares and the lowest prevalence of full shares.
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%.
- The Extractive Industry has the largest Wage Gap, followed by the Personal Services Industry.
- The nature of the industry influences the Wage Gap as organisations with lower graded employees will have a lower general staff median than more technical industries.
- Compared to the last report, the STI as a percentage of TGP across all kinds of Executives and industries is relatively unchanged.
- There have been a few marginal increases and decreases in STI as a percentage of TGP, but no significant overall trend is present.
- CEOs and CFOs of Mid and Large Cap companies in the Personal Services Industry experienced a decline in their LTI as a percentage of TGP.
- Across all industries and all kinds of Executives, there is no discernible universal pattern in LTI as a percentage of TGP as there were a number of marginal increases and decreases.
- The prevalence of full share schemes in the Extractive Industry has been on the rise.
- In contrast the prevalence of appreciation schemes marginally declined for CEOs and CFOs in the Extractive Industry.
- Compared to the last report, there is no discernible overall trend (when excluding the Extractive Industry) although the prevalence of appreciation share schemes being used in the Distributive Industry and the Producer Services Industry marginally increased across all kinds of Executives.
The Sustainable Remuneration Index 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.
We are able to measure your sustainability – relative to your peers – and provide you with a full report detailing your organisation’s position within the Sustainability Remuneration Index, and details of the areas of improvement.
Conclusion
- JSE Listed Company’s Executive TGP Increases were in line with General Staff Increases (21st Century Increase Report).
- There have been no discernible variations across the elements of remuneration since the last report was released.
- The 2018 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). - The current state of the economy is somewhat weak as we have entered a technical recession, facing rising unemployment and rising inflation as a result of the Rand’s depreciation, among other issues.
Thank you for your interest in the
21st Century Executive Pay Barometer
Written by:
Bryden Morton
Executive Director
B.Com (Hons) Economics
[email protected]
Chris Blair
CEO
B.Sc Chem. Eng., MBA – Leadership & Sustainability
[email protected]
