EXECUTIVE PAY BAROMETER
14th Edition
Detailing the period from January 2019 – June 2019
This is the 14th 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 2019, South African elections have come and gone paving the way for “business as usual” to commence within the economy.
The current local economic environment remains subdued, however, the economy grew by more than expected in the second quarter of 2019 (3.1%). Ironically, this is the inverse of 2019’s first quarter performance which saw the economy retract by 3.1% – which leaves the current economic growth for the year averaging 0% growth per quarter.
Consumer price inflation has a more positive story to tell in 2019, with the existing year to date average for 2019 being 4.3%. This is well within the South African Reserve Bank’s inflation target (3% to 6%) and is positive for consumers.
2019 will be a year categorised by low economic growth and stable inflation rates. With a number of crucial state owned enterprises remaining under severe financial pressure, all eyes will be on the credit risk ratings agencies as South Africa seeks to improves its attractiveness as an investment opportunity.
All three kinds of executives had a similar median increase to the median general staff increase (6.1%, according to the 21st Century Increase Report – April 2019).
- Company size remains positively correlated with median total guaranteed pay across all kinds of executives.
- CEOs remain the highest paid in terms of TGP, followed by Executive Directors and CFOs.
- CFOs earned a higher median TGP than Executive Directors within large companies.
- The overall trend remains the same as the previous report.
- Size and the Wage Gap remain positively correlated.
- 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 median Wage Gap within Medium Cap companies marginally declined since the previous report. Conversely the Wage Gap within Large Cap companies increased.
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).
- In general, the Small and Medium Cap Executives earned significantly less as a percentage of TGP compared to their Large Cap peers.
- CEOs in Large Cap companies earned the highest LTI percentage followed by Executive Directors and CFOs.
- There has been no discernible trend across the company sizes and different kinds of directors as there have been both upward and downward movements in the data.
- Medium Cap CEOs had a lower realisable LTI percentage than Small Cap CEOs. This has persisted from the previous report.
- Appreciation Shares remain the dominant LTI vehicle across all kinds of executives.
- Overall there has been a marginal increase in the prevalence of Full Share schemes and a marginal decline in the prevalence of Appreciation Share Schemes.
- Executive Directors had the highest prevalence of Appreciation Shares.
- Across all sizes and kinds of executive, Appreciation Share schemes remain the dominant form of share schemes issued.
- The prevalence of Full Share schemes is positively correlated with company size.
- Since the last report, there has been a marginal increase in the prevalence of Full Share schemes used.
- Since the last report, the overall trend in the Wage Gap by Industry has remained the same with the Extractive Industry having 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.
- The overall trend in the LTIs and STIs as a percentage of Total Guaranteed Package by industry has remained the same as the previous report with only marginal increase and decreases occurring.
- The Extractive Industry remains the industry that has the highest prevalence of Full Share schemes.
- Compared to the last report there is no discernible overall trend.
- When excluding the Extractive Industry, Appreciation Shares are comfortably the most prevalent in the other industries.
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). In comparison to 2018, median increases for both general staff and executives have been lower. This is in line with the current low inflation rates.
- There have not been any significant changes in the Executive pay mix trends since the last report.
- Despite the better than expected economic growth in the second quarter of 2019, the annual economic figure for 2019 is expected to be subdued (0.6% according to the SA Reserve Bank’s MPC Forecast).
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]
