The War for Talent: How Companies (Worldwide) are Rewarding Top Performers

On June 17, the GECN Group hosted an in-depth panel discussion featuring leaders from GECN companies around the world in Toronto, Canada. The diverse panel included Farient Advisors (US & UK), HCM (Europe), Guerdon Associates (Australia and New Zealand), and 21st Century, representing South Africa and Africa. During the discussion, the panel explored global executive remuneration and governance topics.

Despite unique operating environments and stakeholder perspectives, three key themes emerged:

aligning with organisational needs,
pay for performance, and
environmental, social, and governance (ESG) considerations.

Aligning Executive Pay with Organisational Needs

An overarching theme is addressing tensions between good governance and the views of proxy advisors (such as ISS and Glass Lewis) with the need to attract, retain, and engage the right talent. Robin Ferracone at Farient Advisors summed it up: “It’s almost a collision course between doing something special outside the plans for somebody—like paying them above the 50th percentile—and whether it collides with standards of good governance.”

In South Africa, the emphasis on retaining talent in sectors like technology and AI is growing. Amanda Voegeli from Southlea indicated that turnover and talent demands are stabilising in some regions like Canada, while in South Africa, the “war for talent” remains intense in high-demand areas. This issue is particularly critical in growing companies that need to retain and promote key talent in these hot skill areas.

Boards continue to struggle with interpreting market data. In South Africa, there is a growing trend of applying more judgment when interpreting data to account for local market differences. Each year, companies must get their overall remuneration budget approved, which tends to remain fairly stable. Robin reinforced the need to position pay appropriately so that “performance can take care of whether the pay outcomes are high or low.”

From an investor perspective, challenges persist as it is easier for portfolio managers to follow proxy advisors ISS and Glass Lewis rather than develop their own policies. Stephan Hostettler at HCM noted that Swiss portfolio managers often do not fully agree with proxy advisor policies, reinforcing the need to understand shareholder preferences. This is equally true in South Africa, where local investors might have unique governance expectations.

Chris Blair from 21st Century highlighted that Remuneration Committees face expanding responsibilities, particularly in addressing the wage gap and inequities between top and bottom earners. Many larger companies are adopting living wage policies, and this trend is expected to grow. Gabe Shawn Varges from HCM added that these expanding responsibilities are part of a broader trend, raising questions about the changing profile of committee members compared to 10-15 years ago.

Pay for Performance

Michael Robinson from Guerdon Associates noted that “boards are trying to discern their way through the fog of what actual performance is versus the hubris that management puts up about their performance.” South Africa has an increasing focus on linking executive pay to tangible performance metrics. Research among South African and Australian companies shows that while some companies consistently achieve sustained levels of return on capital or earnings growth, this does not always translate into total shareholder returns (TSR).

Globally, boards are considering combining relative and absolute TSR to address different investor perspectives on performance. Amanda suggested using Market Share Units (MSUs) as a replacement for stock options. MSUs vest based on absolute TSR over multiple years, which addresses challenges in smaller markets like South Africa, where relative performance comparisons can be difficult.

South Africa, like Australia and Europe, is shifting focus towards real ownership rather than historical emphasis on fixed salary multiples and unvested share units. Some South African companies have adopted share matching programs, supporting retention and encouraging real share ownership.

Environmental, Social, and Governance (ESG)

Robin commented: “While there is talk of a ‘backlash’ against ESG, companies are developing and refining their sustainability strategies and want to push these objectives within incentive plans.” In South Africa, there is significant focus on environmental and social issues, such as reducing greenhouse gas (GHG) emissions and promoting social equity. A notable example is the mining sector, where companies face pressure to demonstrate sustainable practices and community engagement.

Michael noted that Australia and Canada have a strong focus on GHG emissions reduction. In South Africa, companies must invest significant capital expenditures on GHG-reducing activities, which can impact TSR in the short term. This creates challenges beyond including ESG measures in incentive plans—companies need to recognise the long-term impact of these investments on future financial and market returns.

South Africa is still developing in its ESG maturity, with larger global companies aligning with market practices and smaller local companies focusing on social needs. Timing challenges and differing expectations from ESG activists versus shareholders are significant. Chris Blair stated: “We will probably need to see a meaningful increase in the weighting of ESG within incentives to encourage executives to prioritise strategies that drive positive ESG outcomes.”

Conclusion

Aligning executive remuneration with organisational needs, linking pay to performance, and integrating ESG considerations are critical components of modern executive remuneration strategies. These themes resonate globally and are particularly relevant in South Africa’s unique economic and social landscape. As companies continue to refine these approaches, understanding the local context and investor expectations will be crucial in achieving balanced and effective executive remuneration practices.

Written by:

Dr Chris Blair
CFO, Executive Director of Corporate Support
PhD (Leadership and Management), MBA (Leadership & Sustainability), B.Sc.Hons. Chem. Eng.
[email protected]