A few days ago, UK Prime Minister Theresa May referred to the “unacceptable face of capitalism” when she attacked pay rises to bosses that far outstrip the performance of the companies they lead in a piece for the Mail on Sunday. The article was setting the scene for a package of measures being proposed by the Tory government this week, in terms of which workers and shareholders should in future have a bigger say and a louder voice in the running of the companies in which they invest their labour and capital.
In South Africa, CEO pay has also been brought into renewed focus by proceedings at last week’s Naspers AGM, with two thirds of N shareholders reported to have voted against the company’s executive remuneration policy. In a nutshell, the reason for this appears to be the fact that investors increasingly see the company’s very successful investment in Chinese internet giant Tencent as a most fortuitous “one-trick pony” (as it was recently referred to on the Bloomberg Gadfly commentary platform). The question being asked is simply this: why should shareholders continue to pay top dollar for the management of a holding company structure which appears to add little demonstrable ongoing value?
It is against this background that I saw the following tweet crossing my Twitter timeline on Monday:
It thus seems fair to assume that the DPME’s head of Evaluation and Research is a rather important voice within government insofar as identifying matters of strategic importance, setting priorities and articulating policies are concerned. I will therefore not be surprised if we hear President Jacob Zuma quoting these statistics in his next State of the Nation address, or the Minister of Finance referencing it in a future budget speech.
The NPC’s website also includes the following statement: “South Africa needs well researched, evidence-based input into policy processes that have long-term economic, social and political implications for development”. And yes, it would certainly be hard to argue with that.
Against this background, let’s analyse just how well researched and evidence-based the quoted tweet actually was.
Much as a large cross section of the population will agree that it’s a huge concern, the fact that South African CEO’s come out on top in a ranking of income inequality is hardly news. But annual remuneration of $7.14 million, purported to be the number for the average CEO in the country?
Where does the number come from? The tweet in question includes a table, which appears to be from a newspaper and closer scrutiny references the source as “Bloomberg 2016”. Fortunately for us, the original Bloomberg article can still be found online, and sure enough, the numbers quoted in the table are all there. So I guess one cannot fault the tweeter… not at this stage, anyway.
The problem is that the number just looks wrong. Yes, we’ve all heard of some obscene CEO packages, but an average of more than $7 million (R93m, at today’s exchange rate) just doesn’t appear to come close in terms of passing the reasonability test (certainly not as far as a representative universe of South African CEOs is concerned).
It therefore seems worthwhile to try and track down the original source data in an attempt to understand where the number comes from. Unfortunately, it would appear that some of the numbers from November 2016 (i.e. those featured in the original article and hence Mr Goldman’s tweet) are no longer available on Bloomberg some nine months later – not even to those who subscribe to the system – as the fields in question continue to be updated on a continuous basis. Put differently: if you try to look for the details relating to historic CEO remuneration on Bloomberg today, all you will get is the total compensation paid to a CEO or equivalent for the latest fiscal year that has been publicly filed.
At first glance, this doesn’t appear to be too much of a problem. On the contrary, one can probably argue that an analysis of more recent/current numbers would be much more meaningful in any event, no?
Unfortunately, such analysis does not appear to shed much light on the matter either. Based on the latest Bloomberg numbers in respect of total remuneration for CEOs of all companies included in the JSE Top 40 Index (i.e. the stated universe of the original analysis), there are in fact only two companies where the most recent annual package exceeds the much vaunted number of $7 million, namely Richemont and British American Tobacco (BAT).
Calculating a simple average for the whole JSE Top 40 universe further yields a result of “only” $3.2 million worth of annual CEO remuneration. Yes, this is undoubtedly still a very significant amount (and a huge multiple of what lower paid workers will earn), but I believe it is also important to note that the number is in fact less than half of the $7 million which has been quoted as the average.
Moreover, one should bear in mind that even the amended average of $3.2 million is a fairly blunt instrument, and that approximately 60% of the JSE Top 40 CEOs earn less than that, according to the numbers on Bloomberg (a quarter earn less than $1m). Needless to say that, in the case of those companies outside the Top 40 (not to mention the myriad of unlisted businesses), average South African CEO pay will be significantly lower still.
So, where did the $7 million in the original analysis come from? Were there any exceptional inclusions at the time, possibly pushing up the average to such giddy heights? And what conclusions can really be drawn from this today?
It is not my intention to try and justify pay packages in the millions of dollars when so many South Africans don’t even have a job. To be sure, even at an amended average of “only” $3.2 million per annum, CEOs in this country would still have the third highest pay-to-average income ratio in the world (with India and the USA taking the top two positions in a revised table).
I’m also not focusing on the debate surrounding dual-listed companies such as Richemont and BAT, where comparisons relative to other jurisdictions may in fact be more meaningful than a narrow South African focus. These may be valid points, but it’s a topic for another day.
All I’d like to see, is that the statistics entering the public discourse are sound – especially if such numbers are likely to form the basis of future government policy.
Deon Gouws is CIO of Credo Wealth in London.
(Twitter: @DeonGouws_Credo)
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