Is there a growing revolt around CEO payouts?

NASTASSIA ARENDSE:  Executive pay is a hot topic for shareholder and stakeholder activists. But another contentious topic is the CEO who walks away from a disaster and substantially gets a golden handshake or golden parachute, however you want to phrase it. It does happen.

We are joined on the line by Martin Hopkins, an executive committee member of the South African Reward Association [Sara] and also a partner at PwC. Martin, thank you so much for you time

MARTIN HOPKINS:  Yes.

NASTASSIA ARENDSE:  We go through the business headlines and we see performance in companies that is probably less than satisfactory, or something horrible happened, and at some point we see a golden handshake. From your perspective, are we seeing an increase of this just as much as we are seeing that people are saying there is unequal pay with regard to the salary increases and bonus increases for executives.

MARTIN HOPKINS:  I wouldn’t say there’s necessarily been an increase in the prevalence of golden handcuffs [sic] that we look at over the last five to ten years. Every so often there is always one of these sort or pay-for-failure incidents. I must admit this is the one area where institutional investors do get upset. The public at large gets excited about the quantum of pay, but institutional investors in particular really want to see pay for performance. And certainly where there is a definite failure and someone does get a large amount of money, this is an issue that is not [demonstrating] great governance.

NASTASSIA ARENDSE:  In the article that I read, where you guys do comment on this quite extensively, I wanted to understand from a governance point of view where it leaves what they call the golden handshake.

MARTIN HOPKINS:  The King Code on Corporate Governance – which has had Version III out for a number of years, and King IV is coming out shortly – is quite clear that there should not be pay for failure, and that there should be a strong link of pay for performance. So certainly the squeaky-clean-governance view on things is that it’s not well regarded.

Now, as I mentioned in the article you are referring to, [good governance] is certainly the aspiration. The reality of South African labour law is that everybody actually has the benefits of our quite benign labour law and, if you do wish to summarily dismiss your CEO for one specific event, it actually is very difficult – and there is a long process which might drag on for a year or two with a lot of dirty laundry being washed in public. Often people take a pragmatic and expedient route of agreeing an amount of money whereby people will part ways, rather than going through the full due process.

I think that’s where we land up with the pragmatic approach, even though it’s not necessarily regarded as great governance.

NASTASSIA ARENDSE:  Martin, I know it goes so deep and I wanted to have another conversation with you where we are talking about what they see as remuneration for executives, but I suppose this is a topic we can have another day. We are running out of time and unfortunately we are going to have to leave it there.

But thank you so much for your time.

MARTIN HOPKINS:  Certainly. Thanks a lot.

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