Today's Labour News

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earningsAnn Crotty writes that in about 18 to 24 months’ time, the brouhaha over executive pay could get extremely testy because that’s when we’ll start to see the first signs of the value of long-term incentives (LTIs) awarded to executives during the early days of Covid. She calls it the ‘Covid bonus’.

Crotty notes that the timing of the recent disclosure of the huge share-based payout in excess of R300m scored by Sibanye-Stillwater’s Neal Froneman, just as his company was trying to panel-beat workers into accepting a derisory pay increase, was unfortunate. She points out that the big challenge around executive pay is not so much the magnitude but the timescale. The most deserving executives are those who have created value that survives a few economic cycles. It is only this sort of value creation that is certain to ensure alignment with shareholder interests. But, the remuneration industry’s definition of long-term is not a few economic cycles but a mere three years. Famously as in the cases of Anglo American’s Mark Cutifani in 2016 and Froneman in 2018, share option awards were based on a low share price. In both instances the share prices were so low that the remuneration committees thought nothing of awarding truckloads of shares to the executives. Between March and October of 2020, for reasons that had nothing to do with corporate executives, share prices plummeted, dragging the JSE all share index to a seven-year low. But for remuneration committees it was business as usual; they dished out huge numbers of long-term share awards based on the low market valuations with no consideration of alignment with ordinary shareholders. Then share prices shot back up, for reasons that had little to do with corporate executives. Assuming the market does not tank from current levels in the coming 18 to 24 months, the lucky executives who were awarded shares at seven-year lows are on track to make a killing almost regardless of individual performance. So, what is lurking ahead of us “could make Froneman’s payout seem the height of restraint and will certainly ensure that regulations around executive remuneration, including disclosure, are tightened rather than relaxed.” Crotty concludes: “It’s the executive Covid bonus brought to us courtesy of the utterly grim times we all suffered during 2020.”

  • Read the full original of Ann Crotty’s opinion piece at Financial Mail (subscriber access only)

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