Executive remuneration continues to come under intense scrutiny from all levels and whilst large listed companies tend to exercise more restraint when considering the pay levels of their CEOs and executive committee members, the subject of executive’s remuneration remains a contentious one.

The Companies Act 2008 (“Companies Act”) contains numerous provisions relating to executive remuneration, chief among those is the requirement of companies to prepare annual financial statements. Such annual financial statements must include particulars showing the remuneration and benefits received by each director or anyone holding any prescribed office in the company, any pension paid by the company, any compensation paid in respect of loss of office, any securities issued, and details of service contracts. In addition to the Companies Act, companies listed on the JSE are required to comply with the King Code of Governance Principles (“King Code”) which also contains provisions relating to executive remuneration.

The King IV Report on Corporate Governance for South Africa (“King IV”) recommends that shareholders of companies be given the opportunity to pass nonbinding advisory votes on remuneration policy and implementation. King IV states that “[t]he remuneration policy should record the measures that the board commits to in the event that either the remuneration policy or the implementation report, or both, have been voted against by 25% or more of the voting rights exercised by shareholders.” A noteworthy introduction in King IV is that the remuneration of executive management should be fair and responsible in the context of overall employee remuneration. This introduction acknowledges the need to address the gap between the remuneration of executives and those at the lower end of the pay scale.

This introduction of nonbinding votes for shareholders in King IV is done so whilst the notion of ‘say on pay’ is becoming more relevant than ever in the wake of increasing demands for South Africa to move towards a binding shareholder vote on executive remuneration. Recent experience in South Africa and internationally indicates that market failures relating to governance are partly due to an absence of active institutional investors, or investment behaviour driven by short-term results.

An important note to bear in mind is that If South Africa is to make a move towards a binding vote, there needs to strong certainty that the shareholders who are given the right to vote are in a position to be able to critically analyse the remuneration policies and practices that they are expected to express a view on.