AN audience poll at the Joburg Indaba conference earlier this month found that 53.4% of those who attended – around several hundred – thought mining industry CEOs were overpaid.
Executive remuneration is always a hot topic, particularly among wider society. Is it fair that one person receive a salary of millions of rands when the lowest paid worker is struggling to put bread on the table? Even shareholders worry about it.
Looked at another way, however, executive remuneration is part of a wider discussion about what happens to the revenue a mining company generates which totalled R333bn for South Africa’s top mining industries in 2016, according to PwC’s annual Mine survey which assessed the 31 largest South African mining companies by market capitalisation.
Shareholders are the people and organisations that put money into businesses; they provide the capital for a return. Without a return, the shareholders withdraw, sometimes never to be seen again. When this happens, a company goes belly-up.
So when only 3% of total value created by the surveyed companies in 2015 – about R167bn – went into shareholder dividends down from 9% in 2015 and 19% in 2013, one can see there are other things to worry about than just executive salaries. (Total value was the difference between income and direct purchases). Interestingly, the state still retained a hefty 15% of the total value generated (down from 19% in the previous year), according to PwC.
And of the various metrics in terms of the use of value to stakeholders, it’s worth noting that there was no change in the contribution to community investments (1% of the R167bn total) whilst as a percentage of the whole, employee salaries increased to 38% from 37% in the previous year.
Nick Holland, who has frequently been criticised for high salary and bonus payouts, including a hefty $2.8m paid in 2015 which represented an 8.8% increase over the previous year, said criticism is inevitable, but wrong-headed. “You can never win this battle,” he said. “All you an do is rationalise how it is done. But there will always be criticism”.
As the CEO of a company with only one mine in South Africa, he believes dollar denominated peer group benchmarking is the correct way to go. “What the board does it that it looks at salaries in the peer group; those who are competing with international investors for investment dollars.
“The board also brings in independent surveys and then the people who are directly affected by it [executive remuneration] approve it in a vote. The question is how do you attract the right skills where executives are working seven days a week, and often through the night,” he said.
Chris Griffith, CEO of Anglo American Platinum, caused a stir in 2014 during the teeth of the platinum sector strike waged by the Association of Mineworkers & Construction Union when he defended executive pay by stating: “I’m not demanding to be paid what I’m not worth”.
Today, he believed the key issue is about being transparent in how executive pay is measured rather than focusing on the absolute amount. “That is the conversation between shareholders and at annual general meetings; and it’s a fair one,” he said.
Said Neal Froneman, CEO of Sibanye Gold: “If we think that by reducing CEO incentives or remuneration that will change something then we are making a mistake. We have to get the levels at the bottom raised up.
“I don’t determine my own salary; that is done through the remuneration committee [of the company]. They are objectively set through proper KPI [key performance indicators]. Are we overpaid? I don’t know,” he added.
