Pay cut for Investec executives – sign of things to come?

The practice of linking executive pay to performance appears to be gaining momentum.

Releasing its annual financial report last Friday, Investec announced that the CEO and MD had forfeited their bonuses and had taken an average 86,6% cut in pay as a result.

CEO Stephen Koseff and MD Bernard Kantor received £450 000 (about R5,8 million) each in the year to March 2012, down from £3,4 million (about R44,9 million) last year. Group Finance Director Glynn Burger took an 88,2% knock to £370 681 (about R4,8 million) from £3,1 million (about R39,8 million) previously. The move came in the wake of Investec posting disappointing year-end results that saw operating profits tumble 17,4% to £358,6m (about R4,6 billion). Diluted headline earnings per share dropped 28% to 25,4p (about R3,26).

Absa’s remuneration committee will also decide whether bonuses paid in 2011 should be claimed back, following the bank’s announcement last week that half-year earnings might decline as much as 10%.

The Congress of South African Trade Unions welcomed the slashing of Investec executive total packages. “We don’t understand why this is considered news. It ought to be normal; salaries should be related to performance,” said spokesperson Patrick Craven.

“This proves our point that chief executives are paid too much without regard to performance,” he added.

Gerald Seegers, Human Resources Services Director of PwC Southern Africa, who compiles the annual Executive Directors: Practices and Remuneration Trends report, said this would be the trend going forward – especially for banks. He said the legislation in the financial services sector, particularly in the UK, meant banks were operating in a highly regulated environment and would have to focus attention on issues such as executive pay.

However, Seegers warned that the pool of talent in South Africa was such that top executives were highly sought after and could leave the country for greener pastures if their total packages became untenable.

Chief Executive of the Institute of Directors, Ansie Ramalho, said: “There’s no doubt that there’s increased scrutiny of companies’ level of remuneration of executives. The onus is now on companies to evidence the link between performance and pay.”

Ramalho praised the Investec team for being proactive. “The move by the Investec executives to forfeit their bonuses is an encouraging sign that there’s an increased awareness of the responsibility to be accountable to shareholders and other stakeholders regarding executive pay.”