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Former Reserve Bank Governor Tito Mboweni

Shareholder activist Theo Botha said companies seemed to use restraint-of-trade payments and retention bonuses to increase directors' pay while the companies were not performing well.

PPC's former chief operating officer Harvey Dent retired on December 31 2010, but got R6.3-million apart from his salary for the 2010-11 financial year. This was part of a retirement settlement and restraint-of-trade agreement which runs until December 31 this year.

Paying former executives to refrain from competing with their former employers, which is the essence of most restraint-of-trade agreements, is common practice in corporate South Africa.

"A restraint-of-trade agreement is part of the employment contract that the employee signs when he first joins the firm," said Sandra Burmeister, CEO of Landelahni Recruitment Group.

"It provides a stipulated time period during which the employee, usually a senior executive, agrees either not to take up a position with the employer's competition or not to do any kind of business with the employer's clients."

This should be distinguished from "gardening leave" when an employee resigns.

Deon Visagie, a partner at law firm Weber Wentzel, said gardening leave in South Africa was simply when an employee was required not to go to work during his or her termination notice period, or when the employee was suspended.

"Although the employee, usually an executive, is effectively at home during this period, he is still obliged to comply with the employment contract. So the employer may ask the employee to come into the office for certain things. The employee will still be bound by the provisions in the employment contract, such as confidentiality provisions.

"Effectively, in the contract of employment, the employer reserved the right to ask the employee to work or not to work during the notice period."

Tubane Mosia, former chief financial officer of Icasa, was put on such "gardening leave" last September following problems relating to an audit of the annual report. His contract ran out in November, and he got his salary from September to November.

In 2008 and 2009, Old Mutual's former CEO Jim Sutcliffe also received full salary for almost a year after his resignation while his notice period ran out.

Former Absa CEO Steve Booysen went on six months of "special leave" worth R3-million after his successor Maria Ramos took over in March 2009. Then he got R19.1-million in August 2009 as a termination benefit and restraint-of-trade payment, binding him for a year to September 2010.

But payment during a restraint period is not a prerequisite.

"Generally, for lower-level positions, no payment is made during the restraint-of-trade period since the employee is free to obtain a new position as long as it is not in any way competing [with his former employer]," said Burmeister.

"However, payment may be made to senior executives in recognition that their income-earning potential may be affected."

When Phuthuma Nhleko quit as CEO of MTN in 2010, the telecoms group entered into a restraint-of-trade agreement worth R33-million with him to stop him working in the industry for three years, starting on April 1 last year.

New Cell C CEO Alan-Knott-Craig was reportedly bound by a three-year restraint-of-trade agreement with former employer Vodacom.

Visagie said restraint periods were not prescribed by law, but should be reasonable towards the former employee.

Charl Kocks, CEO of governance rating agency Ratings Afrika, said the period and extent should also be reasonable towards the company and its stakeholders.

If the restraint-of-trade payment was "very high, one should ask questions about the real reason for such payment".

"Strictly speaking, a restraint of trade is negotiated when an employment contract is entered into. There should not be anything payable when the employee leaves as he entered into the contract while knowing of the restraint."

Kocks said a company should pay only for what was legal and reasonable in terms of benefits for the company, but it was debatable whether payments were justified in terms of value for money.

"If Alan Knott-Craig went directly from Vodacom to Cell C, I doubt that Vodacom would have been disadvantaged by that. Similarly there is no possibility that another bank would have been able to disadvantage Absa if Steve Booysen joined it right after leaving Absa.

"These competitors might have gained some advantage, but I do not see how any of the original employers would really have suffered," said Kocks.