Five charts on why SA’s big four banks are in Zuma’s sights
At every bank, CEO compensation is growing faster than profits, begging questions about bloated boards and financial efficiency
SA’s four biggest banks, criticised by President Jacob Zuma for doing too little to boost black participation in their companies, haven’t done themselves any favours. In the past decade, three boards have backslid on racial diversity and none of them reflects the country’s demographics.
Of SA’s population of 56-million people, about 81% are black Africans, 8.1% are white and the rest are Indian, Asian or Coloured, who were also discriminated against during apartheid.
"Our board is representative of the pan-African nature of our business and our international shareholding," Barclays Africa Group said in an e-mailed response to questions, referring to its London-based parent, which is cutting its stake in the company. "The Barclays divestment is likely to result in changes to our board. Both our chairman and CEO are women."
Banks are not alone. Across domestic industries, whites hold more than 68% of top management positions in the private sector, while blacks have 14%, according to Department of Labour data. In March, the Banking Association SA told lawmakers at hearings into transformation in the industry that, while progress in appointing more black executives has been slow, the ranks of black junior and middle managers has increased.
Boards have also become more bloated — exceeding the size of some larger, international banks and levels recommended by a South African commission of inquiry into corporate governance in the industry.
The 21-member board of FirstRand cost the largest African lender by market value R215m in fiscal 2016, according to the company’s latest annual report. This compares with an average of R142m across the four companies. Nedbank and Barclays Africa each have 17 directors. JPMorgan Chase, which has operations in more than 60 countries, has 12 directors and a market capitalisation more than five times that of the Johannesburg-based lenders combined.
"The board believes that its current size and composition is such that directors are able to discharge their fiduciary duties in a manner that is consistent with the interests of all stakeholders," FirstRand spokeswoman Sam Moss said. Non-executive directors are regularly rotated, she said.
Fourteen years ago, a study commissioned by the central bank and overseen by a judge, recommended that a bank’s board should consist of no more than 16 members. A separate voluntary process, the King Code of Governance Principles in 2009, said all companies should consider whether the size, diversity and demographics of their boards make them effective.
Nedbank adheres to the King principles and the board’s composition takes into account additional sub-committees that oversee aspects specific to banking and to "ensure diversity and independence," said CEO Mike Brown. "A smaller board may result in too many duplicate members at sub-committees."
Lenders have also left room for criticism in the magnitude of their compensation increases versus performance, playing into the hands of officials from the ANC and labour leaders who have decried the gap between rich and poor. At every bank, CEO compensation grew faster than profit.
SA’s economy’s expanded at the slowest pace since a 2009 recession last year as inflation rose and interest-rate increases impacted consumers’ ability to spend. While the six-member banks index rose 27% in 2016, profit growth slowed at all of the four lenders amid the economic malaise. And because pay increases outstripped earnings growth, each CEO at SA’s four biggest banks also generated less profit for each unit of pay last year than in 2015, according to data compiled by Bloomberg.
Maria Ramos, CEO of Barclays Africa, generated R392 in net income for every rand the company paid her in base salary, incentives and bonuses in 2016, according to data compiled by Bloomberg and the company’s annual report. Standard Bank, Africa’s biggest lender by assets, has two CEOs, Ben Kruger and Sim Tshabalala, who together made R249 for each rand of pay. Tshabalala is the only black CEO among the four lenders.
Nedbank’s "disclosure and remuneration structures currently appear to be the best in the South African banking industry", analysts, including Harry Botha at Avior Capital Markets, said in a note on May 8. "We rank Nedbank’s corporate governance as good with a score of 3.75 out of 5, from 3.73 in 2015. In terms of the overall score, Nedbank continues to be rated ahead of Barclays Africa, FirstRand and Standard Bank’s scores of 3.48, 3.29 and 3.45 respectively."
Nedbank’s Brown received the smallest rise in total compensation, while the heads of Standard Bank and FirstRand had increases below inflation, which averaged 6.3% last year, according to the central bank. Ramos’s total pay shot up 33% after a share award valued at R8m. The incentive, which vests after September 2018, was offered as retainer while London-based Barclays sells down its stake. Standard Bank declined to comment, referring all queries to their annual report.
FirstRand’s Johan Burger was the highest paid CEO, taking a total of R63m for fiscal 2016, compared with average compensation of R45m for the other executives.