Struggling sugar producer Tongaat Hulett has heeded shareholder concerns over executive pay and performance, paying no bonuses to executives and senior managers in the past financial year as profit targets were not met, according to its latest annual report.
In 2017, 27.5% of shareholders voted against Tongaat’s remuneration policy, prompting engagement with some shareholders and a commitment to work with independent pay consultants to ensure concerns are addressed and its policies are in line with best practice and governance codes.
The company also commissioned an independent consultancy to conduct a study of pay levels in its South African operations, with the research concluding that "most employees" are being paid "within acceptable salary ranges", according to the report.
Tongaat, whose share price is down nearly 25% so far in 2018 and trades at less than half its 2014 peaks, has significantly underperformed the JSE’s all share index and the food producers’ index over the past 10 years, prompting complaints of long-term value destruction from shareholders.
Its latest results, showing a 37.2% decline in headline earnings to R617m and a 46% cut in the dividend to 160c a share in the year to end March, led Investec analyst Anthony Geard in May to call for long-serving CEO Peter Staude to resign.
"After 10 years of negative cumulative free cash flow, declining returns and nil cumulative earnings growth or share price appreciation, we think it is time for the CEO since 2002 to step aside," the note read.
Staude, who is due to retire "in the coming year", has declined an approved salary increase on his cash package for the past two years.
His overall pay dropped by nearly 40% in the past financial year, taking home R10.1m in cash, retirement and medical contributions. He earned a bonus of R6.6m in the 2016-17 financial year, but no bonus was payable in 2018 as the headline earnings fell short of the R800m target.
Chief financial officer Murray Munro, whose bonus totalled R2.88m in 2016-17, saw his pay and benefits decline by nearly 30% to R5.98m.
If the values of their stock options are included, Staude’s pay was R13.5m, reflecting a decline of 32%, while Munro’s pay was R7.2m, a decline of 26%. While the executives saw a pay cut, nonexecutive directors received an increase of 5%. Chairman Bahle Sibisi earned R1.676m, up from R1.5m in the previous year.
The board’s remuneration committee has approved salary increases of 7% for the two executives on their cash packages for the 2018-19 financial year, while a pay increase of 6% is proposed for the nonexecutive directors.
Shareholders will vote on the matter at the annual general meeting on August 8.
One analyst, who spoke on condition of anonymity, said a number of factors outside management’s control affected the group’s performance in the past financial year, including a flood of cheap sugar imports following the wrongful scrapping of import duties for a seven-week period in 2018, and a stronger rand in the latter half of 2017 hurting export revenue.
The sugar industry is lobbying the government to increase import tariffs on sugar, as many major sugar producers globally pay significant subsidies.