Handshakes, handcuffs and what Dan Matjila should be paid
Paying executives huge sums on resignation has been examined by the Constitutional Court, and it’s not as clear cut as you may think
In September 2018, the Mail & Guardian reported that the Public Investment Corporation (PIC) CEO Dan Matjila, whose contract was due to run until the end of December 2019, had offered to resign before then in return for a “golden handshake”. More recently, Business Day reported that Matjila had “communicated to the board of the PIC that he intended to resign at the end of April 2019” but the PIC board decided to accept his resignation with immediate effect.
It has also said that he would not receive a golden handshake, but that the PIC would be as generous as possible towards him “within legal bounds … in recognition of his contribution to the PIC”. This suggests the board of the PIC does not think that what he earned by way of ordinary remuneration — more than R15m in the year ended March 2018 — was sufficient for the latter purpose.
What are golden handshakes and why have their payments become regarded with deep suspicion?
The term golden handshake used to refer to an amount contractually payable to an employee with rare skills or other attributes who remained employed until retirement or a specified date. It was included in employment contracts to discourage resignation before then and so were sometimes also referred to as “golden handcuffs”.
These days, the term golden handshake is often used to refer to the payment to an employee of an amount to which they were not contractually entitled before some (usually secret) deal was struck in terms of which the employee agreed to resign from employment.
In a recent Constitutional Court judgment, Justice Mbuyiseli Madlanga found that the payment of R17.3m to the then Director of Public Prosecutions (NDPP) Mxolisi Nxasana in return for his resignation was unlawful, saying that “[the] inference is inescapable that [then president Zuma] was effectively buying Mr Nxasana out of office” because Nxasana was “troublesome or otherwise unwanted” — and “from public coffers to boot”.
Similar outrage is evident in the judgment of Justice Keoagile Matojane in the recent case relating to Eskom’s R30m boost to [former CEO] Brian Molefe’s retirement savings in the Eskom Pension and Provident Fund (EPPF): “The decision by Eskom to waive penalties and buy Mr Molefe an extra 13 years of service, totaling R30.1m after only 15 months of service at the age of 50, stretches incredulity and is unlawful for want of compliance with the rules of the EPPF.
“What is most disturbing is the total lack of dignity and shame by people in leadership positions who abuse public funds with naked greed for their own benefit without a moment’s consideration of the circumstances of fellow citizens who live in absolute squalor throughout the country with no basic services.”
It is hardly surprising, then, that the PIC has announced it does not intend to pay Matjila a golden handshake. Nonetheless it wants to be “generous” to him “within legal bounds”.
What are those “legal bounds”? Can the PIC pay Matjila more than the remuneration to which he would have been contractually entitled if his employment had continued to the end of his notice period (April 30 , or, possibly, May 31 2018, depending on the date on which he tendered his resignation unconditionally) — even if the PIC will not let him render further services to it in the meantime?
The answer to this is no. Case law in SA and England has established that the board of a company, whether state-owned or private, can only lawfully use the company’s assets for the purpose of fulfilling the objects of the company — and subject to limitations imposed by applicable law and the company’s memorandum of incorporation. So it cannot, simply to be generous, make payments to its employees or former employees to which they are not entitled and which are not “reasonably incidental and within the reasonable scope of carrying on the business of the company”.
What is clear is that Matjila no longer has a quality essential for the fulfilment of the job of CEO: the trust and confidence of the PIC’s board. In other words, he lacks the capacity to do the job
The same has been held to be true for the board of a medical scheme, a pension fund or any other legal entity, whether for-profit or otherwise.
Discretionary bonuses are seldom paid to employees who have indicated their intention to leave their employers because they don’t serve the purpose of encouraging continued superior employment performance. In the current circumstances, then, it is hard to imagine how the payment of a bonus to Matjila “in recognition of his contribution to the PIC” could be regarded as “reasonably incidental and within the reasonable scope of carrying on the business of [the PIC]”.
What is he worth?
That the PIC is a public entity means the payment of money not due to Matjila could also amount to prohibited “irregular expenditure” or “fruitless and wasteful expenditure” as defined in the Public Finance Management Act, 1999.
What, then, is Matjila entitled to be paid?
It appears from newspaper reports that Matjila and the PIC agree on one thing: the relationship between them is irretrievably broken. Matjila has claimed that this was caused by the PIC-initiated investigations into his conduct. This suggests that he has at least considered asking the Commission for Conciliation, Mediation and Arbitration (CCMA) to order the PIC to compensate him for what he would claim was his “constructive dismissal” in the context that its board had created such hostile working conditions for him that he had had no option but to resign.
However, that would have been a difficult case to prove, given that, when giving notice of his resignation, he had indicated that he would be happy to continue to work for the PIC for another five months. It can hardly be said, then, that his working conditions were intolerable.
What is clear is that Matjila no longer has a quality essential for the fulfilment of the job of CEO: the trust and confidence of the PIC’s board. In other words, he lacks the capacity to do the job.
If, as has been reported, the PIC has already terminated his employment “with immediate effect”, then, if his dismissal was substantively or procedurally unfair, and (as appears to be common cause) his reinstatement would be untenable, the CCMA could order the PIC to compensate him.
If Matjila had been employed in terms of a contract of unlimited duration; he had not given notice of his resignation with effect from April 30 2019; the CCMA was persuaded that his dismissal entailed no fault on his part, then that compensation could have been up to the equivalent of 12 months’ remuneration.
Matjila was, however, employed under a fixed-term contract and so, but for his notice of resignation, the CCMA could have ordered the PIC to pay him the equivalent of the remuneration he would have earned until his fixed-term employment contract expired in December 2019.
But Matjila has given notice of his resignation and it has been accepted by the PIC (albeit from a date earlier than April 30 2019). This means that he cannot now withdraw his resignation with effect from that date without the consent of the PIC board. Assuming, as seems likely, any constructive dismissal argument would be dismissed by the CCMA, the most the PIC could be ordered to pay him would be the equivalent of the remuneration he would have earned before the expiry of his notice period.
No severance either
Matjila will not be entitled to severance pay on top of that because the termination of his employment was not due to the PIC’s operational requirements.
Neither any threat of litigation by Matjila nor any offer by him, in return for the payment of a golden handshake to refrain from disclosing any alleged irregularities in the conduct of the PIC’s business (none of which, it must be said, has been suggested) could legally justify the payment to him of anything more.
Those in effective control of corporate entities, whether public or private, and whether for profit or not for profit, should be cautious when seeking to conclude deals in which, in return for the resignations of employees of those entities, the latter will be paid more than that to which they are reasonably entitled.
If their dismissals are justified, fair procedures should be complied with in dismissing them. If, on the other hand, their dismissals are not justified, they should be left to do their jobs. Public funds and shareholder funds should not be used to buy them out. Stakeholders will be entitled to subject such deals to close scrutiny and those responsible for recklessly spending the entities’ money for improper purposes may find themselves in deep trouble — as they should be.
• Hunter is a pension and employee benefits law specialist at Fasken attorneys in Sandton.