EDITORIAL: Nothing comes in the way of SA executives’ rich pickings
Neither snow nor rain nor heat nor gloom
There was a time when if you wanted to become fabulously wealthy you would have to discover some valuable resource or invent a remarkable new device.
Failing that you would have to be an outstanding and energetic entrepreneur who not only scraped together all his or her own and friends’ savings, but also worked endless hours day and night. And be lucky.
Now, thanks to a flourishing and extremely well-paid remuneration industry and the growth of public-listed companies, it has become much easier to enter the ranks of the fabulously wealthy.
The combination of a thriving remuneration industry and listed companies without controlling shareholders provides lucky executives with the opportunity to pick up the sort of fortune that, after a few short years, will allow them and two or three future generations to live a life of unemployed bliss.
Surely there is something fundamentally wrong with a system that so generously rewards the end of a long-drawn out and costly retreat.
The critical part of the process is clawing your way to the top; this requires a mixture of hard work, competency and the ability to manage upwards. Remarkably, what is not required to access this sort of fortune is the proven ability to lead a profitable organisation over the long term.
This week, Old Mutual policyholders and shareholders may have shrugged in resignation at the news of the rewards received by CEO Peter Moyo and a small group of executives responsible for bringing the group back to SA after its expensive 19-year-long foreign adventure. Moyo’s R50m compensation for the year ended December 2018 included R15.4m as part of the “managed separation incentive plan”.
There’s no doubt Moyo is one of the top executives in SA’s financial industry. But surely there is something fundamentally wrong with a system that so generously rewards the end of a long and costly retreat.
Old Mutual’s ill-considered foray into international waters has destroyed billions of rand of shareholder value beginning almost from the day in 1999 that it secured its primary listing in London. Recall the generous pension Mike Levett, CEO at the time, was awarded on the grounds that Old Mutual was now a London-based company.
That proved to be just the start of the billions squandered on acquisitions scattered across the globe. Recall too the momentary fuss in 2016 when shareholders learnt that newly appointed CEO Bruce Hemphill stood to walk off with R223m if he successfully broke up the company by 2018 — which he did, And yet, throughout all this time Old Mutual’s top executives were richly rewarded.
Over at MTN, shareholders must also be looking on in weary frustration as CEO Rob Shuter picks up another R40m remuneration package.
Shuter is credited with helping to stabilise the company after the meltdown in Nigeria. But with the share currently trading at about 40% of its 2015 level, shareholders could be forgiven for wondering why the previous executive teams were also paid so generously. In 2016 when the group posted its first loss, then CEO Phuthuma Nhleko was paid R72.2m.
Apart from the staggering sums of money involved in 21st-century executive pay and the stark inequality it underpins, two critical issues stand out. Both result from the short-term perspective of the remuneration industry; that even a life insurance company regards three years as long term is staggering.
One issue is the total lack of symmetry — executives get very well paid when they do well, but also get very well paid when they do badly.
The second issue is that this lack of symmetry and the short-term nature of executive rewards incentivises an obsession with the short term. This may explain why so much of what passes for business strategy these days is little more than value extraction aimed at boosting short-term profits and the share price.
Our remuneration system needs to be radically overhauled before the listed sector is completely hollowed out.