FirstRand chair rages against government’s populist policies
In FirstRand’s annual report, chair Roger Jardine delves into the issues of inequality, rages against the government’s populist policies, and speaks of the land debate
Why does SA remain such an unequal country 24 years after democracy?" asks FirstRand chair Roger Jardine at the beginning of an integrated annual report that goes on to hint at part of the answer.
The 18-page remuneration committee section in the 2018 report details the eye-watering amounts of money awarded to the top executives of the country’s biggest bank by market capitalisation.
Without making any connection, Jardine notes that SA’s Gini co-efficient, which measures the level of inequality in a country, stands at 0.68 and "makes us one of the most unequal countries in the world".
From the remuneration committee we learn that outgoing CEO Johan Burger’s "total reward" for the year was R57m. His replacement, Alan Pullinger, got R45.3m; CFO Harry Kellan’s "total reward" was R26.4m; James Formby, head of merchant banking arm RMB, pulled in R35.3m; FNB CEO Jacques Celliers’ award was R33.9m; and Chris de Kock, head of WesBank, got R22.3m.
The broader concern is that, given the practice of benchmarking competitors’ pay levels, FirstRand’s heart-stoppingly generous 2018 rewards are certain to become the reference for all the banks.
FirstRand’s remuneration committee devotes much of the report to justifying the sums paid so that Pullinger, Kellan, Formby, Celliers and De Kock don’t up sticks and head for top slots at Absa, Standard, Nedbank, Investec or Capitec. Or set up their own banking operations, as former FNB high-flyer Michael Jordaan is doing. Also implicit in the report is the assumption that the group’s excellent profit figures are largely down to these individuals.
What it means
FirstRand paid six executives a total of R220m in 2018, and says they deserved it
There’s little doubt that FirstRand has a remarkably talented team — one that can navigate a minefield of banking regulations and still generate the sort of return on equity (ROE) that is the envy of banks across the globe. The group’s 23% overall ROE, underpinned by FNB’s staggeringly high 40%, not only tops global players, it is also ahead of its local competitors — Absa and Standard come in at about 17% and Nedbank at 18%.
As PwC notes in its latest SA banking industry report: "Overall, the major banks’ healthy double-digit ROE levels remain significantly above those of their global peers."
In the US the Federal Reserve-appointed Federal Financial Institutions Examinations Council calculated the average ROE for the US banking industry in the first half of 2018 to be 11.86%.
Not even global inequality expert Thomas Piketty would draw a straight line between globally high bank ROEs, generous pay for industry executives, and world-record inequality, but SA policymakers must sometimes wonder about cause and effect.
Jardine says the local economy is both skills-and capital-intensive, and does not generate the number of blue-collar jobs needed to reduce unemployment and inequality. The same factors might go some way to explaining why banks are so profitable and their executives so remarkably well rewarded.
The only other country whose banks come close to scoring ROEs in the high teens is Brazil, which, as Jardine points out, had a Gini co-efficient very similar to SA’s in 1994. "Since then, however, inequality in Brazil has fallen on the back of strong economic growth and, in addition, the country has experienced a significant rise in secondary school enrolments and graduations," says Jardine.
How does such denialism help address the land, education, health and unemployment crises threatening millions of South Africans’ lives?Matthew Parks
While there’s little dispute that poverty in South America’s largest economy has declined, recent research indicates inequality remains stubbornly high. Progress on the education front has helped lift wages — but not enough to counter the inequality effect of wealth, inheritances, profits and capital gains.
Jardine’s first report as FirstRand chair also tilts at the government’s populist policies, including higher public sector wages, "which the SA balance sheet simply cannot afford". On the land debate, he warns: "The government is seeking constitutional amendments that, if implemented poorly, run the risk of compromising the property rights of SA citizens."
Cosatu spokesperson Matthew Parks describes Jardine’s comments as "extremely unhelpful". It’s easy to say the government is being populist, says Parks, but "how does such a stance of denialism help address the land, education, health and unemployment crises threatening millions of South Africans’ very lives?"
Parks wants the banks to show moral leadership. "FirstRand and others pay bank tellers and other employees a pittance. A cashier can make R60,000 per annum. FirstRand has closed dozens of rural branches, many rural towns and villages lack access to banks and townships, informal areas and villages lack access to ATMs."
He suggests that, in future, bank executives could accept more modest wages instead of retrenching when looking for cost-cutting opportunities.