Bob van Dijk. Picture: BLOOMBERG/GRAEME WILLIAMS
Bob van Dijk. Picture: BLOOMBERG/GRAEME WILLIAMS

In the punk era of the late 1970s the only bands believed to have any chance of success were those that looked awful and sounded worse. The 21st-century investment equivalent of the successful punk band is the hi-tech behemoth that swallows up huge amounts of cash and may or may not make a profit.

Amazon’s seeming refusal to demand profits from eye-watering levels of investment did nothing to temper investor sentiment. To the delight of its dividend-deprived shareholders it used its stratospheric rating to secure funding to develop new business opportunities.

Twitter made its first quarterly profit in the company’s 12-year history in December last year and is expecting to make its first-ever full-year profit this year. The lack of profit hasn’t dented investor enthusiasm for the shares, which were listed six years ago. Over at Tesla, Elon Musk seems to have a particular disregard for profits.

You might think this presents a challenge to remuneration committees; if companies aren’t making profits, on what basis can the executives be rewarded? The just-released Naspers remuneration report demonstrates just how comically old-fashioned that attitude is.

The best paid of Naspers’s very well-paid executives are employed by the group’s e-commerce business, which if Tencent is stripped out, can boast, Tesla-style, of never making a profit. Stripping out Tencent in this context certainly makes sense as no executive at Naspers has input into Tencent management

Thanks to share options and share appreciation rights allocated to him in 2014, when he was appointed CEO, Bob van Dijk picked up R1.6bn in 2018. The size of this award was down to the dramatic increase in the Naspers share price over that time.

No CEO of a bricks-and-mortar business in SA has been rewarded as much in one year as Van Dijk has received in each of the past three years. SABMiller’s Alan Clark came close in 2016, but only because he happened to be running the company at the time of the AB InBev takeover and was able to cash in years of share options in one go.

Asief Mohamed, Aeon Investment Management
Asief Mohamed, Aeon Investment Management

Not even the ridiculously generous banks pay their executives as well as Naspers.

Little wonder that institutional shareholders revolted at the 2017 annual general meeting. Ahead of that meeting Swiss-based investment adviser Albert Saporta described the group’s remuneration policy as "intellectually dishonest" in an open letter to the board.

Saporta was particularly agitated because the value of the Tencent stake relative to Naspers’s market capitalisation had grown from 90% to 130% since Van Dijk took the helm. Saporta did not respond to a request for comment on the latest report.

Tensions between the board and the institutional shareholders escalated when the unlisted high-voting A shares were used in what was deemed an effort to camouflage the extent of opposition. The official voting tally showed only 22% opposition to the remuneration policy; strip out the high-voting, tightly held A shares (1,000 times the listed N shares) and the picture is starkly different. About 70% of the N shareholders voted against the policy.

Group chair Koos Bekker was evidently stunned by the shareholder anger.

Bekker may have expected shareholders to be grateful for the several-thousandfold increase in value of their investment as a result of his 2001 decision to buy a stake in an unknown Chinese internet company.

The shareholders, grateful or not, evidently didn’t think it justified poor remuneration policies or free-loading executives.

When the dust settled Naspers got down to the business of engaging with its shareholders. The result is a substantially improved remuneration report in terms of disclosure, but the outcomes are unchanged.

Craig Enenstein, the new chair of the remuneration committee, sets the ground for the open-ended nature of the remuneration bill in his "Dear Shareholder" letter.

"Our people are at the heart of our success," says the new remuneration chair, presumably not alluding to the lowly paid journos in the media division, which still turns out an old-fashioned profit each year.

The people at the heart of Naspers’s success are those in highly specialised areas such as technology development, product design, machine learning and artificial intelligence, content rights and digital marketing.

"We operate in a highly competitive, global market for this type of talent and we compete against other world-class companies for great people," Enenstein tells shareholders in a bid to ward off any challenge to the amounts they are paid, inadvertently raising worries about what will happen when the Naspers share price begins to flatten.

The improved disclosure has won much praise. "It enables investors to get much better insight into how the policy works and what executives are actually incentivised to do," says one of last year’s institutional rebels.

"One can now see that the CEO’s long-term incentives are 53% based on Naspers N share options and 47% on Naspers excluding Tencent. Previously it looked as if most of it was Naspers N share options, meaning that if Tencent did well but the rump did poorly he’d still get a large payout. Now we can see the balance is actually quite sensible," says the institutional analyst.

Asief Mohamed, chief investment officer at Aeon Investment Management, agrees this year’s report is a significant improvement but is concerned about the "obscene" amounts the policy generates for the top executives.

Old Mutual Investment Group has also given a tentative thumbs-up to the policy design and disclosure details in the new report. But Rob Lewenson, head of environmental, social & governance engagement, tells the FM the group will study the report in more detail "to ensure the relevant remuneration outcomes are effectively linked to company performance".

While they are generally happy with the latest report, institutions will see considerable further scope for improvements in policy.

Remarkably there are still no performance conditions attached to Naspers’s super-generous long-term incentives. And disturbingly the board has just cut the vesting period for long-term incentives from three to five years, to one to four years.

As for the newly introduced clawback, that seems to be nothing more than a sop to critics. It is triggered only by material financial misstatement or gross misconduct.

To an SA investment public stunned by Steinhoff "irregularities", it will seem remarkable that executives risk personal loss only in these extreme cases of wrongdoing.

All in all, it’s a great time to be a 21st-century punk.

Please sign in or register to comment.