Boardroom Tails: How to solve the Whitey situation
Outgoing Shoprite CEO Whitey Basson encapsulates almost everything that’s wrong with executive remuneration. As Shoprite chairman Christo Wiese never tires of reminding us, Basson is a valuable asset.
The problem is that every time this asset receives more millions in pay, it bumps up packages of the excruciatingly mediocre executives who populate our listed companies.
This is achieved through the benchmarking exercises carried out by remuneration consultants. Companies compare their remuneration practices with others, which sounds straightforward until you introduce the assumption that all CEOs are pretty much the same and that, critically, they are in short supply. So by paying Basson R100m you lift the average used in the benchmarking exercise. This means other CEOs get paid a little bit more because Basson was outstanding.
It’s a lot worse than that. The damage leaks into the public sector, where the generous remuneration is funded by taxpayers. The public sector uses similar exercises to justify the outrageous generosity. They also believe they’re dealing with valuable skills. And they also check out what listed companies are paying their executives. It means that when Basson is paid a bonus, every government department’s director-general enjoys a bit extra too.
The frustrating part of it all is that Basson was so driven he probably didn’t need the promise of tens of millions of rand to lure him in to work every day. Ironically, it is that drive that makes him so valuable.
A handful of executives fall into this category. They are driven by success and recognition, which in the world of remuneration committees comes in only one form: money. Money is the measure of us all and, it seems, none more so than a CEO.
At Shoprite’s AGM this week Wiese asked, somewhat rhetorically, what the board should have done. As Ketso Gordhan proved during his stint at PPC, this is a problem that cannot be addressed by any board acting alone. Its fundamental flaws are systemic.
That notion will not rest well with firms driven by the belief that they compete and succeed as individuals, in spite of the community-based element of benchmarking. Assuming companies cannot get together on this issue with the same passion as seen in the CEO Initiative, the search for a solution might fall to government.
One way to avoid this and retain free-market aspects of remuneration would be to make the largest chunks of executive pay truly long-term and stop defining long-term as three to five years. Much of the impact of an executive’s work can be determined only years after it has been done. Doling out rewards on the basis of short-term spikes in operations or share price is tantamount to corporate capture.
Save the big rewards for the end of an executive’s career when there is incontrovertible proof of achievements. By this measure few could deny that Basson deserves at least as much as he has received.