Alan Clark, a slightly awkward, razor-sharp psychologist with a doctorate in literature, stands to score the largest windfall ever to land in the lap of the CEO of a JSE-listed company — £55m, equal to a mind-bending R1.2bn. This will happen when Anheuser-Busch InBev forks over the £44/share it’s paying to buy Clark’s brewer,
SABMiller, ending a tenure on the JSE which dates back to 1897.
For the 56-year-old Clark, the son of a tradesman father and the first of his family to attend university, it’s the sort of fortune he’d never have dreamt of when lecturing in cognitive development at Vista University in the 1980s. But in 1990, his sideline in consulting led him to the door of SABMiller’s former CEO, Graham Mackay — and it all changed.
Now, R1.2bn is so immense, it’s difficult to imagine how to think about it. But in arriving at an answer, context is everything.
First, Clark is getting this windfall only because SABMiller was in the fortuitous position of being pursued by a larger rival, and his board horse-traded to get the best possible offer. SABMiller’s share price was chugging along at £29.34 in September. Savvy bargaining produced an offer 50% above that from AB InBev. So Clark will make a killing — but so have investors.
“Of course, it’s an enormous amount,” says veteran businessman Brand Pretorius, who now heads Tongaat Hulett’s remuneration committee. “I also go ‘wow’ when I think about it, but you have to go back to basics and consider the principles and parameters of the remuneration policy, and assess how fair it was.”
Pretorius argues that if the principles of a pay policy are right, then the outcome flows smoothly from that formula.
So were Clark’s share options given to him at artificially low levels? The evidence suggests not: he got a chunk of his options at between £10.61 and £12.31 before 2009, which was close to the level at which the stock was trading.
Still, when your formula spits out a number with nine zeros, you have to pause.
Says Pretorius: “Look, it’s an integral part of the capitalist system that not everyone is equal. CEOs have far greater responsibilities — they have higher risk, scarce leadership acumen and specific intellectual capability. But there should be a limit,” he says.
Where exactly is that limit? After all, R10m might sound like a fortune to most, but it might not move the needle for Glencore boss Ivan Glasenberg.
Pretorius says there’s a “moral dimension” to the pay issue, which boards must consider. “There needs to be a sensitivity to the views of everyone, including staff,” he says.
Roy Andersen, a former president of the JSE and one of the architects of the King code of corporate governance, says the real test is how much long-term wealth a CEO has created for all stakeholders — including staff and the community in which it operates.
“You have to ask, is this reward genuinely due to his own efforts? And you also have to consider whether it’s socially acceptable. If you’ve got staff members and low-paid workers battling to eke it out, there should be some effort to address that too,” he says.
Asief Mohamed, the chief investment officer for Aeon Asset Management, says the sum is “probably outrageous”, but if everyone’s being treated fairly, he has no problem with it.
Here’s the rub. The Food & Allied Workers Union (Fawu) has argued that 8,800 SA Breweries employees in the Zenzele employee share scheme aren’t sharing those rewards, as their “options” aren’t triggering early.
Fawu general secretary Katishi Masemola says: “Workers who own these shares should be treated like all other shareholders. SAB’s argument is that Zenzele is a separate class of investor, and they need to keep their BEE ratings until 2020.”
Either way, in stark numbers, Clark’s payout sets a new bar for a local executive. Which is as good a place as any to kick off this debate.