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HR: Shareholder Activism to Continue to Drive Remuneration Policy

 





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Shareholders have become more active in the remuneration affairs of organisations, says EY’s 2014 Remuneration Governance survey released recently.


Now in its third year, the survey of remuneration committee members of JSE Listed companies shows that there are five clear trends, which have consistently emerged over the three years and will likely remain a focus over the foreseeable future.

1. Shareholders have become more active:

78% of respondents felt that Institutional shareholders have become more active in the remuneration affairs of the organisation.

2. Engagement with shareholders is influencing remuneration practices:

Remuneration committees are proactively engaging with shareholders before annual general meetings and critically, are making changes to pay programmes as a result of this engagement. According to the survey, 43% of respondents said they had made changes, compared with 29% in 2012.

“Shareholder activism is here to stay,” says Ray Harraway, Performance and Reward leader at EY Africa. “It is clear that following the 2008 financial crisis, remuneration has become a hot topic. Shareholders are increasingly conscious of pay versus performance and what we are seeing is that they and remuneration committees are working together to ensure executives do what they are paid to do, and more importantly, are not paid for failure,” he says.

3. Linking pay to performance:

According to the data, remuneration committees are continuing to focus on ways to link executive pay to performance – 65% of respondents said this was their top focus in the next 12 months. This was voted among the top focus areas in the previous two years as well.

4. Non-financial metrics are still not prevalent:

Non-financial measures are not yet prevalent as a performance measure in incentive schemes, with only 29% of respondents taking these into account for long-term incentive schemes.

“This trend implies that South African corporates have not fully embraced the broader understanding corporate governance, which seeks to secure the company’s long-term sustainability by understanding and mitigating all the risks that threat it – many of them non-financial,” the report says.

5. Simple majority not enough endorsement for remuneration committee

The flipside of these trends, however, is that remuneration committees seem to be setting the bar for endorsement of their policies fairly high, with a simple majority seen as inadequate. Broad consensus seems to be emerging that a “no” vote on the policy at the AGM of more than 30% would constitute a rejection.

“It is heartening to see that remuneration committees are starting to get on top of the issues and we hope that this will continue until such a time that executive pay ceases to be such a divisive issue as the link between remuneration and overall corporate performance becomes tighter,” concludes Harraway.


 
 
 
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