Most remuneration committees have finalised their first year-end decisions in the context of the societal and economic impact of COVID-19, the pressures of which have been exacerbated by the recent social unrest across South Africa. Boards are navigating the accelerated pace of change, and executive pay continues to drive unfavourable media headlines. Is this a golden opportunity for boards to challenge and innovate remuneration policy and performance management frameworks?
The impact of the pandemic varies widely by company and sector, and investors and proxy advisors are closely scrutinising executive pay outcomes. The media and society will further ensure they reflect the shareholder and employee experience. Remuneration committees are expected to use judgement and demonstrate fair, appropriate, and consistent decisions within the broader workforce experience. At the same time, committees will be looking to set reward frameworks that incentivise leaders to deliver business resilience and recovery in the year(s) ahead.
Whilst shareholder rejection of the remuneration policy and implementation report has remained relatively static over the last three years, there have been clear reduction in shareholder support for the implementation report during the 2021 AGM season. There has also been an increase in negative vote recommendations by both Glass Lewis and ISS during the 2021 AGM season year to date. Both Glass Lewis and ISS have been clear in their expectation that remuneration outcomes for executives should reflect of the broader employee and investor experience.
Executive pay will continue to be intensely scrutinised in the year ahead, and continued shareholder vigilance around voting is expected. Investors and proxy advisors have been clear that they do not expect remuneration committees to adjust performance conditions for inflight annual bonuses or long-term incentive awards to account for the impact of COVID-19, and discretion and judgement should be used to ensure that any pay outcomes reflect the broader stakeholder experience. A key challenge for committees will be balancing the need to attract and incentivise the leadership required to drive South African business recovery in the context of a growing focus on building a fairer society.
In the wake of the COVID-19 pandemic, the world faces significant environmental and social issues. There is growing pressure on governments, businesses, and individuals to drive meaningful change. Executive pay can play a part in focusing the board’s attention on driving Environmental, Social and Governance (ESG) ambitions and delivering a “tone from the top”. It is heartening to see that over 60% of the JSE Top 50 now incorporate ESG metrics into executive incentive plans. A further shift is expected during 2021 and 2022 as remuneration committees look to further align strategic priorities with remuneration frameworks. We have explored this topic in some detail in this report and provide some ideas as to how boards and remuneration committees can use executive pay to leverage this crucial topic to benefit society as a whole.