Vote on executive pay still not binding
by Ann Crotty,
2016-03-16 06:33:48.0
A NEW draft corporate governance code fails to bring SA in line with international best practice when it comes to voting on executive remuneration.
While the vote on pay is binding in the UK, Netherlands, Sweden, Norway, Denmark and Australia, in SA a firm’s board will still not be obliged to act.
According to the draft report of the new code on corporate governance (King IV), launched on Tuesday by the Institute of Directors (IoDSA), voting on executive remuneration (and in future on an implementation report) will continue to be a nonbinding vote. This means the results merely provide the board with an indication of shareholders’ opinion, but the board is not obliged to act.
But the draft code on executive remuneration does recommend that if more than 25% of shareholders vote against the remuneration policy and implementation report, then the committee "should be proactive in taking steps to address shareholders’ concerns".
It also recommends that the remuneration committee disclose in the following year the steps taken to tackle the concerns, the nature of engagement, and the outcomes.
This is far less robust than the binding vote hinted at by Ansie Ramalho, the main author of the draft code, during a presentation last year. She indicated a binding vote might be on the cards, as well as the introduction of a benchmark that would help to make the disclosed details easier to understand and compare.
There is also no indication the IoDSA will adopt the requirement recently introduced by the US Securities and Exchange Commission that, effective from 2017, companies have to disclose the pay ratios of their CEOs and workforce.
The draft code includes the possibility of some consequences for remuneration committee members who have approved policies rejected by shareholders. The code recommends the board take into consideration the result of the nonbinding votes when considering the reappointment of remuneration committee members.
On Tuesday, Ms Ramalho said that after some consideration the committee realised it had no authority to impose consequences. "The code is voluntary, we cannot pretend to be regulators; we can say it is a binding vote, but it will have no consequences," she said.
The section relating to voting on remuneration is applicable to companies only. But if the JSE backs King IV as part of its listing requirements, which it has done for King III, the code’s recommendations were binding on listed companies, a corporate governance analyst said.
The encouraging news, particularly as the new code is considerably more ambitious in its reach and is aimed at state-owned entities, nongovernmental organisations and municipalities, as well as companies, is the requirement to disclose "loss of office" payments.
On a more general note, the draft code has been welcomed by some as potentially easier to track the effect of leaders in organisations by reducing King III’s 75 principles to just 16.
The public has until May 15 to submit comments. The final King IV report is due to be released on November 1.
DRAFT: Ansie Ramalho and Judge Mervyn King at Tuesday’s launch of the report on the new code on corporate governance (King IV) by the Institute of Directors. Picture: MARTIN RHODES
A NEW draft corporate governance code fails to bring SA in line with international best practice when it comes to voting on executive remuneration.
While the vote on pay is binding in the UK, Netherlands, Sweden, Norway, Denmark and Australia, in SA a firm’s board will still not be obliged to act.
According to the draft report of the new code on corporate governance (King IV), launched on Tuesday by the Institute of Directors (IoDSA), voting on executive remuneration (and in future on an implementation report) will continue to be a nonbinding vote. This means the results merely provide the board with an indication of shareholders’ opinion, but the board is not obliged to act.
But the draft code on executive remuneration does recommend that if more than 25% of shareholders vote against the remuneration policy and implementation report, then the committee "should be proactive in taking steps to address shareholders’ concerns".
It also recommends that the remuneration committee disclose in the following year the steps taken to tackle the concerns, the nature of engagement, and the outcomes.
This is far less robust than the binding vote hinted at by Ansie Ramalho, the main author of the draft code, during a presentation last year. She indicated a binding vote might be on the cards, as well as the introduction of a benchmark that would help to make the disclosed details easier to understand and compare.
There is also no indication the IoDSA will adopt the requirement recently introduced by the US Securities and Exchange Commission that, effective from 2017, companies have to disclose the pay ratios of their CEOs and workforce.
The draft code includes the possibility of some consequences for remuneration committee members who have approved policies rejected by shareholders. The code recommends the board take into consideration the result of the nonbinding votes when considering the reappointment of remuneration committee members.
On Tuesday, Ms Ramalho said that after some consideration the committee realised it had no authority to impose consequences. "The code is voluntary, we cannot pretend to be regulators; we can say it is a binding vote, but it will have no consequences," she said.
The section relating to voting on remuneration is applicable to companies only. But if the JSE backs King IV as part of its listing requirements, which it has done for King III, the code’s recommendations were binding on listed companies, a corporate governance analyst said.
The encouraging news, particularly as the new code is considerably more ambitious in its reach and is aimed at state-owned entities, nongovernmental organisations and municipalities, as well as companies, is the requirement to disclose "loss of office" payments.
On a more general note, the draft code has been welcomed by some as potentially easier to track the effect of leaders in organisations by reducing King III’s 75 principles to just 16.
The public has until May 15 to submit comments. The final King IV report is due to be released on November 1.
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