CEO salaries ‘out of control’
By Michael Hamlyn
30 April 2010
In 2009, it took just about 3 months on average for a CEO to earn a million rand
It will take the average worker 8 years to earn the same amount
Despite the recession, South African CEOs were still able to double their normal annual earnings last year with ‘performance bonuses’ - while the JSE lost 42% in value
Having studied the remuneration packages of the chief executives of 326 listed companies and parastatals, the forensic and financial accountants firm Computus has decided that when it comes to pay negotiations, their individual bargaining power is far greater than the collective bargaining power of the remaining 8.4 million workers.
"The result is that CEO remuneration in South Africa is in all likelihood indeed out of control," according to Philip Theunissen of Computus.
The research was extracted from annual reports, analysed by statistical formulae for the financial years ending between July 2008 and June 2009.
"The findings of the investigation shows that performance of the individual companies is by no means a determinant of CEO remuneration," Theunissen concluded.
"Although slightly stronger, there is also no convincing indication that company size is a determinant of CEO remuneration. No single business factor therefore emerged as the main determinant of CEO remuneration. Other, less rational factors probably override the role that business factors play in CEO remuneration,"
The average CEO remuneration of all the companies studied amounted to 4.76 million rand per annum.
The average basic salary of the CEOs was 2.37 million rand per annum while the average worker in South Africa earned 124,457.00 rand per annum over the same period, according to Statistics SA.
On average, the CEOs in the telecommunications industry are the best rewarded with an average annual remuneration of 11.5 million rand of which 55% was paid out as part of incentive schemes.
CEOs of the parastatal companies received 5.1 million on average per annum of which 51% was made up by incentive remuneration.
“The incentive portion of CEO remuneration is positively linked to the performance of the Johannesburg Stock Exchange," Theunissen said. "In 2006 the 63% portion of variable CEO remuneration coincided with a bullish period of share prices on the JSE.
"However, in spite of the severe negative economic conditions, CEOs were still able to double their normal annual earnings in 2009 with ’performance bonuses’ while the JSE lost 42% in value during the deep recession. The variable portion of CEO remuneration dropped to 52% in 2009."
He noted that CEO remuneration increased by 11.5% per annum on average from 2006 to 2009 while the yearly earnings of the average worker increased by 15.4% over this period. However, the average basic salary of CEOs increased by 19.9% per annum from 2006 to 2009.
"CEOs still earn twice as much on average as the president of the country and three times more than the cabinet ministers," Theunissen observed. "They earned ten times more than a director general in 2009 while they earned 106 times more than a cleaner in the public service for the same year.
"Seventy eight percent of the CEOs earned more in a month than what the average worker earned in a year.
"In 2009, it took just about three months on average for a CEO to earn a million rand while it will take the average worker eight years to earn the same amount."