King IV unlikely to lead to less pay
Johannesburg - The King IV Report on Corporate Governance proposals on the disclosure and voting requirements on remuneration are meant to enhance transparency and are unlikely to lead to a decrease in executive pay.
Deloitte’s director of risk advisory, Nina le Riche, yesterday said the move put South African on a par with international norms as remuneration was not only topical in South Africa, but was a bigger issue in Europe and the US.
There was no legal requirement on companies to address objections and concerns of shareholders if 25 percent of the shareholders voted against the company’s remuneration policy or implementation report, Le Riche said. But the King IV requirements would make it difficult for the companies to ignore the shareholder concerns.
While there were concerns about remuneration, executives still had to be paid fairly. “These are people who can work anywhere in the world. I don't think the increased disclosure will lead to decreased remuneration,” said Le Riche.
The report was formally launched by the King Committee on Corporate Governance in South Africa and the Institute of Directors in Southern Africa on Tuesday. King IV aims to foster enhanced accountability on remuneration.
“One of the ways that it addresses this is by including more definitive disclosure requirements, disclosed in three parts, namely a background statement; an overview of the remuneration policy; and an implementation report,” said King IV.
It recommended the use of performance measures that took into consideration the financial, social and environmental context in which companies operated. “This is a departure from linking remuneration to financial performance only.”
King IV was moving organisations decisively away from simple compliance to achieving certain outcomes, “a development which we welcome”, according to Lance Tomlinson, Africa Assurance Leader at professional services group, EY. “It does, however, put the spotlight on implementation strategies. Even mature adopters of King III will need to think hard about how they will adapt their current corporate governance regimes.”
Tomlinson said companies should adopt their current practices to achieve the outcomes envisaged in King IV “which we believe could become something of a minefield if there isn’t a plan in place”.
Nastascha Harduth, director at Werksmans Attorneys, said the King IV required the boards to set the tone and lead ethically and effectively. “Ultimately, however, the manner in which these principles are achieved in practice is entirely up to the organisation.”
Joanne Henstock, executive director for governance, integrated reporting and sustainability at EY said King IV acknowledged that in an increasingly digitised world, governance capability needs to be able to respond to both the risks and the opportunities that digitisation presents.
“To be able to respond in either context, boards need to have the capability to understand and anticipate how digital technologies are used to help business survive and thrive. This capability is not currently common on boards,” said Henstock.