2 years ago

Opportunity Issue 97

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Opportunity, endorsed by the South African Chamber of Commerce and Industry (SACCI), is the mouthpiece for business in Southern Africa. The aim of the publication is to inform potential investors both nationally and internationally of the most relevant business news: trade, investment, financial, market-related information for each business sector, as well as to inform of the latest developments in business legislation from both the public and private sector. In this issue, SACCI’s call is for everyone to work towards the common purpose of getting our economy on a sound footing again.


GOVERNANCE The OFwork NEW way 2021 REMUNERATION TRENDS Chris Blair, CEO of 21st Century, a change consultancy, shares his thoughts about how companies should approach their executives’ remuneration in today’s world. South Africa is one of the most unequal societies in the world, with the world’s largest Gini coefficient – a measure of inequality between the “haves and have-nots”. And in this time of crisis, business purpose is moving quickly from making profits for shareholders towards a “new social contract” – a commitment that addresses social and environmental problems. We are seeing a move from “shareholderism” to “stakeholderism”. In other words, capitalism is giving way to prioritising the protection and quality of life. Governance has been catapulted into the limelight under the banner of ESG (environment, social and governance) with a fresh look at ESG measures that address the “reset” that society is demanding. These circumstances have resulted in seven top executive remuneration trends around the world, both in developed and in developing economies: 1. Increasing mandates of remuneration committees 2. Reducing the wage gap or increasing the median pay of workers 3. Addressing diversity and inclusion 4. Inclusion of ESG measures in short-term incentives (STIs) and long-term incentives (LTIs) 5. Evolving performance management for a less contingent and greater virtual workforce 6. Greater focus on employee wellness and engagement 7. The design of new pay systems for new-profile leaders Remuneration committee charters are extending their original mandates from all aspects of executive compensation, disclosure and shareholder engagement to include: •Broad-based human capital strategies •Human capital management, eg: - retention - talent management - diversity - pay equity - gender and ethnic gap - recruiting practices - performance management - workforce management - employee engagement - employment value proposition • Talent management policies, programmes and processes, including training and development, promotions and termination provisions • Succession planning • In addition to oversight of compensation for executives, includes others that the Committee may designate beyond the Board of Directors • Internal disclosures (optional) The wage gap or pay ratio (measures of pay between the CEO or top earners and the bottom or median earners) has become a growing issue worldwide, and it is being remedied in a few ways: • Legislated compensation caps are putting a ceiling on top earners’ wages. • New governance structures are being implemented. • A lower percentage of the wage bill is being spent on executives and executive pay limits are being set as a portion of net income. • Five-year moving average pay gap targets are being set and executive pay freezes or variable pay deferments ___ __ Employees are being empowered to act as leaders and given more autonomy and purpose. 40 |

GOVERNANCE are being implemented (largely driven by Covid). • Profit sharing is being implemented across all staff. Remuneration committees are widely adopting strategies that address the growing wage gap to reduce it over time. In a recent Just Capital survey, the top 100 USA companies surveyed have increased their median pay by 18%. The wage gap is currently highest in the extractive industry where the CEO earns 41.3 times the general staff at the 50th percentile. Remuneration committees are being compelled to address diversity and inclusion – not only at executive level, but also at management level. Companies are routinely setting diversity targets and conducting gender/race pay equity audits. They are also moving from meeting the JSE listing requirement of diversity statistics at board level to actively targeting board representation through inclusion. Currently, non-executive boards are made up of approximately 50% white members, 40% black, 5% coloured and 5% Indian members. The gender split is approximately 67% male and 33% female, but is worse in the extractive industry, with only 28% female representation. The inclusion of ESG (environment, social and governance) measures in corporate scorecards is a growing trend that has been accelerated by the move to stakeholderism and the effects of the Covid-19 pandemic. Typical measures include: Social – fatalities, injuries, illnesses, exposure to harmful substances, workplace policies, gender balance, diversity and inclusion, employee engagement, employee voluntary turnover, training and development, behaviours, ethics, values and company culture. Environment – greenhouse gas (GHG) emissions (South Africa is the 14th-largest emitter in the world), non-renewable energy, renewable energy, environmental incidents, air quality, land management, water and wastewater management, waste and hazardous materials management and sustainability measures. Customer – customer satisfaction, customer net promoter score (CNPS), customer complaints, customer resolutions, product quality and product safety. Community – incidents, complaints and investments. Governance – governance at the board level, governance at executive level, risk management, compliance, behaviours, ethics, values and culture. In a recent worldwide study by the GECN Group of companies, among ESG measures in incentives, 61% of the companies surveyed were implementing social change. This was followed by customer (37%), governance (32%), environmental (25%) and community (10%). In the social category, employee engagement, diversity, equity and inclusion (DEI), and health and safety are the most widely implemented. Within the customer category, customer satisfaction is the most common. The new way of working is a major trend that is effecting major change on companies and their workforces. Virtual board meetings work, but they are not optimal. A minority of directors view virtual board meetings as just as effective as in-person meetings. The lack of non-verbal communication is stated as the highest-ranked challenge of virtual meetings. But even in this less optimal environment, most directors believe that they have been able to perform their work effectively. Virtual board meetings are here to stay. Based on their experiences over the last year, large majorities of directors expect to see virtual board and committee meetings in the future. They also view virtual board engagement as a useful tool to enhance board effectiveness. Companies are allowing staff (those that can) to work remotely and are realising that the contingent workforce can be replaced by virtual full-time equivalents who are more integrated and aligned to the company culture and vision. Performance management must be adapted for remote working conditions and it is moving from inputs and outputs to outputs and outcomes. Employees are being empowered to act as leaders and given more autonomy and purpose. The methods and speed of communication are being adapted for the virtual environment. Agile work teams are quickly established to capitalise on opportunities and then disbanded just as quickly once the project is complete. New opportunities and career paths need to be developed to adapt to the changing environment of work, so re-training and re-skilling of employees has become part of the new employee value proposition as companies transform into learning and development centres. The final major trend is employee wellness and engagement. One quarter of South African employees are taking antidepressants and report anxiety and financial insecurity as being part of their lives. Most organisations are reviewing their employee value proposition – with a huge emphasis on employee wellness. Companies are including employee wellness measures in their ESG implementations, prioritising employee engagement, employee retention and employee health. The new social contract and the business purpose of preserving human life and livelihoods are significant challenges. But if executives step up by walking the talk with employees and stakeholders, it will go a long way to addressing the current social and environmental problems that arise during times of crisis. ___ __ Chris Blair, CEO of 21st Century | 41

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