Greedy executives will have to work harder to get to the trough
January 16, 2004
 By Ann Crotty
Johannesburg - A deflationary environment, a move to expense share options and growing pressure from a handful of active fund managers could introduce some restraint in executive remuneration this year, according to corporate governance experts.
During the past few years it has seemed that, as Benjamin Franklin might have said, "In this world nothing can be said to be more certain, except death and taxes and ever-increasing levels of executive remuneration."
While revenue, profits, earnings and dividends might suffer a dip in individual years, it is highly exceptional that a senior executive will not somehow or other wangle an increase in the value of his or her take-home package.
But calendar 2004 could prove to be a challenging one for executives and their armies of remuneration consultants. In an inflationary environment it is comparatively easy to generate the increases in turnover and profits that have been the cornerstone of performance-related bonus payments to executives.
The paucity of detail that has been demanded by institutional shareholders and the fact that executive remuneration schemes have not required shareholder approval has enabled boards to pay out generous awards even when performance has been pedestrian.
Demands for more details about packages by active fund managers and the possibility of companies having to expense options is expected to ensure a closer scrutiny of remuneration packages by shareholders, with the possibility that such packages have to be explicitly approved by shareholders at annual general meetings (AGMs).
On the issue of expensing options, one analyst noted that this could become extremely complicated given the inevitable volatility of share prices and the recently introduced AC133 reporting requirements.
Also this year, shareholders can expect continued pressure for changes in the resolutions that have traditionally been presented to shareholders for their approval at AGMs.
The resolutions under pressure provide the directors with unlimited authority over unissued shares. Two resolutions are involved. One provides the directors with the authority to allot and issue, "at their discretion and in terms of the regulations of the JSE Securities Exchange, the unissued shares of the company". A second gives the directors the authority to allot and issue shares for cash "when the directors consider it appropriate in the circumstances".
At a number of AGMs held before the year-end it was evident that increasing numbers of institutional shareholders are refusing to grant the directors this sort of general authority.
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