The regulation of executive remuneration (including incentive-linked performance measures) in light of the socioeconomic concerns prevalent in South Africa

Abstract

This thesis deals with the effectiveness of the regulatory framework pertaining to the remuneration paid or awarded to executive directors and other senior managers (collectively referred to as the ‘executive management’ team) of companies in South Africa in light of the socioeconomic concerns prevalent in this country. Consideration is also given to the expected effectiveness of the recently enacted amendments to the Companies Act 71 of 2011 which seek to address the level of executive remuneration by enhancing disclosure and providing the shareholders with more opportunity to voice their dissent. It is argued that the inclusion of the remuneration disparity provisions addressing inequality in these amendments may represent a welcome change to the original approach of the Department of Trade, Industry and Competition (‘DTIC’) to the role of company law in addressing socioeconomic concerns as stated by them in developing the Act. Their original approach advocated methods outside the Act to address socioeconomic concerns in South Africa; these amendments are conceivably a move towards addressing these concerns now also through the Act. In this vein, additional reforms to the Act that address incentive-linked performance measures relating to executive remuneration (being a key area that was not addressed in these amendments) are explored. The focus of this thesis is predominantly on this aspect as it is felt that additional reforms in this area can also contribute significantly to the protection and especially the advancement of stakeholder interests in addressing the socioeconomic concerns in South Africa. The various theories that attempt to explain or legitimise the level and structure (including incentive-linked performance measures) of executive remuneration are briefly discussed before the issues that these levels, structures and measures can create for the stakeholders of the company and the effectiveness of the current regulatory framework pertaining to executive remuneration in South Africa in addressing these issues are analysed. The development of the current approach to stakeholder interests in South African corporate law and the efficacy of the methods suggested by the DTIC in addressing the prevailing socioeconomic concerns are then explored before a new stakeholder approach is proposed as the basis upon which financial and social (or non-financial) performance measures relating to executive remuneration should be incorporated into the Act by way of these additional reforms. The provisions of the corporate governance codes and legislation of several countries with similar executive remuneration practices are then investigated to establish the corporate governance measures contained in these provisions that could be incorporated into the Act to complement this approach. It is submitted that these additional reforms would serve to improve the protection and especially the advancement of the company’s stakeholders and thereby contribute substantially to addressing the socioeconomic concerns prevalent in South Africa.