Bloated executive remuneration a cause for concern

It would seem capitalists are as concerned as the workers over ballooning salaries of business executive managers.

The latest Grant Thornton International Business Report survey revealed that 68% of South African business owners believe that executives in large public companies are paid too much. The survey also showed that this sentiment was also growing across the globe. About 70% of surveyed business owners across the globe expressed the concern while the figure stood at 66% within the BRICS bloc.

“Consensus from business leaders around the globe is that executive compensation is too high, which pinpoints an important issue amidst challenging global economic circumstances,” says Jeanette Hern, partner and head of corporate finance at Grant Thornton South Africa.

The survey revealed business leaders’ need for greater oversight, transparency and accountability in public companies from both a local and global standpoint.

Separation of roles was also of considerable concern globally, with 90% of South African respondents saying that the roles of CEO and Chairman should be held by different people to ensure greater oversight, compared to 80% globally and 88% in BRIC countries.

For each question in the survey, South Africa scored higher than its global and BRIC counterparts, highlighting local business leaders’ significant concern over insufficient oversight measures and issues related to executive remuneration.

85% of South African business leaders agreed that shareholders should have greater involvement in establishing remuneration policies for senior executives at public companies, well ahead of the global response of 67%.

Again, most South Africans responded “yes” when asked whether large public companies should disclose the remuneration policy and individual remuneration of directors (87%), ten percent higher than the global average.

“Investors have been hurt by the crises and tough global economic conditions characterising the past five years,” says Hern, “They want to know how their money is being spent and whether executives’ remuneration is in line with performance.”

This is especially true in Greece, where 100% of business leaders surveyed said that remuneration should be closely linked to performance, unsurprising in light of the country’s economic collapse and on-going sovereign debt crisis.

South Africa was not far behind with 96% of respondents agreeing with Greek counterparts that executive pay should be directly linked to performance, compared to almost 90% globally and 92% in BRIC nations.

“In South Africa and abroad, public companies will face growing scrutiny from the community, investors and industry. These businesses need to ensure that their policies are known, understood and transparent, and that reward can be justified by performance,” she concludes.

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