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King IVTM: “Grasping the Nettle”

SARA Conference, 3 NovemberRay Harraway

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Agenda

The context

“The nettle”

The how

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Context: The forces of change

What is driving change

in remuneration?

How should

this affect your

agenda?

Context: The forces of change

“Societal tensions are rising” McKinsey Quarterly 2017

The impact of automation

The rising tide of progress has

not lifted all boats equally

From jobless growth

to less job growth

A licence to operate

A new societal deal

“CEOs will need to do more to embed

societies concerns in their business

principles” Unilever CEO Paul Polman

“To win in the marketplace you

must first win in the workplace"

Total workforce costs typically represent over 70% of

an organisation’s operating expense but 86% of

organisations are unaware of their total reward

package

Does pay really

drive performance?

King IVTM

Apartheid has essentially persisted in economic form, NY Times October 2017

74%

of Generation Z agree

that business has a

responsibility to

create a better world

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Context: Some focus points

• Low growth

• Building blocks: PMManagement

• Performance linkage

• King IVTM: policy & enforcementRemco

• Acts: Companies, Tax, EE

• JSE & enforcementRegulator

• Voice & media

• Share registers & proxy advisorsStakeholder

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Context: King IVTM on remuneration

One principle “The governing body should ensure that the organisation remunerates fairly, responsibly and transparently so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term”

Three practices• Remuneration policy

• Remuneration report

• Voting

Some implications

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Context: Principle 14

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Integrated thinking: 6 capitals, non-financial

Transparency on targets in a VUCA world

Stakeholder, implementation risk

Fair & responsible: 1st Q’s, art & science

To tackle a difficult problem boldly

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Grasping the nettle

What then is fair & responsible pay?

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The “Nettle”

Fair Responsible

Fair Responsible

Ethics

• Impartial

• Rational

Economics

• Sustainable

• Approved

What then is fair & responsible pay?

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The “Nettle”

Source: EY IoDSA Remco Forum Position Paper 4

“What should have been

paid actually was paid "

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The How

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The How

• How much is enough?

• The problem with pay ratios

• A pay index…

95%

100%

105%

110%

115%

120%

125%

130%

135%

2010 2011 2012 2013 2014 2015 2016 2017

CEO GP Average Employee GP TSR

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The How: An outcome

Source: EY IoDSA Remco Forum Position Paper 4

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Ask yourself this…

Why do we have deferrals, claw-backs, EPWEV, MSRs, and malus? And conduct risk legislation

Does your remco review “performance” information?

Do you adjust ROE performance with no AFS recon?

Do your corporate executives understand their pay?

Do you remunerate as if they are entrepreneurs?

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Which line are we about to cross?

ETHICAL MINDLESS

MUST

SHOULD

☺

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Finally: more pay compliance means…

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STRIVE for

Sustainable

Stretch

Simplify17

So what can we do?

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THANKYOU