CEO remuneration in South Africa has become a much discussed topic, with many people of the opinion that our Chief Executive Officers are earning too much. According to a recent Bloomberg report, the average CEO of a Top 40 JSE listed company earns about $7.1m per year (see table below).

Even the casual stock market enthusiast will tell you that this figure seems a bit bloated. So we actually recalculated this figure, using the actual remuneration details provided in these companies’ latest audited financial reports. The figures we came to was quite a bit different from what Bloomberg came up with:

General notes:

* Amounts are in R ‘000.

* The weightings used are those used by the Satrix top 40 ETF on 9 December 2016.

* The exchange rates used are the average exchange rates for the year to date 2016 (1 January – 13 December): USDZAR = 14.77, EURZAR = 16.36, GBPZAR = 20.12

*Companies highlighted in blue are the ones we consider to be ‘South African focused’ companies. These are companies that generate a majority of their revenue in South Africa. Those in white are essentially foreign companies that just happen to be listed in South Africa.

Company specific notes:

* Sifiso Dabengwa’s (MTN) R23m severance package was not included in his remuneration, since it was a once off amount.

* Bidcorp and Bidvest were at the time of the last financial report still one entity.

* Reinet is non-transparent about management remuneration, with a management fee based on a percentage of net asset value paid to a separate management entity. We estimated a remuneration of Euro 5m for the Reinet CEO.

* We were unable to find remuneration data for Life Healthcare and Impala Platinum. We substituted in estimates based on the remuneration data of companies in the same industry.

The figures we calculated:

As you can see, even the average of the complete Top 40 is still less than half of what Bloomberg calculated.

It should also be noted that a significant portion of remuneration isn’t paid out as cash, but rather comes from the granting of share options and other incentives which have not vested, and may be conditional on performance measures such as an increase in profit or share price over a certain period of time. There is a chance that some CEOs may never receive these benefits.

It wouldn’t be accurate to include the remuneration of CEOs of foreign companies (those not highlighted in blue) that don’t have significant operations in South Africa. Richemont for example (with the top paid CEO on the list), generates virtually no revenue in South Africa, and doesn’t have offices here, (their HQ is in Geneva, Switzerland) they just happen to be listed on the JSE. It isn’t fair for South Africans to have a discussion on CEO pay if we aren’t exclusively dealing with the CEOs of South African companies.

But why are we even talking about CEO salaries? All these companies are private (non state owned) companies. If you are not a shareholder in the company, why do you care how much the people who work there earn? If you wish to complain about a how much a given company is paying its management, buy a share in that company and vote against the remuneration policy at the AGM. Otherwise, it’s none of your business how the owners of a company choose to reward their management. If it’s a state owned company like Eskom, then by all means have your say, after all, your tax money is funding it.

Let’s take the case of Whitey Basson, the ex-CEO of Shoprite who retired this year. In 2015 he earned around R50m, and this year all in all he earned R100m. To all those who think this is obscene, consider this:

  • When Basson started at Shoprite, it had 8 stores in the Western Cape. Today it has 1855 all over Africa.
  • Shoprite directly employs around 137 000 people directly, and hundreds of thousands more indirectly down the supply chain.
  • His stores have brought affordable groceries to millions of South Africans who would otherwise not have easy and cheap access to it.

I have said before that I am willing to be the CEO of Shoprite for half Basson’s salary. But I don’t think that the shareholders and board would be too keen to appoint me to the position, since I would drive the company into the ground within weeks given my lack of management experience. But the board clearly values having a functioning company more than they would value saving R50m by appointing someone of limited ability. In other words, the value that Whitey Basson brings to the business in terms of his knowledge and experience is worth far more than the R100m he earns.

What about Bill Gates? He is worth billions! The computer technology Gates helped create has led to unimaginable worldwide wealth and productivity, which has benefitted virtually every human. Gates’ billions pale in comparison to the trillions he has created for others.

Forbes has recently said that Taylor Swift earned $170m and Beyoncé $54m in 2016. This is far more than any CEO I am aware of, yet no one seems to be outraged or accusing them of ‘greed’. This is despite the fact that these pop stars barely employ anyone, and that they don’t produce any products or services that in some objective way benefit society.

As with all economic matters, we need to consider the seen and the unseen. We see a wealthy man getting richer every year by being paid more than most people earn in a lifetime. What we don’t see is how most of these individuals gained their wealth. We don’t see the hard work, innovation and risk taking that put these people in the positions they’re in. We also should take into account the contribution they’ve made to employment, as well as to those who make use of their products and services.

We need to consider whether we want to make South Africa a welcoming destination for innovation and productivity, or whether we want to be hostile to business and those who create wealth.

Christiaan is the Financial Director of the Rational Standard. He graduated with a degree in accounting from Stellenbosch University. Christiaan is a Libertarian and InfoWarrior.