By Dr Trevor Woodburn

If the job of the chief executive is to create growth and generate profits for his company's shareholders, and he fails to do that, why should he automatically be entitled to a pay increase? Or does this not apply to those at the top of the corporate ladder?

Shareholders in most of the major industrial countries are beginning to say that it does. There is no doubt that the heat is on, and South African directors and boards would do well to sit up and take note. Much of the heat generated can be attributed to the recommendations of the Cadbury Committee report published in Britain. Its code of best practice, in addressing disclosure of directors' emoluments to shareholders, says "separate figures should be given for salary and performance-related elements, and the basis on which performance is measured should be explained". The inference of accountability is clear. Shareholders should be entitled to be aware of directors' compensation, and to what extent they are performing accordingly.

Cadbury suggested that the most obvious safeguard against the syndrome of excessive pay versus non-performance, aside from improved disclosure, is the establishment of remuneration committees consisting wholly or mainly of non-executive directors. This would do away with executives setting their own pay scales and assure increased accountability to shareholders.

In South Africa the structures of the top companies are far more highly concentrated that in the UK or the US, with 90% of the top 100 companies having a single shareholder or shareholders' consortium. In listed companies disclosure is now obligatory in Annual Reports, but in non-listed companies executive pay packages are more closely guarded secrets than military manoeuvres. The general view is that disclosure would not be in "the best interests of the company" a questionable premise. Performance related remuneration is essential, especially in a shrinking economy.

What we need in South Africa is the "de-secretising" of top executive emoluments to ensure performance-linked pay.

See performance management including performance appraisals