|No surprise that bankers get some of the best remuneration packages|
21 February 2005
Johannesburg – Few people will be
surprised to see that banks feature so prominently in the list of top
payers. Unlike food retailers, banks have tended to cultivate an aura
of wealth and opulence around them, presumably with the objective of
encouraging the perception that they are sufficiently well-resourced to
be the best custodian's of the nation's money.
Over the decades we have become accustomed to hearing
stories from across the globe about the huge packages being paid out to
individuals in the financial services industry. So it was to be
expected that, when companies were required to disclose executive
remuneration, the banks would be up there with the most generous.
despite this expectation there was some surprise at the size of the
packages being paid to our top bankers. In 2001, Standard Bank group
chief executive Jacko Maree received R9.5 million and was allocated 1
million options at R33 each.
Roy Andersen, who headed up the
group's Liberty subsidiary, received R8.4 million for 2001 and R5.2
million for 2002 and then rather unexpectedly took early retirement in
By 2002 Maree's package was up to R12 million followed
closely by Myles Ruck's R9.5 million. Ruck was also allocated 500 000
options at R27.80. In 2003, Maree received a package valued at R13.2
million, with Ruck, who was now head of Liberty, close behind at R13
The Standard board had good reason to pay Maree so
handsomely. He was widely regarded as the main player behind the bank's
defence against the hostile and ultimately unsuccessful takeover bid
launched by Nedcor in 1999.
In the mid-nineties Standard seemed
to lose direction and for a few years its earnings performance was
pedestrian. This seeming lack of management drive prompted the move by
Nedcor, who made an offer of one Nedcor share for five Standard shares.
Nedcor may have believed that Standard shareholders would be willing to
switch to a management team that looked far more dynamic.
the battle Maree was moved into the number one slot, taking over from
Mike Vosloo. Having fought off Nedcor, Standard under Maree's direction
has gone from strength to strength and the share price has recovered
from a low of R11 in 1998 to the current R63.
Maree's efforts have been helped by the recent favourable trading conditions and the reduced level of competition.
the banking sector Saambou, Regal and UniFer have been cleared out of
the marketplace and such was the sense of foreboding within the
industry that many other small players with banking licences opted to
hand them back to the regulatory authorities.
But there is no
doubt that after years during which the management and board took their
eye off the ball, Maree has returned Standard Bank to its blue chip
Meanwhile, the dynamic team at Nedcor imploded, leaving
shareholders with a hugely expensive mess. Having been feted throughout
the nineties, by the investment community and the media, as the
brightest star in the banking firmament, Nedcor executives appeared to
believe they could do no wrong.
It was perhaps no more than a
sad coincidence for the executives that increased disclosure
requirements kicked in at the same time that the wheels began to come
off their dynamic growth strategy.
The second millennium has
been a gruesome one for Nedcor as each year the bottom line has been
gouged by exceptional losses associated with write-offs related to the
earlier aggressive growth phase. These write-offs are now juxtaposed
with multimillion-rand remuneration packages for executives. The only
comfort for long-term shareholders is that huge tranches of options
that were allocated to the executives during the heady days of the late
nineties will be out of the money for some years to come, perhaps even
beyond their expiry date.
Absa is another story about the
amazing ability of remuneration committees to forgive or to forget.
Having suffered a huge earnings knock because of UniFer during
financial 2002, the remuneration committee decided that chief executive
Nallie Bosman deserved a R5.7 million bonus in 2003 on top of his
guaranteed R4 million payment. The other two top executives in the
group, Frans du Toit and Rupert Pardoe, received bonus payments of R2.8
million and R4.7 million respectively. All three executives retired
from the bank in 2004. In 2003, the group reported earnings that were
38 percent ahead of the 2001 level.
FirstRand is the only major
banking group that does not have a torrid financial episode in its
recent history. The executive team in this group has managed to keep
the group on a firm growth track and appears to have coped well in
bedding down a number of extremely large acquisitions, the most notable
being First National Bank in the late nineties.
In general terms
from a shareholder's perspective consistent good performance must be
preferable to dramatic boom and near-bust cycles. Remuneration policies
should reflect this.