Quality of corporate disclosure is dismal

21 February 2005

Johannesburg – SABMiller, Anglo
American, BHP Billiton and Gold Fields are the only companies on the
JSE Securities Exchange that provide useful details on executive
remuneration packages.

The first three have their primary listings in London while Gold Fields sports a listing on the New York Stock Exchange.

South African corporate governance analyst points out that the better
quality of information provided by these companies reflects their
considerable exposure to non-South African shareholders, who are more

In terms of the UK listing requirements, companies
have to seek approval for the directors' remuneration report from
shareholders at an annual general meeting. The vote on this issue is
deemed to be an advisory vote and is not binding on the company. But it
does present the shareholders with an excellent opportunity to express
their view on the company's remuneration policy.

The quality of
disclosure provided by Old Mutual and Dimension Data, also with primary
listings in London, continues to lag that of the other three
London-listed groups because, claims the analyst, they have
substantially larger South African shareholder bases.

"The local
institutional shareholders do not seem interested in any aspect of
executive remuneration, even the quality of disclosure," said the

He added that the improvements that had been introduced
by a few companies were motivated by the executives of those companies
and that these executives had expressed disappointment at the lack of
encouragement from the institutional shareholders.

At present,
Frater Asset Management is the only institutional investor that is
putting pressure on companies to improve the level and quality of
disclosure. William Frater of Fraters said he was keen to see the
adoption of the same advisory vote that is available to shareholders of
UK-listed companies.

Frater said it was at present not only
difficult to establish the full amount of the remuneration being
awarded in any one year but it was nearly impossible to draw useful and
definitive comparisons between companies.

The introduction of
IFRS 2, an international accounting standard that relates to the
expensing of options in the income statement, is expected to lead to
some improvement in the standard of disclosure and the level of

However, remuneration consultants warn that IFRS 2 will still leave scope for varied interpretation.

only does the present quality of disclosure run the risk of inaccurate
interpretation and misleading comparisons, it provides no insight into
the principles behind the remuneration packages or what, if any,
performance hurdles are involved.

According to one estimate, about 80 percent of packages do not have performance hurdles.
of the exceptions is Absa, which paid its executive directors hefty
performance bonuses for 2004. The Absa annual report provides useful
details about the conditions under which performance bonuses are paid
to its executive directors.

However, at both Standard Bank and
FirstRand, where the executive directors received large bonuses, there
is very little useful information about the performance hurdles.
over in the retail sector, where huge performance bonuses are common,
there is even less information provided about what the predetermined
hurdles are.

Shoprite's 2004 annual report contains what is
possibly the shortest section on executive remuneration of any company
on the JSE. The group participates in market surveys to ensure
market-related salaries are paid and notes: "A substantial portion of
remuneration of all managerial staff, especially senior management, is
linked to the performance of their respective business units and of the
group as a whole." There is no specific reference to executive

Pick 'n Pay's comments are equally bland. Its 2004
annual report notes that the group aims to remunerate senior executives
in the upper quartile of their peer group and also "to ensure that an
appropriate portion of their total package is performance related".

of the country's largest shareholders, the asset managers, are not
speaking out. Given the seeming indifference from the likes of Stanlib
Asset Management, Old Mutual Asset Management, Investec Asset
Management and Sanlam Asset Management, each of which is part of a
listed group that pays its executive directors extremely well, it may
be some time before there is any improvement on the current dismal
quality of disclosure.