King IV tightens corporate remuneration

The King IV Report on Corporate Governance has tightened the requirements on remuneration for companies.

Johannesburg - The King IV Report on Corporate Governance (King IV) has tightened the requirements on remuneration for companies.

The King Committee on Corporate Governance in SA and the Institute of Directors in Southern Africa (IoDSA ) will this morning formally launch the King IV Report on Corporate Governance (King IV).

The IoDSA owns the intellectual rights to the King reports and the governance codes they contain. The reports contain the philosophy, principles and leading practices for corporate governance in South Africa.

The latest report deals with, among others, disclosure and voting on remuneration. For most companies, remuneration is a thorny issue that often features prominently in annual general meetings.

“King IV aims to foster enhanced accountability on remuneration. One of the ways that it addresses this is by including more definitive disclosure requirements, among which that remuneration should be disclosed in three parts, namely a background statement, an overview of the remuneration policy and an implementation report.

“It also recommends that shareholders of companies be provided the opportunity to pass separate non-binding advisory votes on the (remuneration) policy and the implementation report. The remuneration policy should record the measures that the board commits to in the event that either the remuneration policy or the implementation report, or both have been voted against by 25 percent or more of the voting rights exercised by shareholders,” the report said.

Measures

Addressing journalists ahead of the release of the report yesterday, Ansie Ramalho, King IV Report project lead for the IoDSA said companies would be required to provide information on measures taken to objections and concerns.

“An important introduction in King IV is that the remuneration of executive management should be fair and responsible in the context of overall employee remuneration. It should be disclosed how this has been addressed. This acknowledges the need to address the gap between the remuneration of executives and those at the lower end of the pay scale,” the report said.

Speaking at yesterday’s media briefing, Mervyn King, chair of the King Committee, yesterday said a vote by 75 percent of shareholders against a remuneration policy should trigger “certain consequences”.

King said the overarching objective of King IV was to make corporate governance more accessible and relevant to a wider range of organisations, and to be the catalyst for a shift from a compliance-based mindset to one that sees corporate governance as a lever for value creation.

The report also weighed in on shareholder activism. It said shareholders, including institutional shareholders, wielded power over companies.

“Commensurate with the rights and influence that shareholders have, it should be considered that shareholders have no legal or fiduciary responsibilities to the companies in which they invest,” the report said.

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