This special podcast is brought to you by 21stCentury Pay Solutions Group who’s Chairman, Dr Mark Bussin is with Alec Hogg in the studio. Mark, you’ve just done the first major BEE transaction in your sector: 51 percent ownership of 21stCentury is now going to be in Black hands. That’s quite a move for someone who started the business in 1996.
Indeed, it is. We’re very excited about it and it’s the way to go. We’re doing it for the right reasons and we’re looking forward to entering the market with the new BEE status.
Just unpack that. Why would you need 51 percent?
Well, it’s governed (a little bit) by the rules and regulations that are set out. We think that 51 percent sends the right message, so it is Black-owned.
You’re still going to hold just over 18 percent with your co-founder (similar numbers) but in essence, you now have a change in control in the company that you started.
Yes, it’s a weird feeling. It’s like giving away a child really, so it’s nerve-wracking on the one hand, but very exciting on the other hand. It’s something one has to come to terms with, but very gladly so and very willingly. It’s exciting.
How did you structure this transaction?
A few years ago, we did the first 26 percent. That was with a particular person and with this next transaction of 25 percent; we then did the broad-based deal where we formed a trust for our staff. Our staff members now own the business and it’s wonderful because now, everyone can see the piece of dirt on the floor or the wrapper or the cigarette butts and everyone feels like an owner. It’s great.
How big is 21stCentury?
We employ about 50 consultants and perhaps 20 support staff, and that’s quite big for what we do, bearing in mind that we’re just remunerating consultants and we dabble a bit in HR as well.
It’s quite a market-dominant position.
It is. It’s wonderful. In the various areas of remuneration and HR, we’re stronger in some and not as strong in others but yes, it is a comfortable position.
Let’s start off with Number one: Mr Zuma. You set his salary or, at least, helped it.
Indeed, I did. The way we set it is we take his pay as a proportion of the GDP of South Africa. We find countries of similar size and ratio, and he’s set in the middle of that comparative basket. At R2.6m/R2.7m, I think he’s fairly paid. What’s not often known is that for two years in a row, he took a zero-percent pay increase and I think that sends a wonderful message through to the CEO’s of the big companies.
A much bigger increase was decided upon for traditional leaders. Now there’s a bit of a story behind that.
Indeed, there is. As it happens, all the provinces pay the traditional leaders as they wanted to so the stipend was different. Some were paying a very low amount and others were paying quite big amounts. The idea was to standardise that, so the provinces that were paying a little had a big jump and that’s probably what was reported but those that were paying a lot more (because we took an average) came down, so perhaps that wasn’t reported. Nevertheless, we had to standardise it and in the standardisation, some got quite big increases. You’re quite right.
Where do you start when setting their pay?
It was wonderful. The journey was wonderful because the first thing we really had to get a handle on was ‘what do they do’. Once we had a good fix on that, the next step was to try to benchmark it. The only place that we found in Africa that had similar positions was Kenya and Tanzania. In Tanzania, the villages paid for the traditional leaders, so we couldn’t use that. In Kenya, it’s like an organogram where, if you wanted the job, you applied for the job. We couldn’t use that either because here, you’re born into it. What we did was we wrote a job description. We graded it using a grading system, and then got a fair market pay for that complexity of work.
You mentioned earlier that the President of South Africa took a zero increase two years in a row. What about the cabinet Ministers?
Indeed. The recommendation was that the Ministers also took a zero percent, but he ordered the increase for them so he has the final say. We make the recommendation. He accepted zero for himself though. I think they’re also, very fairly paid for the hours they put in. It’s around just over R2m that they earn.
Do they all earn the same?
At the moment, they do. A few years ago, there were questions regarding whether the bigger departments should get more pay. This included the Director-Generals. It was felt that they’re going to move around and having different pay would be too complex to administer, so we kept it the same.
Now, the private sector has Chief Executives who, in many instances, are criticised for their pay levels. Firstly, is there any correlation between what a CEO gets and how he performs? Secondly, how do we compare with other countries?
One of the most interesting questions the President used to ask me was, “What does a CEO do for R20m/R30m? How do they earn their money?” The answer is if you took a pie and could divide it into three-thirds; one-third is fixed pay, one-third is short-term incentive, and one-third is long-term incentive. That’s roughly how it’s split out. We’ve done a lot of research on the correlation between CEO pay in South Africa and listed companies on the Stock Exchange over a ten-year period, for example. There’s a very good correlation between CEO pay and company performance so it’s not true that CEO pay is going through the roof and company performance is dwindling. When the company performance dwindles, the CEO does not get the same amount of remuneration as in the good years.
You have a huge domination of the JSE-listed companies. Isn’t that a challenge, in itself?
Yes, there was a very interesting professor who came out from the U.K., called Bob Garratt. He wrote a book, “The Fish Rots from The Head”. He thought that remuneration committees should be done away with because they just ‘rubber-stamp’ but I’m pleased to say that in South Africa, our remuneration committees do a great job. The certainly do monitor CEO pay and the certainly do award zero increases or bonuses when they are not deserved. Even with the dominant position, it’s still well governed and the stats show that there’s a very good correlation between what our CEO’s are actually doing and what they’re doing for the shareholder.
Mark, just to be specific (and I know it must be a bit difficult for you to talk about individual companies); there was a lot of talk around the Sasol Chief Executive’s remuneration. Are you the one who says ‘pay David Constable R50m’ or is it the board?
That’s a very good question. What we do is make the recommendation and then the board makes the determination. What goes into the recommendation is firstly, what he’s currently earning. If he’s in the Western world, he’s probably earning Dollars, Euros, or Pounds – just talking a bit past David Constable – and you want to attract them. You want them to come here, to run a multinational, operating in 25 countries, on five continents. Well, then you need to pay them the market rate for their market. Here, of course, it’s a lot of money especially when you convert it and you publish it in Rands. The activists at these Annual General Meetings are aware of the concept that you want to get international people running the big multinationals here and as long as we say what they did to earn their money, I think we stand a better chance.
From a personal perspective, you are a professor at three universities: Gibbs, Northwest, and U.J. How are you helping them?
I supervise Masters and PhD research, mostly. There’s a bit of lecturing too, but it’s mostly the research. When we have research publications, and we write articles, that’s worth something for the country so it’s a contribution to the country, the university, as well as to the body of knowledge. A lot of our research comes from America and the U.K. and now we’re developing a nice pool of South African research in this area of remuneration.
So, it’s not just ‘flipping a coin’. You actually have an enormous amount of background before making these decisions, albeit for the President, cabinet Ministers, or in the private sector with Chief Executives.
Absolutely. Pay in South Africa is well governed and well run. Of course, you get the one or two swallows that make headlines, but one or two swallows don’t make a summer.
Just to close off with, the BEE transaction: how’s this going to help in a business sense, or is it more just for a social empowerment initiative?
No, it’s definitely both. It will assist in getting more work because the companies out there favour those that have a higher level in the BEE status, but we are equally excited about our employees that are now owners of the company and I hope they act like owners. I’m sure they will do.
Dr Mark Bussin is the Chairman of 21stCentury Pay Solutions Group and this special podcast was brought to you by 21stCentury Pay Solutions Group.