Woolworths became the first among its peers to announce that its CEO, board directors and senior executive managers will take a paycut this year as the novel coronavirus is threatening to collapse industries.
It’s a trend that many international aviation companies including British Airways, Delta and United Airlines have embraced as it became clear that in order to save jobs when the number of planes flying is reduced, costs must be cut somewhere. Similarly, in SA there have been growing calls that local companies follow suit.
Woolworths said its board and executive teams will forego up to 30% of their fees and salaries over the next three months. Now that it has set a precedent locally, will others follow suit?
“I think every company will need to consider its own financial situation on its merits, but I think it is very positive for the leadership of a company to take steps to protect the salaries of its more vulnerable workers and its supply chain,” said Martin Hopkins, head of reward advisory services at Bowmans – formerly Bowman Gilfillan.
He said food retailers are not in the same predicament as their counterparts which sell non-consumables, meaning less pressure on them to implement executive pay cuts, but Woolworths has provided a “commendable lead” for everyone.
Non-profit shareholder activism organisation, Just Share, which has been engaging companies about gestures of kindness to show as the country wrestles with Covid-19, said it is not aware of any other listed company considering this route. Woolworths’ announcement was a great start in demonstrating the kind of corporate leadership and sensitivity South Africa needs, according to Just Share.
“However, [as] this is an ongoing issue and we hope to see more announcements in future,” said Tracey Davies, director of Just Share.
Davies said she’s more interested in seeing the final amount of the pay cuts in rand terms. Woolworths’ 2019 remuneration report showed that the company proposed R5.6 million pay for its different board committee members for 2020, R2.25 million of which would be paid to the chairman. Although the proposed pay for 2020 was not stated in rand terms for executive management, in 2019, CEO Ian Moir pocketed R23 million in guaranteed pay and short-term incentives. The retailer’s remuneration report shows that the executive teams’ total pay is made up of a guaranteed cash component and performance incentives.
“What we should also be asking is why institutional investors and regulators have done so little in the past to rein in unjustifiably high and ever-increasing executive pay. The focus on executive pay in South Africa as a result of the impacts of Covid-19 must finally catalyse a process that should have happened decades ago,” said Davies.
She added that SA companies need to simplify their pay structures and readjust incentives to ensure that executive remuneration is fair and reasonable in the context of overall employee remuneration given wage inequality in the country.