Disclosure on the linkages between executive pay and sustainability in a highly unequal country

Abstract

Orientation: The allocation of incentives based on corporate financial performance is a longstanding phenomenon aimed at aligning the interests of executives and shareholders. Yet, given rising social and environmental concerns, shareholders are increasingly pressuring companies to link sustainability matters to executive compensation.

Research purpose: Disclosures on the linkages between executive remuneration and sustainability considerations were explored in South Africa, a country that is notorious for income inequality.

Motivation for the study: Despite offering a well-developed corporate governance framework, South Africa experiences several social ills. If pay-performance linkages are expanded to include sustainability considerations, directors will by implication be encouraged to focus on sustainable value creation.

Research design, approach and method: Content analysis was conducted on the 2019 and 2022 integrated and remuneration reports of selected banks and telecommunications companies operating in South Africa. Focus was placed on how these companies have linked sustainability aspects to incentives over the short and long term.

Main findings: Improvements were noted in terms of linking sustainability considerations to executive pay. Most companies related social aspects to short-term incentives. Yet, environmental pay-performance linkages warrant more attention.

Practical and/or managerial implications: Remuneration and social and ethics committee members should reflect on how executive pay can be optimally linked to material sustainability considerations. The sustainable development goals (SDGs) could be used to develop fairer and more responsible director pay policies.

Contribution and/or value-add: The considered companies progressively accounted for sustainability aspects when determining executive pay in a highly unequal country. Directors are thus increasingly rewarded for ensuring a more sustainable future.