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Briefing to Portfolio Committee on Public Enterprises On Performance Management of SOE Senior Management 10 November 2009. Relationship between the shareholder, Board and Executive Management of SOE. A company has two governing organs: Shareholders (in general meeting); and
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Briefing to Portfolio Committee on Public Enterprises On Performance Management of SOE Senior Management 10 November 2009
Relationship between the shareholder, Board and Executive Management of SOE • A company has two governing organs: • Shareholders (in general meeting); and • Its Board of Directors • The distribution of powers between these organs is regulated by the Companies Act (61 of 1973) and the SOE’s Articles of Association. • Such powers generally include ability to hold general meetings, appoint board members, remuneration of directors (executive and non-executive), management and control of a company. • The shareholder is responsible for the appointment and removal of directors from the Board, which includes the appointment of executive directors (CEO and CFO) who are appointed ex officio. • The Board as the custodian of the company is expected to act in the best interests of the SOE and the shareholder.
Relationship between Shareholder, Board and Executive Management. • The Board has an oversight role to review and monitor management’s conduct of the company affairs and operations, its delivery and achievement of strategic, business, operations and financial goals and other objectives. • Management and control of a company often falls under the Board of Directors in terms of both the Companies Act and the Articles. • The Executive Management (represented by the CEO and CFO) is accountable to the Board and the Board is accountable to the shareholder. Thus the Board would manage the performance of these executives. • Executive management is appointed and managed as part of an employment relationship governed by employment law and Human Resource principles.
Remuneration • Remuneration Guidelines were approved by Cabinet in November 2007. • Remuneration is approved by MPE in terms of the DPE’s Remuneration Guidelines and is defrayed by SOE. • The remuneration, or any adjustment of the remuneration, of executive and non-executive directors are determined by the SOE in Annual General Meeting having due regard to the Remuneration Guidelines.
Remuneration Guidelines Non-Executive Directors Executive Directors CEO and ED remunerated in line with SOE size and Enterprise performance; Enterprise performance measured in terms of revenue, profits, market value or return on investment reflecting company performance levels; Scarcity allowance: remunerated in upper quartile; CEO and ED performance exceeding expectations: remunerated in upper quartile; Remuneration reviewed annually and adjusted in terms of individual and organisation performance in line with appropriate benchmarks. • SOE size categorised in terms of assets and revenue; • SOE Chairperson and NED remunerated in line with SOE size; • Quarterly retainer paid at median; • Additional retainer per sub-committee; • Additional fee for Chairpersonship: total remuneration between median and upper quartile;
Remuneration Guidelines • Short term performance is measured and scored based upon strategic short term performance measures and targets; • Only a portion of the calculated incentive is deemed to be earned in Year 1 - since it is unknown whether short term performance has been delivered at the expense of longer term strategic performance criteria; • Long term performance against strategic performance measures assessed at the end of future years - if met, then the remaining calculated incentive is deemed to be earned; • If future long term strategic targets are not met, the unearned incentives remain unearned and are not paid out.
Remuneration Committee • SOE boards are encouraged to establish remuneration committees in line with best practice corporate governance principles • The Committees should review and recommend to the Board on: • Executive remuneration and incentive policies • Remuneration packages of senior management • Recruitment, retention and termination policies and procedures for senior management • Remuneration framework for directors • The structure of NED remuneration should be clearly distinguished from that of executives • NEDs should not participate in schemes, including incentive payments designed for Executives.
