In the latter part of 2024, the President assented to the Companies Amendment Act of 2024, which contains several important amendments to the Companies Act, 2008, as it relates to the issue of director remuneration. Although the commencement date of these amendments is yet to be proclaimed, it is well worth noting these changes that are in the pipeline.
The Companies Act, under the amendments, will introduce new corporate governance measures aimed at increasing transparency and accountability, particularly concerning remuneration and ethics. This article explores the key changes regarding social and ethics committees, remuneration policies, and remuneration reports, which will have far-reaching implications for public and state-owned companies.
Social and ethics committees play a vital role in monitoring the ethical culture within a company. These committees are responsible for overseeing corporate social responsibility, sustainability, and ethical practices, ensuring the business adheres to both legal standards and societal expectations. The amendments emphasise the necessity for companies to adopt clear policies around social and ethics issues. This ensures alignment with the broader goals of corporate governance, which include transparency, accountability, and sustainability. The increasing focus on these committees is a response to the demand for businesses to contribute positively to society and operate within a framework of ethical behaviour.
One of the most significant changes is the introduction of section 30A, which imposes a duty on all public and state-owned companies to prepare and present a remuneration policy for shareholder approval. This policy must be presented at the annual general meeting (AGM) and must receive approval by an ordinary resolution of the shareholders. If the shareholders reject the remuneration policy, it must be revised and resubmitted for approval at the next AGM or a specifically convened shareholders’ meeting. This creates a mechanism through which shareholders can have a say in the compensation structure of the company’s executives and directors. The policy will remain valid for three years once approved. However, any material amendments within that period must also be presented for shareholder approval. This requirement ensures that shareholders maintain oversight of the company’s compensation structure and can address any concerns or discrepancies that may arise during the period.
In addition to the remuneration policy, these types of companies will now also be required to prepare and present a remuneration report, as outlined in section 30B. The report must consist of three main parts:
- Background Statement: This must provide context for the company’s remuneration practices and explain the factors influencing these decisions.
- Remuneration Policy: A copy of the company’s approved remuneration policy must be included to ensure transparency and consistency.
- Implementation Report: This part of the report must contain details about the actual remuneration awarded during the year, including specific figures for directors, prescribed officers, and the highest and lowest-paid employees.
One of the most notable provisions is the requirement to disclose the so-called “remuneration gap”. Companies will have to report on the difference between the total remuneration of its top five percent (5%) highest-paid employees and its bottom five percent (5%) lowest-paid employees. This measure is intended to address growing concerns around income inequality and ensure that companies are not only transparent about executive pay but also mindful of wage disparities within the organisation. The report must be presented annually at the AGM, and like the remuneration policy, it must receive approval by ordinary resolution.
If shareholders do not approve the report, the remuneration committee is required to present an explanation at the next AGM, detailing how shareholders’ concerns were addressed. If the remuneration report is not approved by shareholders for two consecutive years, there are specific consequences outlined in the amendments. Directors who are not involved in the day-to-day management of the company and serve on the remuneration committee must stand for re-election. Furthermore, if the report is again not approved, these directors will not be eligible to serve on the committee for a period of two years, emphasising the seriousness of shareholder engagement and accountability.
The amendments to the Companies Act signal a significant shift towards greater corporate transparency and shareholder involvement in executive remuneration. By mandating public and state-owned companies to prepare and present remuneration policies and reports for shareholder approval, the legislation strengthens accountability and ethical governance. Additionally, the focus on remuneration gaps highlights the growing importance of addressing income inequality within corporations. Companies will need to adapt to these new requirements, ensuring they are prepared to meet the higher standards of corporate governance and ethical responsibility.
This article was compiled by Wildu du Plessis and Tristan Hussey.