Chief executive value more significant than pay package - CNBC Africa

Chief executive value more significant than pay package

Southern Africa

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“What a chief executive earns and what, for example, the cleaners earn is actually irrelevant. The question is does the chief executive bring value, and the only people equipped to make that decision are the people who pay the chief executives – that is the shareholders and the owners,” the Free Market Foundation’s executive director Leon Louw told CNCB Africa on Monday.

“If they want to buy cheap chief executives, they should expect to make losses.”

South Africa’s minister of mineral resources Susan Shabangu has said that the country has one of the largest pay differentials in the world and that executives' pay should be linked to defined performance targets.

While the value of the packages of JSE-listed CEOs stands at 12 million rand in the year to April, Louw emphasised that quality comes at a price.

“With chief executives the amount they get is irrelevant, what matters is what they’re worth. If chief executives aren’t worth it you should pay them a lot to get rid of them,” he said.

“If we want to be rich, if we want to be a success, we actually need to start paying world rates to get world class executives,” Louw added. 

He believes that ultimately, it is the responsibility of the shareholders to determine what a chief executive gets paid.

“There are people who are performing scams and rip offs, there are chief executives who do that, who have effective control over their pay. It is very uncommon and if they do then the people to blame are the shareholders. If they are not controlling what they chief executives get paid and how they get chosen, then the shareholders ought to pay the price, which is a loss.” 

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