"South African companies are among the best-performing in the world and CEO performance bonuses are consequently substantial. However‚ local companies have a long way to go before CEO remuneration is appropriately incentivised and analogous across all private sector organisations‚" Prophet Analytics quantitative analysis director Peter Aling said.
He said that corporate profitability should be the sole rational basis for executive remuneration.
"In Africa some CEOs are completely over-paid‚ given that they delivered a poor return on shareholders' funds and similarly‚ others are under paid‚" Aling said.
The report identified Northam Platinum chief executive Glyn Lewis as the most overpaid CEO in SA‚ with a pay of R11.1m last year. The company generated a negative real return on shareholders' funds of 4.36%.
By contrast‚ it said‚ the most underpaid chief executive in SA was Netcare's Richard Friedland‚ who earned R11.8 million last year but generated a substantial real return on shareholders' funds.
This year's survey involved 230 companies up from 212 in last year's survey, Prophet Analytics said.
The report noted that encouragingly‚ the latest labour market navigator report showed a dramatic improvement in the past year in the relationship between CEO remuneration and corporate profitability‚ with the correlation rising from 23% to 30%.
More managers were being rewarded for corporate profitability‚ both in cash and through the use of stock options.
"It is good for SA's standing internationally that profitability as a determinant of remuneration has increased. Other factors such as executive tenure‚ the number of employees and the value of assets under management have clearly decreased as determinants of remuneration - and rightly so‚" Aling said.
The report moots issuing stock options to management and reducing the use of cash as a performance incentive as tactics to align remuneration with corporate profitability.
Aling suggested there was a need to replace cash-based performance bonuses with stock options whose values rose and fell with changes in the underlying profitability and value of the firm.
Trade unions are increasingly focusing on the gap between pay levels of chief executives and employees‚ while some government officials have called for CEO remuneration to be capped.
"Our report clearly illustrates that the proportion of South Africa's national income attributable to private business enterprises in the form of profits (as opposed to households in the form of wages) has increased from 39% in 2000 to 51% in 2012‚" Aling said.
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