The hotly debated Companies Amendment Bills have now been signed into law by the President and were promulgated on 30 July 2024, with the date of implementation yet to be announced.

Certain amendments in the Companies (First) Amendment Act (Act 16 of 2024) introduce groundbreaking changes to corporate pay gap disclosure practices in South Africa. Both listed and state-owned employers will need to prepare to comply with these.

Summary of Amendments:

• Remuneration Policy approval requirements (Section 30A)

 All public and state-owned companies (Companies) must prepare a remuneration policy.

The policy must be approved by shareholders at the annual general meeting (AGM) via ordinary resolution. If the policy is not approved by shareholders, it must be re-submitted for approval at the next AGM or an extraordinary general meeting called for that purpose.

Once approved, the policy remains in effect for a period of three years and must be approved every three years thereafter. However, where a material amendment is made to the remuneration policy prior to the end of the three-year period, shareholder approval must be obtained before the amendment can be implemented.

• Remuneration Report approval requirements and sanctions (Section 30B)

To date, Companies have been required to disclose the total remuneration received by each director and prescribed officer in their annual remuneration reports. The remuneration report comprises three sections: (i) a background statement, (ii) the remuneration policy (referenced above), and (iii) an implementation report.

Going forward, the total remuneration of the highest and lowest paid employees; the average and median total remuneration of all employees; and the remuneration gap between the top 5% highest paid and lowest paid employees must also be disclosed in the remuneration (implementation) report.

If the remuneration (implementation) report is not approved by shareholders, then, at the next AGM, the remuneration committee must explain how shareholder concerns over the report have been considered and the non-executive directors on the remuneration committee must stand for re-election. If the report is still not approved at the following AGM, non-executive directors can remain directors if they are re-elected, but they cannot serve on the remuneration committee for a period of two years.

Key Considerations for Companies:

• Remuneration Policy and Remuneration Report amendments

Due to the new shareholder approval requirements, remuneration policies should be amended to articulate the organisation’s overall philosophy on remuneration, based on its business strategy. For example, companies should set out their position on, among others, remuneration and benefits, fixed and variable pay mixes, annual increases, appointments and terminations of executives and prescribed officers, short-term and long-term incentive performance conditions, and pay gap measures.

Specific details on these items should, however, only be incorporated into the Company’s remuneration (implementation) report, which is subject to annual approval by shareholders. This will guard against Companies’ having to resubmit their remuneration policies for shareholder approval prior to the end of the three-year period as a consequence of ‘material’ amendments being made to the remuneration policy.      

• Pay gap disclosures

To ensure that pay gap disclosures are transparent but also not over- or understated, Companies should carefully consider which ‘employees’ (eg, permanent, contractor, labour broker) and legal entities (eg, subsidiaries, associations, joint ventures) to include for purposes of its disclosures, and what elements of pay constitute ‘total remuneration’. Strategies that address the findings of the pay gap calculations will be a key consideration and a measured approach should be adopted to ensure sustainability.

• Governance processes

Companies will need to adapt their governance documents and processes to achieve compliance. Consideration should be given to whether, and the extent to which, board charters, delegations of authority, terms of reference, and resolutions need to be updated and amended.

AGM resolutions will need to be updated to make provision for binding ordinary resolutions for the remuneration policy and remuneration (implementation) report. Employees who are responsible for collating and interpreting pay-gap data should be trained on the amendments and thought should be given to how pay-gap disclosure requirements under the Companies Act may overlap with or duplicate work on pay-gap disclosure requirements under the Employment Equity Act.

Finally, contingency measures should be developed to secure stable governance of Companies in circumstances where sanctions have been imposed on remuneration committee members (eg, removal from the remuneration committee and/ or the board, particularly where the company’s remuneration (implementation) report is not approved at two consecutive AGM meetings).  

• Shareholder engagement

Companies will need to find ways of proactively engaging shareholders in an effort to seek upfront consensus and alignment on their remuneration policies and practices. Regular updates and clear communication with shareholders will be crucial for the approval of remuneration policies and reports. Understanding and addressing shareholder concerns promptly could prevent the need for re-elections and potential disruption in the board’s composition and company governance.

• Compliance and guidance

Companies will need to comply with the new legal requirements whilst adhering to best market and international practices. Ongoing disclosure in terms of King IV and the JSE Listings Requirements will also be required, as will adhering to best practices in relation to pay for performance. The United Kingdom has had binding remuneration policies for company directors for many years and would provide useful comparative guidance.

Conclusion

It is important to stay abreast of and be prepared for the impending amendments to the Companies Act. Strategic and considered approaches to remuneration and financial disclosure will be crucial to achieving practical compliance that provides a meaningful outcome for all stakeholders.