Regulation of the Use of Remuneration Consultants in South Africa: Proposals for Legislative Reform

Abstract

Over the years, companies have turned to remuneration consultants for guidance on remuneration matters. Their assistance is often sought when companies’ remuneration committees lack sufficient time, knowledge or data to decide effectively on executive remuneration. The assistance extends to accounting, tax and legal issues pertaining to executive remuneration. However, problems like potential conflicts of interest for remuneration consultants stem from factors such as the selection process, the duration of their contracts, and the services they provide to the company. A further challenge is benchmarking. Using remuneration consultants may contribute to excessive remuneration of executive directors, which in turn contributes to South Africa’s substantial socio-economic problems. Accordingly, the use of remuneration consultants must be strictly regulated in South Africa. This article examines how remuneration consultants are regulated by the Companies Act 71 of 2008, the JSE Limited Listings Requirements, and the King IV Report on Governance for South Africa, 2016. It compares the ways in which remuneration consultants are regulated in the United Kingdom, Australia and the United States of America. This article argues that the use of remuneration consultants is not sufficiently regulated in South Africa, and it makes recommendations to help enhance this regulation.