In this special podcast Alec Hogg talks to Mark Bussin, the founder and chairman of SA’s dominant remuneration consultants, 21stCentury Pay Solutions Group. Bussin, who co-founded the company in 1996, has concluded a BBBEE transaction which sees 51% ownership of the business moving into black hands. He talks about the reasons behind the transaction – and the other side of the pay debate, explaining why leaders like Jacob Zuma and most JSE-listed company CEOs deliver good value to stakeholders.
This special podcast is brought to you by 21stCentury Pay Solutions Group whoâs Chairman, Dr Mark Bussin is with Alec Hogg in the studio. Mark, youâve just done the first major BEE transaction in your sector: 51 percent ownership of 21stCentury is now going to be in Black hands. Thatâs quite a move for someone who started the business in 1996.
Indeed, it is. Weâre very excited about it and itâs the way to go. Weâre doing it for the right reasons and weâre looking forward to entering the market with the new BEE status.
Just unpack that. Why would you need 51 percent?
Well, itâs governed (a little bit) by the rules and regulations that are set out. We think that 51 percent sends the right message, so it is Black-owned.
Youâre still going to hold just over 18 percent with your co-founder (similar numbers) but in essence, you now have a change in control in the company that you started.
Yes, itâs a weird feeling. Itâs like giving away a child really, so itâs nerve-wracking on the one hand, but very exciting on the other hand. Itâs something one has to come to terms with, but very gladly so and very willingly. Itâs exciting.
How did you structure this transaction?
A few years ago, we did the first 26 percent. That was with a particular person and with this next transaction of 25 percent; we then did the broad-based deal where we formed a trust for our staff. Our staff members now own the business and itâs wonderful because now, everyone can see the piece of dirt on the floor or the wrapper or the cigarette butts and everyone feels like an owner. Itâs great.
How big is 21stCentury?
We employ about 50 consultants and perhaps 20 support staff, and thatâs quite big for what we do, bearing in mind that weâre just remunerating consultants and we dabble a bit in HR as well.
Itâs quite a market-dominant position.
It is. Itâs wonderful. In the various areas of remuneration and HR, weâre stronger in some and not as strong in others but yes, it is a comfortable position.
Letâs start off with Number one: Mr Zuma. You set his salary or, at least, helped it.
Indeed, I did. The way we set it is we take his pay as a proportion of the GDP of South Africa. We find countries of similar size and ratio, and heâs set in the middle of that comparative basket. At R2.6m/R2.7m, I think heâs fairly paid. Whatâs not often known is that for two years in a row, he took a zero-percent pay increase and I think that sends a wonderful message through to the CEOâs of the big companies.
A much bigger increase was decided upon for traditional leaders. Now thereâs a bit of a story behind that.
Indeed, there is. As it happens, all the provinces pay the traditional leaders as they wanted to so the stipend was different. Some were paying a very low amount and others were paying quite big amounts. The idea was to standardise that, so the provinces that were paying a little had a big jump and thatâs probably what was reported but those that were paying a lot more (because we took an average) came down, so perhaps that wasnât reported. Nevertheless, we had to standardise it and in the standardisation, some got quite big increases. Youâre quite right.
Where do you start when setting their pay?
It was wonderful. The journey was wonderful because the first thing we really had to get a handle on was âwhat do they doâ. Once we had a good fix on that, the next step was to try to benchmark it. The only place that we found in Africa that had similar positions was Kenya and Tanzania. In Tanzania, the villages paid for the traditional leaders, so we couldnât use that. In Kenya, itâs like an organogram where, if you wanted the job, you applied for the job. We couldnât use that either because here, youâre born into it. What we did was we wrote a job description. We graded it using a grading system, and then got a fair market pay for that complexity of work.
You mentioned earlier that the President of South Africa took a zero increase two years in a row. What about the cabinet Ministers?
Indeed. The recommendation was that the Ministers also took a zero percent, but he ordered the increase for them so he has the final say. We make the recommendation. He accepted zero for himself though. I think theyâre also, very fairly paid for the hours they put in. Itâs around just over R2m that they earn.
Do they all earn the same?
At the moment, they do. A few years ago, there were questions regarding whether the bigger departments should get more pay. This included the Director-Generals. It was felt that theyâre going to move around and having different pay would be too complex to administer, so we kept it the same.
Now, the private sector has Chief Executives who, in many instances, are criticised for their pay levels. Firstly, is there any correlation between what a CEO gets and how he performs? Secondly, how do we compare with other countries?
One of the most interesting questions the President used to ask me was, âWhat does a CEO do for R20m/R30m? How do they earn their money?â The answer is if you took a pie and could divide it into three-thirds; one-third is fixed pay, one-third is short-term incentive, and one-third is long-term incentive. Thatâs roughly how itâs split out. Weâve done a lot of research on the correlation between CEO pay in South Africa and listed companies on the Stock Exchange over a ten-year period, for example. Thereâs a very good correlation between CEO pay and company performance so itâs not true that CEO pay is going through the roof and company performance is dwindling. When the company performance dwindles, the CEO does not get the same amount of remuneration as in the good years.
You have a huge domination of the JSE-listed companies. Isnât that a challenge, in itself?
Yes, there was a very interesting professor who came out from the U.K., called Bob Garratt. He wrote a book, âThe Fish Rots from The Headâ. He thought that remuneration committees should be done away with because they just ârubber-stampâ but Iâm pleased to say that in South Africa, our remuneration committees do a great job. The certainly do monitor CEO pay and the certainly do award zero increases or bonuses when they are not deserved. Even with the dominant position, itâs still well governed and the stats show that thereâs a very good correlation between what our CEOâs are actually doing and what theyâre doing for the shareholder.
Mark, just to be specific (and I know it must be a bit difficult for you to talk about individual companies); there was a lot of talk around the Sasol Chief Executiveâs remuneration. Are you the one who says âpay David Constable R50mâ or is it the board?
Thatâs a very good question. What we do is make the recommendation and then the board makes the determination. What goes into the recommendation is firstly, what heâs currently earning. If heâs in the Western world, heâs probably earning Dollars, Euros, or Pounds – just talking a bit past David Constable â and you want to attract them. You want them to come here, to run a multinational, operating in 25 countries, on five continents. Well, then you need to pay them the market rate for their market. Here, of course, itâs a lot of money especially when you convert it and you publish it in Rands. The activists at these Annual General Meetings are aware of the concept that you want to get international people running the big multinationals here and as long as we say what they did to earn their money, I think we stand a better chance.
From a personal perspective, you are a professor at three universities: Gibbs, Northwest, and U.J. How are you helping them?
I supervise Masters and PhD research, mostly. Thereâs a bit of lecturing too, but itâs mostly the research. When we have research publications, and we write articles, thatâs worth something for the country so itâs a contribution to the country, the university, as well as to the body of knowledge. A lot of our research comes from America and the U.K. and now weâre developing a nice pool of South African research in this area of remuneration.
So, itâs not just âflipping a coinâ. You actually have an enormous amount of background before making these decisions, albeit for the President, cabinet Ministers, or in the private sector with Chief Executives.
Absolutely. Pay in South Africa is well governed and well run. Of course, you get the one or two swallows that make headlines, but one or two swallows donât make a summer.
Just to close off with, the BEE transaction: howâs this going to help in a business sense, or is it more just for a social empowerment initiative?
No, itâs definitely both. It will assist in getting more work because the companies out there favour those that have a higher level in the BEE status, but we are equally excited about our employees that are now owners of the company and I hope they act like owners. Iâm sure they will do.
Dr Mark Bussin is the Chairman of 21stCentury Pay Solutions Group and this special podcast was brought to you by 21stCentury Pay Solutions Group.