Big changes for retirement fund trustees in South Africa 

President Cyril Ramaphosa’s signing of the Companies Amendment Bills has far-reaching implications for local businesses, and retirement fund trustees should take notice.

This is according to Alexforbes Executive: Governance, Legal, Compliance and Sustainability, Carina Wessels. 

On 26 July 2024, Ramaphosa signed the long-awaited First and Second Companies Amendment Bills into law. 

Weasels said that the effective date, including any possible transitionary periods, will become clear once gazetted. 

“Among several amendments, some of the most material ones relate to remuneration and have been the topic of heated debates and several comments over the past few years,” she said.

“In addition to these amendments being critical considerations for boards of directors and remuneration committees alike, boards of trustees should also concern themselves with these company law changes.” 

She explained that, as stewards of capital and in accordance with Regulation 28, trustees are required to consider environmental, social, and governance (ESG) factors in their decision-making. 

Several amendments signed into law deal with ESG elements, like remuneration and Social and Ethics Committees. 

Regarding the amendments, public and private companies that are required to be audited under the Companies Act must now list each individual director and prescribed officer’s remuneration by name in their annual financial statements.

Prior to this amendment being in place, many companies would simply group these together. 

“This is one of several meaningful disclosure enhancements for companies that may form part of private market portfolios,” Wessels said.

In addition, the amendments make it mandatory for all public and state-owned companies to have shareholders vote on a company’s remuneration policy and remuneration reports. 

The remuneration policy will now require approval by ordinary resolution at the company’s annual general meeting (AGM) and thereafter every three years or upon making any material amendments. 

A failed vote will require the policy to be resubmitted to the next AGM or special meeting, and changes to the policy may not be implemented until it is approved. 

Similarly, the remuneration report will require approval from an ordinary shareholder resolution. 

In addition to individual remuneration disclosures, Wessels said the remuneration report will also need to include –

• The total remuneration of the highest and lowest earner in the company.
• The average and median remuneration of all employees in the company.
• The pay gap between the highest paid 5% and the lowest paid 5%.

If the report is not approved, the remuneration committees must explain at the next AGM how shareholder concerns have been considered. 

In addition, remuneration committee members are required to stand for re-election at the AGM where the report is presented. 

If the prior year’s implementation report is not approved at the second AGM, the committee members may continue to serve as directors if re-elected but may not serve on the remuneration committee for the following two years. 

Remuneration committee members who have served for less than 12 months are excluded from this requirement. 

“To effectively consider ESG in decision-making, trustees must be able to assess the quality of a remuneration policy and report, particularly how they link to and enable or detract from company performance and sustained value creation,” Wessels said. 

“These amendments place significant power in the hands of shareholders, requiring them to be increasingly informed and responsible in utilising this power.”

Amendments have also been made to the requirements for Social and Ethics Committees (SECs), some of which trustees should be aware of:

Public and state-owned company SECs will be required to consist of a majority of independent non-executive directors. 

Public and state-owned company SEC appointments will require approval by an ordinary resolution of shareholders at the AGM, like the annual election of Audit Committee members at present.

“Given the scope and breadth of ESG matters that SECs are responsible for, appointing appropriately skilled and experienced individuals on these committees should be of paramount importance for trustees,” Wessels said.

She further listed other amendments that active owners and stewards should note –

• Relaxation of approval requirements for share buy-backs
• Relaxation of intra-group financial assistance requirements.
• In response to the Zondo Commission recommendations, changes to director liability and delinquency prescription periods and delinquency and probation periods
• Reduction of auditor appointment cooling-off periods

“Many retirement fund trustees rely on consultants, asset managers and proxy advisers to vote on these matters,” Wessels said. 

“However, Circular PF130 is clear: regardless of any delegation, the board of trustees is not relieved of their accountability for the delegated functions. Delegation is not abdication.” 

“Trustees should, therefore, gain a deep understanding of these matters in preparing to incorporate the amendments in their governance processes and arrangements with service providers.”