The end of generous share option packages in South Africa

The party seems to be over for bank executives in South Africa. In the last few years, despite a more conservative approach to both salaries and bonuses compared to US or UK banks, South African bank executives have been making what one compensation expert describes as "obscene amounts of money" thanks to share options schemes.

But with the recession biting and pressure from the authorities to rein in spending, these schemes are now being scaled back.

"Ten years ago share options came in when share prices were at very mundane levels, then over the years the allocations got larger and larger to make up for lack of growth," says Nick Icely, executive compensation expert at Deloitte SA. "Then in 2002-03 the JSE started growing suddenly and the large allocations of share options came good with a vengeance, adding to the already wide wage gap which is what people are really concerned about. These additional accruals have been the really significant development of the last few years. Executives exercising their share options took home an obscene amount of money."

Between 2003 and 2007 the JSE grew by over 30% a year on average. South African banks are the only ones in the continent to offer stock options to their senior employees. "This is no longer sustainable in the current climate, so share option schemes will be curtailed and salary increase levels are likely to drop, reflecting a more conservative and responsible approach to executive pay," says Icely. "The days of generous share option packages have gone and there will be a shift to other forms of incentives based on the full value of shares and predominantly performance-related."

A new report by PricewaterhouseCoopers SA emphasizes the need for new executive reward models and a move away from the current situation of incentives so bloated that they form the majority of the total pay package. "Scrutiny of executive remuneration is now greater than ever before as a result of the economic downturn," says Gerald Seegers, director of human resource services for PwC SA. "Pay for performance decisions have been lost in the general upward movement of the market as a whole, but now there is a clear need to ensure that the relationship between pay and performance is robust. And the unending upward momentum of executive remuneration needs to come to an end."