Reference: Published by Staff Writer (BusinessTech), 30 August 2023

Trade and Industry Minister Ebrahim Patel has introduced the new Companies Amendment Bill in parliament, setting off the process of making changes to South African corporate law.

One of the significant improvements in the bill, which was released for public comment in 2021, is that it requires listed firms in the country to disclose the top-paid to bottom-paid 5% of workers in their reporting.

Patel earlier stated that the measure will contribute in the resolution of South Africa’s inequality concerns.

South Africa is currently one of the most unequal countries in the world, with significant disparities in wealth distribution between top and bottom earners.

High levels of CEO pay have been a sensitive topic around the world, but none more so than in South Africa, where some top executives earn more than R500,000 each day, compared to the average of R800 or the poverty line of R25.

In recent years, there has been a considerable increase in the number of shareholders of publicly traded businesses voting against high executive pay at Annual General Meetings, notably in the financial industry.

In terms of the new proposed rules, in addition to the present salary reporting obligations, South African corporations will be required to include the following in their reporting:

• The remuneration policy of the company, which must be detailed in a separate section of the remuneration report;
• An implementation report detailing each director’s or specified officer’s compensation and benefits;
• The total remuneration of an employee with the greatest total remuneration, containing all income and perks, including employer contributions to benefit funds, short-term incentives or bonuses, and long-term incentives. This is not restricted to the CEO; any other executive or prescribed officer can be involved.
• The total remuneration of an employee with the lowest total remuneration in the organization, encompassing all salary and benefits, including employer contributions to benefit funds and incentives or bonuses.
• The average salary of all employees, the median remuneration of all employees, and the remuneration gap, which is the ratio of the total remuneration of the company’s top 5% highest paid employees to the total remuneration of the company’s bottom 5% lowest paid employees.
• The revised pay report, including all of these facts, must be authorized by the company’s board of directors and presented to the shareholders at the annual general meeting, where it must be voted on for approval by the shareholders.
• The new legislation emphasize not only pay, but also other elements such as beneficial ownership of a corporation and reducing red tape.

The department wants to increase the ease of doing business in South Africa by eliminating “unnecessary red tape” and making regulations transparent, user-friendly, compatible with well-established concepts, and not overly restrictive on company conduct.

Another significant focus of the proposed legislation is better transparency of the ultimate owners of a company’s shares. This is part of the state’s larger effort to combat corruption and money laundering, and it was made possible by the General Laws Amendment Act, which was passed at the end of 2022.

The government thinks that by enacting the modifications, it would attract investors while also making the local economy more productive and efficient, allowing it to create more jobs.

The amendments intend to:

• Insert new definitions and revise the meaning of ”security.”
• Clarify the effective date of a Notice of Amendment to a Memorandum of Incorporation;
• Allow the Commission to publish the notification about the location of a company’s records as prescribed.
• Distinguish areas where access to company records may be restricted;
• Prepare, present, and vote on the company’s remuneration policy and directors’ remuneration report;
• Allow for the submission of a copy of the yearly financial statement;
• Allow the court to validate the illegitimate creation, allotment, or issuance of shares.
• Clarify that unpaid shares are to be transferred to a stakeholder and handled with per the terms of a stakeholder agreement.
• Exempt the subsidiary company from the financial support requirements.
• Provide for situations in which a special resolution is required for a firm to acquire its own shares.
• Allow for the presentation of a social and ethics committee report as well as a remuneration report at a public company’s annual general meeting.
• Provide for the conditions under which a private corporation will be regulated;
• Allow for the publication of the application for exemption from the requirement to select a representative.
• Committee on Social and Ethical Issues;
• Deal with the social and ethics committee’s composition.
• Provide for the social and ethics committee to prepare a social and ethics committee report, as prescribed, to be presented at the annual general meeting or shareholders meeting, as applicable.
• Provide for the appointment of an auditor at a shareholders’ meeting in the case of a private corporation, personal liability company, or non-profit company if such appointment is required by the Act;

Extend the concept of an employee share program to encompass circumstances in which shares of a corporation are purchased;

Provide for post-commencement financing for unpaid sums owed to the landlord during the course of the business rescue proceedings.

Under specific conditions, the Commission may substitute a contested corporate name.

Provide for the Companies Tribunal to mediate, conciliation, and arbitrate exclusively in relation to relief or complaints under the Act;

and to further provide for the functioning and control of the Companies Tribunal.

Make provisions for Financial Reporting Standards Council declarations.