董事的高薪酬外文翻译.docx

董事的高薪酬外文翻译.docx

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董事的高薪酬外文翻译

INVESTECEMPLOYEEBENEFITS

Directorspocketfatpaypackets

By:

Basson,Deon.FinanceWeek,

Butpolicyholders'deficitsnotyetmadeup

DiscussesthefinancialstatementsofInvestecEmployeeBenefits（IEB）intheSouthAfrica.Totalprofitfor2003and2004;Comparisonofthetotalemolumentsearnedbytheexecutivedirectors;Conflictofinterestbetweenshareholdersandpolicyholders

TwoexecutivedirectorsofinvestecEmployeeBenefits（IEB）-CiaranWhelanandAdemdaAnumashahun–purportedlyearneddirectors'emolumentstotallingR18minthefinancialyeartoMarch2004.

IEBwasformerlyknownasFedsureLifeandwasawhollyownedsubsidiaryofthethenlistedFedsure.In2001,thisassurerwastakenoverbyInvestecinacontroversialtransactionthatledtoconsiderabledifferenceofopinionbetweenthetwocamps

ThissnippetofinformationiscontainedinthelatestIEBfinancialstatementssubmittedtotheFinancialServicesBoard.IEBisanunlistedsubsidiaryofInvestecandisthereforenotsubjecttotheJSESecuritiesExchange'slistingrequirementsintermsofwhichdirectors'remunerationmustbedisclosedonanindividualbasis.

ThoughIEB'sfinancialstatementsfortheyeartoMarch2004indicatebetterreturnsforpolicyholders,thecompany'sstillalongwayfrommakingupitshistoricalbacklog.Investec,astheonlyshareholderinIEB,isfaringconsiderablybetter.

TheincomestatementshowstotalemolumentsforexecutivedirectorsofR18m-withWhelanandAnumashahunstatedinthedirectors'reportastheonlyexecutivedirectors.Ifthatinformationiscorrect,theneachearnsanaverageofR9m/year.

IEBisaclassiccaseofaconflictofinterestbetweenshareholdersandpolicyholders.Thecauseoftheproblemwasinfactthetakeover,withInvestecpayingtoomuchforIEB.TheacquisitionpricewasR4,5bn,ofwhichR250mwaspaidincashandtheremainderbyissuing19,2mInvestecshares

.ComparethatwiththeremunerationearnedbytheexecutivedirectorsofOldMutualpic'swhollyownedunlistedsubsidiaryOldMutualLife（SA）.Thethreeexecutivedirectors-RoddySparks,PeterdeBeyerandMPMoyo-togetherearnedatotalofR9,2minthefinancialyeartoDecember2003.Sparks'sremunerationwasaboutR3,5m,DeBeyer'sR3,4mandMoyo'sR3,3m

AfterthatInvestecwasfacedwiththeunpleasantrealityofIEBhavingtoolittlecapital.ThereasonforthatwastheamalgamationwithNorwichLifethathadtobefinalised.SometimebeforeNorwich'sformerholdingcompany,NorwichHoldings,wastakenoverbyFedsurein1998,itwasclearthatNorwichLifehadtoolittlecapital（.FinanceWeek,24March2000and1December2000）

TheremunerationofIEB'sdirectorsisrelevcintasmanypolicyholdersinthiscompanyhavehistoricallybeendissatisfiedwiththepoorreturnsmadeontheirinvestments，EvenbeforetheIEBtakeoverwasfinalised,InvestechadpouredR500mofnewcapitalintothecompany.Aftertheofficialtakeover,anotherR600mfollowed

Thepolicydebatethatstartedatend-2004focusedtheattentiononSA'sthreelargestinsurers.AlmostforgotteninthisdebateisInvestecEmployeeBenefits,whichranintotroubleoverthepastfewyearsandwhosepolicyholdershavegoodreasontofeeldissatisfied.

SothetotalcostoftheinvestmentwasamassiveR5,6bn.WithsomuchcapitalinvestedinIEB,it'sunderstandablewhyInvestecwouldwanttogetitscapitalbackassoonaspossible.Inthebankingsector,abankinggroup'sreturnonequityislookedatverycritically.

InDecember2000,IEB'sembeddedvaluewasR2,6bn,whichalreadyincludedthefirstR500mofnewcapital.Soit'sacaseofanassureracquiredatanalmostunheardofpremiumaboveitsembeddedvalue.

Theothersideof.thecoinispolicyholders'interests.Theyinfactlostoutspectacularly,becauseofthedramathatoccurredafterthetwotakeovers.Inaninspectionin2003,advocateFlipStanderandProfessorGeorgeMarxconcludedthatthereasonableexpectationsofpolicyholdersweren'tmetbetween1999and2002.Ofcourse,thatincludedtheperiodbeforeandafterthetakeoverbyInvestec.

Theyalsosaidthatnotallpolicyholderswereaffectedequally.AtthetimeoftheirinspectiontheyweresatisfiedthatIEBhadtakensufficientprecautionstocompensatepolicyholdersfortheirhistoricallosses.

Theresultsforthefinancialyearto31March2003wereonlypublishedafterthecompletionofMarxandStander'sinspection.Inthatparticularfinancialyear,IEBdeclaredanexceptionallybigoperatingprofitofR843m.Anearlycoverreportconcerningthat（FW,3December2003）elicitedangryresponsesinInvesteccircles.

Whelan'sviewwasthatthelargeoperatingprofit（seetable1）andthesubsequentincreaseinIEB'snetassetvaluewerevirtuallyneutralisedbyalossinembeddedvalue.

Assurers'embeddedvalueconsistsofNAVandthevalueofthein-forcebook.ThelatteristhediscountedVcilueoffutureprofitsfrominsurance.

Since2001,IEBhassoldasignificantshareofitsbooktoCapitalAllianceandalsoreinsuredaconsiderableportionofitsriskwiththesameinsurer.Thelossinthevalueofthein-forcebookislargelytheresultofthat.

ItwasclearatthetimethatIEBdidn'twanttheperceptioncreatedthatInvestecwasearninglargeprofitsasashareholderwhilepolicyholderswerebeingharddoneby

Itnowappearsfromthefinancialstatementsfor2004thatinthisfinancialyearpolicyholdersdidsignificantlybetterthanineitherofthetwoprecedingfinancialyears（seealsotable2）.However,it'sdoubtfulthatthey'redoingwellenoughtomakeupforthepoorreturnsinprecedingyears

Thereturnsshown（table2）mustbeexplained.Theyaren'tthereturnsearnedbyindividueilportfoliosorthebonusesdeclared.They'resimplythereturnsearnedbyIEBIntotal.Onewould,ofcourse,expectsomekindofcorrelationbetweenthesereturnsandthebonusrates.

Fromthefinancialstatements,thefollowingcanbededuced:

•Shareholdersearnbetterreturnsontheircapitalthanpolicyholdersearnontheirinvestments（tables2and3）.

•Since2000,IEB'sembeddedvaluehasincreasedfromR2,6bntoR4,3bn.IftheR600mnewcapitaladdedduringthe2002financialyearistakenintoconsidhavelittlecauseforcomplaint.

•Policyholders'earningsaresubstantiallydilutedbecauseofIEB'scoststructureandprofitmargins（table2）.Forexample,in2004thegrossinvestmentreturnwas14,5%butthenetinvestmentretumwasonly9%.

•In2004,theoperatingprofitofR168m（table1）earnedforshareholderscontributed1,1percentagepointstothedilutionofpolicyholders'investmentreturn（table2）.In2003,thecorrespondingfigurewasanastonishing4,2percentagepoints.

•It'sstrikingthatthehugedeclineinoperatingprofitoccurreddespitesubstantiallyhigherreturnsearnedforpolicyholders.ThoughshareholdersstiUdidverywell,thereareindicationsofgreatersensitivityfortheinterestsofpolicyholdersthanin2003.

•AdministrationcostsremainhighatR176m,especiallyconsideringthatpolicyliabilitiesfellbyaroundRlbn.Thatalsocontributesabout1,1percentagepointstothedilutionofpolicyholders'investmentreturn（table2）.

•Thedirectors'remunerationforWhelanandAnumashahunmakeupmorethan10%oftheadminexpenses.

WhelanandAnumashahunareappointedbyaboard,whichiscontrolledbyInvestec.Asinanycapitalistenvironmentit'sprobablyfairtoassumethataddingvalueforshareholdersisanimportantfactorindeterminingremunerationstructures.

Whatismorecertain,however,isthatbankpaywillcontinuetobethesubjectofconsiderablepublicandprivateattention.Foraslongasthemediaareconvincedofthepublicappetitefortalesofbankersreceivingmultimilliondollarpayouts—whichislikelytobethecaseforaslongastheeconomicrecessionpersists—financialinstitutioncompensationpracticeswillmakeheadlines,andclamorsforreformwillcontinue.Unfortunatelyforfinancialinstitutions,whowillcontinuetoworryabouttheirabilitytocompetefortalentinthefaceofpotentiallimitationsonhowmuchandwhatkindsofpaytheycanoffer,andforwhomtheburdensofcomplianceanddisclosurewithincreasedregulationwillnotbeinconsiderable,governmentaloversightofpaywillbearoundforalongtimetocome.

AlthoughthefullimpactoftheFinalGuidancewouldnotbeknownforsometime,theFedhasalreadytakenstepstoreviewincentivecompensationprogramsfordeficiencies.IntheannouncementoftheadoptionoftheFinalGuidance,theFedindicatedithadcompletedthefirstroundofanin-depthanalysisofincentivecompensationpracticesatlarge,complexbankingorganizations,whichwaspartoftheFed’sformal“horizontalreview”ofincentivecompensationpracticesannouncedintheProposedGuidance.Thepurposeofthisinitiative,theFedstated,tobecarriedoutbyamultidisciplinarygroupofstaffconsistingofeconomic,legal,financialandaccountingexperts,wastoenhancetheFed’sunderstandingofcurrentpracticesandproposedchangestothosepractices,assessthestrengthofcurrentcontrols,informitselfastocurrentcorporategovernance,andidentifyemergingpractices

Inaddressingthisissue,theFinalGuidancestatesplainlythatboardsofdirectorsshoulddirectlyapproveincentivecompensationarrangementsforseniorexecutives.TheFinalGuidanceemphasizesthatboardsofdirectorshaveultimateresponsibilitytoensurebalanceintheincentivecompensationarrangementsforallcoveredemployees,andurgesboardstobeactiveintheiroversightofincentivecompensationarrangements.Tobeeffectiveinthisrole,boardsmayneedtorethinktheirstructuresandmusthaveresourcesattheirdisposalintheformofcounse