Can business design their remuneration policy in line with King IV and still attract and retain executive talent?

The recent release of the King IV Report on Corporate Governance could create some interesting implications regarding talent management and acquisition.

The King IV "apply and explain" approach assumes the principles of King IV are all applied and that management is then required to disclose the practices that have been implemented and how these practices support the principles.

Principle 14 of King IV states "The governing body should ensure that the organisation remunerates fairly, responsibly and transparently so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term." 

It requires the remuneration policy to :

1. include provisions that Executive Remuneration should be fair and responsible in the context of overall employee remuneration.

2. be designed to attract, motivate, reward and retain human capital 

It is obvious why the committee chose to make these important. Ensuring executive remuneration is fair and responsible compared to overall employee remuneration is critical with South Africa's current wage gap, and requiring management to consider their talent management objectives when setting remuneration policy is something we should have done years ago.

Market salaries don't consider the overall remuneration context
Unfortunately market salaries (a key tool in attracting and retaining top talent) are typically driven by supply and demand. How do organisations move executive compensation to a fair number but still manage to compete for the best talent in the market?

An argument could be made that the right leadership talent with the right values would understand the organisation's need to apply corporate governance principles and would still join the organisation no matter what compensation is offered.  Believing this seems a bit of a stretch of the imagination. 

We might also expect over the longer term that executive market compensation levels should move to a fair and reasonable number in the context of overall employee compensation levels. Which organisations would be willing to be the first movers and reduce their ability to compete for talent in the market in the short term?

We look forward to seeing how organisations balance these principles. We also expect to see some interesting disclosure regarding the principles used in designing their remuneration policies.

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The King IV Report on Corporate Governance for South Africa 2016, Institute of Directors Southern Africa is owned by the Institute of Directors in Southern Africa NPC with all rights reserved and is available at http://www.iodsa.co.za/?page=AboutKingIV