AUTHOR: TATTON BOURAS
On 22 May 2026 several Companies Act 71 of 2008 (“the Act”) amendments that were originally promulgated in 2024 came into effect. These amendments will apply immediately, and no transitional period has been provided for. Thus, companies to which the amendments apply, must immediately implement steps to comply if they have not already done so.
The amendments apply to public and state-owned companies. In essence, these companies must adopt shareholder-approved remuneration policies, enhanced annual reporting and detailed pay-gap disclosures. Remuneration governance has always been a requirement for public-listed companies, and this now extends to public and state-owned companies.
Public and state-owned companies are now required to:
- Obtain shareholder approval by ordinary resolution at the Annual General Meeting (“AGM”) before implementing or changing a remuneration policy;
- Publish the ratio between the total remuneration of the top 5% and bottom 5% of earners in their annual remuneration report;
- Bar non-executive directors serving on the remuneration committee for two years where the shareholders reject the implementation report at two consecutive AGMs; and
- Disclose and identify each prescribed officer by name, if they are required to have their financial statements audited.
Sections 30A and 30B of the Act form the basis of the amendments. These provisions require the affected companies to establish and implement a remuneration policy. Once approved, it must be included in the agenda every 3 years or sooner if there is a material change. The remuneration policy may not be changed until shareholder approval has been obtained. If shareholder approval is not obtained, then the previous remuneration policy remains in force until a new one is approved. As already stated, listed companies already publish remuneration reports and implementation reports. However, it was never a requirement that had legal ramifications and was simply a part of exercising good governance but with the amendments, a shareholder vote carries statutory force, and it is now a legal requirement which companies must comply with.
In addition, public companies and state-owned companies are required to publish an annual remuneration report which includes inter alia:
- A background statement;
- The remuneration policy;
- An implementation report which explains the policy was applied during the applicable year;
- The total remuneration of each director and prescribed officer;
- The average total remuneration of employees; and
- The remuneration gap.
The remuneration gap disclosure will most likely be the most contentious issue. This is because the disclosure must show the ratio between the total remuneration of the top 5% of highest-paid employees and the total remuneration of the bottom 5% of lowest-paid employees. In a country rife with labour disputes, trade union representation and concerns regarding income equality, this requirement will undoubtedly place company pay structures under a microscope. The unintended or intended consequences of this requirement make internal pay inequality visible to shareholders, employees, regulators, the media and the public and may cause issues when companies use commercial viability when wanting to restructure and retrench employees. It is undoubtedly clear corporate governance for companies will include input from human resources and will require proper and credible explanations when remuneration practices are being implemented.
In the event that the company is required to be audited, then there is now an additional requirement that the annual financial statements must include the name of each director and prescribed officer and the respective remuneration and benefits. Prior to this amendment, prescribed officers were not required to be named, and their benefits were shown as a collective number.
The amendments have introduced something that has been termed the “two-strike rule”, and it implies exactly that, two strikes and you are out. If shareholders reject the implementation report at two consecutive AGMs, then the non-executive directors who serve on the remuneration committee are barred from serving on such committee for two years. However, they can still serve on the board if they are re-elected and those directors who were on the committee for less than 12 months in the year under review are exempt from this rule. In summary, the “two-strike rule” imposes a higher duty and risk on directors serving on the remuneration committee; it adds pressure to boards to engage more meaningfully and increases oversight by the shareholders.
The amendments increase shareholder participation and the remuneration committee’s accountability. In addition, it forces companies to play open cards and no longer just disclose remuneration as a mere tick-box exercise, companies need to be able to explain pay policies and show justification where applicable. It also means that employment teams, legal teams, company secretaries and remuneration committees will have to work closely together and align objectives.
Tel: +27 31 570 5336 Email: tatton.bouras@gb.co.za