André de Lange, Yaniv Kleitman and Sasha Schermers of Cliffe Dekker Hofmeyr examine some of the early complications after long-awaited changes to remuneration reporting became law.
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Some recurring practical issues and anomalies have surfaced in the week or two since Sections 30A and 30B of the Companies Act 71 of 2008 came into force.
The new provisions relate to remuneration reports and remuneration policies, and aim to address the lack of pay transparency at JSE-listed companies.
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No transitional period
Unlike the King V Report on Corporate Governance, which gave everyone a breather by providing that it would apply only for financial years starting in January 2026, the Companies Act amendments came into immediate force and effect, and apply to public and state-owned companies.
Of course, several public companies had already posted notices of their annual general meetings (AGMs) to shareholders, leaving no time to prepare the required remuneration reports, let alone include notice thereof to their shareholders.
In this regard, there is a strong presumption in common law which would arguably apply, namely that a new law applies only prospectively and does not interfere with or disrupt existing rights and entitlements. This principle also encapsulates additional burdens or obligations imposed by a new law, in circumstances where a course of action is already under way.
Therefore, where a company had already posted its AGM notice, it acquired the right and entitlement to complete its business at the AGM so dated in the notice, in accordance with that notice and in accordance with the law prevailing at that time (the time of distribution of the AGM notice).
However, outside of a scenario where the AGM had already been called, the new law applies; therefore, companies will have some work to do to ensure that their 2026 AGM notices and reports incorporate sections 30A and 30B.
JSE Listings Requirements
Sections 5.7(k) and 11.38(a)(ii) of the JSE Listings Requirements impose obligations on a listed company to table its remuneration policy and implementation report for separate non-binding advisory votes by shareholders at its AGM.
If 25% or more of the votes exercised were cast against the advisory vote, engagement with shareholders and a report back at the next AGM were required.
The new provisions in the Companies Act propose a binding vote by shareholders on these matters, with a threshold of 50% + 1 (by way of ordinary resolution) – meaning that you would need 50% of the votes exercised to be cast against the resolution for it to fail and for shareholder engagement to ensue.
The JSE has issued a letter indicating that, because a company’s compliance with the provisions of the Companies Act amendments will amount to compliance with the JSE Listings Requirements, there is no need for the non-binding advisory vote, with the effect that the new “dissent threshold” is 50%, not 25% – every cloud has a silver lining, as they say.
However, the exception in this regard is foreign issuers, as the Companies Act does not apply to them. Thus, foreign issuers must still follow the non-binding advisory vote in the JSE Listings Requirements.
Holding companies with no employees
Section 30B refers to various disclosures regarding the highest- and lowest-paid employees, and the ratio between their respective total remuneration.
It is a common feature, however, that the public company in question is purely a holding company with very few, if any, employees – the personnel are all employed by the operational subsidiaries. It is a fundamental and time-honoured principle in company law that entities within a group are separate juristic persons with their own assets and liabilities – that applies to employees as well.
While this may be legally technically correct, the question, of course, is whether a holding company will get away with publishing a remuneration implementation report that takes advantage of this and makes very limited disclosure. Ultimately, it is entirely up to the shareholders to take a view and vote on the report as they deem fit.
Two-strike rule
Section 30B(2) requires companies to prepare an annual remuneration report in respect of the previous financial year for presentation and approval by way of ordinary resolution at the AGM. Section 30B(4) outlines the consequences if such remuneration report is not approved.
For a step-by-step visual summary of the process and consequences, please refer to our section 30B decision tree here.
The consequences are briefly as follows:
- The remuneration committee of the company (committee) must, at the next AGM, present an explanation on the manner in which the shareholders’ concerns have been taken into account and, subject to section 30B(6) (where the members have served for less than 12 months in the year under review), the non-executive directors who serve on the committee (this will typically be the whole committee, given the principle in King V that all members of the committee must be non-executive) must stand for re-election as members of the committee at the AGM at which the explanation is presented; and
- If at that next AGM the remuneration report in respect of the previous financial year is also not approved by ordinary resolution of shareholders, the non-executive directors on the committee may continue to serve as directors, provided that they successfully stand for re-election at that AGM; and
- They will not be eligible to serve on the committee for a period of two years thereafter.
The rule regarding stepping down as directors (strike two) could be particularly problematic if the company’s desire is to retain those directors on the board (just not as remuneration committee members). When distributing that subsequent AGM notice, the company will not know whether those directors will be required to step down for re-election at that very AGM. It would therefore have to give consideration to including a “conditional” resolution in its AGM notice for their re-election, which can fall away or be withdrawn if all goes well on the remuneration vote.
Lastly, it appears that the only consequence of failed resolutions is that this will affect the company’s directors’ eligibility to serve on the board or the remuneration committee. No additional consequences of non-compliance are prescribed.
André de Lange is sector head and director of corporate and commercial law at Cliffe Dekker Hofmeyr; Yaniv Kleitman is director of corporate and commercial law at Cliffe Dekker Hofmeyr; and Sasha Schermer is an associate in corporate and commercial law at Cliffe Dekker Hofmeyr.
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