Companies Amendment Acts of 2024 - A deep dive into the newly introduced director and prescribed officer remuneration provisions

The Companies Amendment Acts of 2024 (Amendment Acts) were signed into law on 30 July 2024. The Amendment Acts aim to enhance the ease of doing business by clarifying, simplifying, and strengthening certain sections of the Companies Act 71 of 2008 (Companies Act), while also improving transparency and disclosure requirements for companies.  On 27 December 2024, several provisions of the Amendment Acts came into operation. The commencement date for the remaining amendments will be determined over the course of the year (2025).

This article focuses on the newly introduced sections 30A and 30B of the Companies Act (Section 30 Amendments), which introduced the duty to prepare and present a remuneration policy (at least once every three years or when material changes occur) and the requirement to present a remuneration report annually at the annual general meeting (AGM) for approval by an ordinary shareholder resolution. Perhaps most controversially, the Section 30 Amendments introduce mandatory remuneration disclosures, including but not limited to, pay gap disclosures between the highest and lowest-paid employees in a company. Although these provisions are not yet in effect, affected companies should proactively prepare for their implementation.

The rationale for the introduction of the Section 30 Amendments is, amongst other things, (i) to enhance transparency and address pay inequality between top executives and low-earning employees in applicable companies; (ii) to achieve equity between directors and senior management, on the one hand, and shareholders and employees, on the other hand; and (iii) to address public concerns regarding high levels of inequalities in society.

Part of the Section 30 Amendments is designed to achieve greater disclosure of senior executive remuneration and a clearer understanding of the reasonableness of such remuneration, with these objectives being primarily addressed through the remuneration report requirements. These concerns have been raised and addressed in other leading jurisdictions, and this approach is reported to be standard practice in the European Union, the United Kingdom, and Australia, with South Africa now following suit.

Alignment with King IV

The King IV Report on Corporate Governance for South Africa (King IV) introduced principles of fair and responsible remuneration for executives in the context of overall employee pay. Even before the introduction of the Section 30 Amendments, King IV recognised the importance of addressing the pay gap between executives and lower-level employees. While certain King IV principles are incorporated into the JSE Listings Requirements (making them mandatory for listed companies), King IV remains a voluntary best-practice framework.

The Section 30 Amendments codify some of King IV’s principles, making them legally binding. However, they go beyond King IV’s recommendations by requiring binding shareholder approval (via ordinary resolution) for policies and reports, whereas King IV only recommends non-binding advisory notes.

On 24 February 2025, the Institute of Directors South Africa and the King Committee on Corporate Governance in South Africa published the draft King V Code (Draft King V) for public comment. The Draft King V has proposed amendments to the remuneration governance recommended practices to closer align with the Section 30 Amendments and to simplify the practices to make the content more succinct. The Draft King V introduces a recommended practice encouraging companies that are required to have their financial statements audited in terms of the Companies Act, but do not require remuneration resolutions to be passed, to consider submitting a remuneration policy and a remuneration disclosure for separate non-binding advisory votes by shareholders. Shareholders should cast non-binding advisory votes on the remuneration policy every three years or when materially changed, and annually in the case of the remuneration report.

The position prior to the Section 30 Amendments

Until the Section 30 Amendments become operational, the current position regarding transparency and disclosure of remuneration requires the disclosure of remuneration information only as part of a company’s annual financial statements. This disclosure applies only to companies that are required to have their annual financial statements audited under the Companies Act, as well as those that voluntarily choose to have their annual financial statements audited under the Companies Act.

The audited financial statements must disclose:

1. The remuneration and benefits received by each director or individual holding any prescribed office in the company.
2. Details of any pensions paid by the company to or receivable by current or past directors or individuals who hold or have held any prescribed office in the company, as well as any amount paid or payable by the company to a pension scheme in respect of such individuals.
3. Any compensation paid in respect of the loss of office to current or past directors or individuals who hold or have held any prescribed office in the company.
4. The number and class of any securities issued to a director or person holding any prescribed office in the company, or to any related person, and the consideration received by the company for those securities.
5. Details of service contracts for current directors and individuals who hold any prescribed office in the company.

The disclosed information must reflect the amount of any remuneration or benefits paid to or receivable by these individuals in respect of: (i) services rendered as directors or prescribed officers of the company or any other company within the same group; or (ii) any other work done in connection with the affairs of the company or any other company within the same group.

It is important to note that 'remuneration' for purposes of Section 30 is defined broadly. It includes fees for services rendered, salaries, bonuses, performance-related payments, expense allowances, pension scheme contributions, the value of any option or rights, and any financial assistance as contemplated in Section 44 and/or 45 of the Companies Act.

The position once the Section 30 Amendments are operational

Section 30A now requires public and state-owned companies to prepare and present a remuneration policy. This policy must be approved by shareholders at the AGM by an ordinary resolution. If not approved, it must be presented again at the next AGM or at a specially convened shareholders’ meeting. Once approved, the remuneration policy remains in force for three years and must be approved thereafter.

Amendments to the policy before the end of the three-year period are permitted. However, any material amendments can only be implemented after shareholder approval by ordinary resolution at an AGM or a special meeting called for this purpose. The legislation does not define what constitutes a material amendment, leaving it to shareholders to determine.

Section 30B also requires all public and state-owned companies to prepare and present a remuneration report for the previous financial year at the AGM for approval by ordinary resolution. The remuneration report must include:

1. A background statement.
2. A copy of the remuneration policy.
3. An implementation report detailing:
1. The total remuneration received by each director and prescribed officer.
2. The total remuneration of the highest-paid employee.
3. The total remuneration of the lowest-paid employee.
4. The average and median total remuneration of all employees, as well as the remuneration gap, reflecting the ratio between the total remuneration of the top 5% highest-paid and bottom 5% lowest-paid employees.

It is important to note that "total remuneration" under Section 30B refers to all salary and benefits received, including any employer contributions to benefit funds, and short-term or long-term incentives, share options, and incentive awards.  The term 'employee' is defined with reference to Section 213 of the Labour Relations Act, 1995, while "committee" refers to a company's remuneration committee or other committee responsible for remuneration matters.

Similar to the remuneration policy requirements under Section 30A, the remuneration report must be presented to shareholders at the AGM and voted on by ordinary resolution. If the report is not approved, the committee  must present at the next AGM to explain how shareholder concerns have been addressed. Non-executive directors must stand for re-election as committee members at the AGM where this explanation is provided.

If, at the next AGM, the remuneration report is rejected again, non-executive directors on the committee may remain on the board if they are re-elected at the AGM. However, they will not be eligible to serve on the remuneration committee for the next two years.  Members who have served on the remuneration committee for less than 12 months during the year under review are exempt from these consequences.

Key takeaways

The Section 30 Amendments have not yet come into effect, and the proclamation dates will be communicated later this year.  It is important to note that these amendments apply only to public and state-owned companies. Unlike the requirement for audited financial statements, there is no opt-in provision for private companies. Additionally, the amendments do not override the existing disclosure requirements under Section 30 of the Companies Act. Companies that are required or voluntarily choose to have their financial statements audited must continue to publish remuneration disclosures as a part of those financial statements.

Until the Section 30 Amendments come into effect, companies should:

1. Prepare for the new provisions to come into effect by aligning remuneration policies and reporting with the upcoming remuneration requirements, including pay gap disclosures, binding votes on remuneration, and potential implications for non-executive directors on remuneration committees.
2. Continue complying with King IV and the JSE Listings Requirements regarding remuneration reporting until new disclosure rules become effective.
3. Engage proactively with shareholders before the AGM to anticipate and address any concerns that may lead to a rejection of the remuneration policy or report.
4. Update AGM notices to include the presentation of the remuneration report and any potential committee changes if the report rejected at a previous AGM.