Navigating the RemCo annual cycle: Core steps for effective remuneration governance

In the dynamic landscape of South African corporate governance, the Remuneration Committee (RemCo) plays a pivotal role in ensuring that executive pay aligns with business strategy, shareholder interests, and broader societal expectations. As we navigate 2026, with inflation easing post the formation of the government of national unity (GNU) and interest rate cuts providing relief, RemCos must remain vigilant.

Recent data from the Johannesburg Stock Exchange (JSE) top 200 companies indicates that CEO total remuneration and CFO salary increases outpaced inflation and highlighting the need for balanced, transparent decision-making.

This article, tailored for RemCo members but with insights for C-suite executives such as HR directors, CEOs, and CFOs, explores the core steps in the RemCo annual cycle.

Drawing on best practices from King IV and recent South African remuneration reports, it emphasises dos and don’ts to foster fair, responsible remuneration that drives sustainable business outcomes.

The importance of a structured annual cycle

Setting the annual cycle timeframe is the foundational step for any effective RemCo. In South Africa, where corporate governance is guided by King IV, RemCos are urged to ensure remuneration is fair, responsible, and transparent to promote strategic objectives across short, medium, and long terms (Institute of Directors in Southern Africa, 2016).

This involves mapping out decisions on executive pay, including short-term incentives (STIs), long-term incentives (LTIs), and guaranteed packages, against the company’s financial calendar.

Do: Align the cycle with the fiscal year-end. For instance, if your company reports on a calendar year, commence planning in July, using the third-quarter meeting to set the stage for year-end decisions. This mirrors practices in reports from companies like Shoprite Holdings, where RemCos approve STI and LTI outcomes in alignment with financial results, incorporating ESG metrics such as renewable energy contributions and recycling targets (Shoprite Holdings, 2025).

Don’t: Assume a rigid agenda. Reality often introduces complexities like mergers and acquisitions (M&A) or unexpected talent retention needs. As seen in Woolworths Holdings’ 2025 report, RemCos must adapt agendas dynamically while maintaining governance rigour (Woolworths Holdings, 2025).

Ignoring this flexibility can lead to rushed decisions, eroding trust with shareholders.

For C-suite executives, this cycle directly impacts talent management. HR directors, for example, can leverage it to advocate for broader workforce pay equity, ensuring executive increases (like the 5.5% for management in Shoprite) don’t exacerbate internal pay gaps, which are now under scrutiny with impending amendments to the Companies Act requiring disclosure of ratios between top and bottom earners.

Gathering relevant, complete information

RemCo decisions on top pay are sensitive and must be informed by comprehensive data. King IV stresses distinguishing between internal and external sources, facts and opinions, to avoid bias (Institute of Directors in Southern Africa, 2016).

Internal data might include financial budgets and results, while external inputs come from remuneration consultants on market benchmarks or governance trends.

Do: Source diverse information. Engage consultants for quantum benchmarking against peers at lower quartile, median, and upper quartile. Incorporate ESG and climate data from experts, as ESG metrics are increasingly tied to incentives – Clicks Group’s 2025 report linked ESG modifier/ESG-linked outcomes percentage of STIs to sustainability goals (Clicks Group, 2025).

Also, consider shareholder experience; if return on capital employed maxes out but share price dips 35%, reflect on adjustments to avoid windfall gains.

Don’t: Apply the “if in doubt, leave it out” doctrine. Instead, consult the chair for clarity. Over-reliance on management opinions without external validation can skew outcomes, with increased scrutiny on fairness amid rebounding executive pay.

CEOs and CFOs benefit here by providing robust internal metrics, ensuring RemCo has a holistic view.

This collaboration can mitigate risks like talent poaching, as highlighted in Shoprite’s report, where retention frameworks were developed for key executives (Shoprite Holdings, 2025).

Timing and the RemCo calendar

A well-timed calendar ensures decisions are deliberate and timely. For a July-start cycle, the third-quarter meeting (July-September) sets targets for upcoming STIs and LTIs, flowing into Directors’ Remuneration Report (DRR) disclosures.

Do: Build in buffers for multi-meeting items. ESG metric calibration, often new or evolving, requires time – JSE-listed firms are showing increasing practice in defining these clearly to align with performance. Engage shareholders early if proposals deviate from “comply or explain”, allowing reframing and re-engagement.

Don’t: Underestimate consultation time. What seems obvious internally may puzzle investors. Recent amendments to the Companies Act will possibly mandate binding votes on remuneration policies, with a “two-strike” rule potentially triggering re-elections for RemCo members if reports fail twice.

Procrastination here invites dissent.

HR directors can use this timing to integrate fair pay analyses, anticipating Section 30B requirements for pay gap reporting, as noted in Labour Research Service insights (Labour Research Service, 2025). CEOs and CFOs, meanwhile, should view the calendar as a strategic tool for aligning pay with business impacts, prioritising outcomes over mere compliance.

Key decisions: Outcomes for STI and LTI

The cycle culminates in decisions on incentive outcomes. STIs reward annual performance, often 100%-200% of base for executives, while LTIs vest over three to five years, tied to metrics like total shareholder return (TSR).

Do: Link incentives to balanced scorecards. TFG Limited’s 2025 report exemplifies this, with STIs incorporating customer metrics like omni-sales targets, achieving R118.5 million against R80 million (TFG Limited, 2025). Include malus and clawback provisions per King IV to address risks.

Don’t: Focus solely on financials. Ignore broader contexts like market volatility or ESG failures. Mr Price Group’s 2025 outcomes saw LTIs vest at 160% due to non-financial achievements, but different LTI instruments can produce different outcomes (e.g., performance awards vs SAR value/performance conditions) – a reminder to calibrate realistically (Mr Price Group, 2025).

For C-suite, this ensures pay reflects contributions. C-suite directors must demonstrate value through metrics like Ebitda margins, as in Vodacom’s framework (Vodacom Group, 2025).

Dos and Don’ts for RemCo members

As directors, RemCo members must exercise diligence, supported by all necessary resources. Ignorance is no defence under South African law.

Do:

• Ensure independence: King IV recommends majority independent non-executives (Institute of Directors in Southern Africa, 2016).
• Engage stakeholders: Post-AGM, address concerns if votes dip below 75%, as in Shoprite’s proactive discussions (Shoprite, 2025).
• Benchmark responsibly: Use established and accurate survey providers for comparators for equitable pay.
• Prioritise business needs: Focus on impact over investor votes alone.

Don’t:

• Over-rely on consultants without scrutiny: Regulate their use to avoid conflicts, as proposed in academic analyses.
• Neglect pay gaps: With new disclosures looming, avoid widening disparities – Harmony’s report shows bargaining-unit increases at 7.27% vs. non-bargaining unit at 5% (Harmony Gold Mining Company, 2025).
• Rush adjustments: In-flight changes for M&A need thorough review.
• Moralise excessively: Treat edgy queries with factual responses, assuming good intent.

Appealing to C-Suite: Business alignment and broader impact

While RemCos target governance, C-suite executives see remuneration as a lever for performance. HR directors can champion equity, using tools like job evaluations in Famous Brands’ approach (Famous Brands, 2025). CEOs drive strategy through aligned incentives, as in Implats’ resilience-focused pay (Impala Platinum Holdings, 2025). CFOs ensure fiscal prudence, balancing increases with shareholder returns.

Ultimately, a well-executed cycle puts the “horse before the cart” – business needs first – fostering trust and sustainability.

In South Africa’s evolving governance environment, mastering the RemCo cycle demands foresight, robust information, and adaptive timing. By heeding these core steps and dos/don’ts, RemCo members can deliver decisions that resonate with stakeholders, while C-suite executives reap strategic benefits.

As good remuneration reports underscore, transparency and fairness are not just compliance – they’re competitive advantages. Embracing this ensures remuneration supports positive outcomes for all.

 This article is based on research conducted by Dr Chris Blair of 21st Century, one of the largest remuneration and HR consultancies in Africa. Please contact us at info@21century.co.za for any further information.

Dr Chris Blair is group director of 21st Century.

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