Chris Schutte, CEO of SA's biggest poultry producer, Astral Foods, whose remuneration policy was rejected by shareholders last week, says too much focus on remuneration is making it harder to hang on to executives who are in high demand around the world.
"Remuneration policy has become the flavour of almost every AGM. It's not about the strategy of the company, it's not about the growth. More than 50% of the focus is on remuneration policy," he says.
He concedes the remuneration gap between executives and junior levels "should be closed up a bit".
"Astral has been in that mode for 10 years now. Every year if executives get a general salary hike of 3%-4%, for middle and junior levels it's as high as 10%."
Three times in the past 10 years he has turned down a salary increase for himself.
Other executives offered to do the same but he opposed it.
"They're highly sought after internationally and locally. They almost get approached once a month by opposition companies. I don't want to jeopardise them by not remunerating them in line with market trends."
He says it's "a very good thing" if shareholders take an interest in remuneration policies, "as long as it's transparent and it's discussed".
But some shareholders contract the valuation of the policy out to foreign consultants who apply a tick-box approach and "don't have a clue" about local conditions and what executives in SA are up against.
136%
The growth in Astral Foods’ share price in the 10 years prior to lockdown.
Astral has been battling dysfunctional municipalities for years.
"The situation has not improved in areas where we operate around the country. It's going to the dogs. We're having to become self-sufficient in almost every way."
It has only recently won a four-year legal battle to stop Eskom cutting electricity to its plants because of non-paying municipalities.
In order to get water which is critical for poultry operations it has had to fix and maintain at its own cost municipal water distribution systems.
"These are some of the challenges that have to be managed by my executives on a daily basis. We spend hundreds of hours in the passages of town councils, in courts and with attorneys.
"Our executives move on because they get offered something better with lower risk somewhere else."
He has just lost a top executive to an overseas company.
"And then shareholders are up in arms and want to know why we're losing executives. But at the same time they vote against the policy that should keep them in SA.
"I can give any shareholder a list of top management that have left Astral purely because they say the reward for the risk of working in a highly volatile industry in the South African environment is not worth it."
Six top managers have left in the past three years, he says.
Schutte, who started in the poultry industry as a shed worker 38 years ago, became CEO of Astral in early 2009. Since then he has grown it from an R8.1bn to a R14.2bn company.
Astral has consistently outperformed its competitors. Its share price has grown 136% in the 10 years prior to lockdown, while that of its closest rival, RCL Foods, has fallen 56% over the same period.
Schutte says for this and other reasons he was "a bit more than surprised" by the outcome of the recent shareholder vote.
"We thought this year we've done all the groundwork over the past five years to adopt and adapt a policy that suits the broad spectrum of all our shareholders. It was accepted by 94% two years ago and 80% last year.
"How can you approve a policy, then we implement that policy, then you vote against it? That was one of the googlies bowled against us. We simply don't know how you can be so inconsistent."
Their biggest shareholder is the PIC, with 16%.
"We've engaged with them on a number of occasions and they've always approved."
A meeting has been arranged for tomorrow "to discuss why they're voting against the same policy they previously approved".
Other big shareholders include JPMorgan, Allan Gray, Prudential and Investec.
"We have quite a good relationship with them when it comes to frankness and transparency. So we thought."
They’re highly
sought after.
They get
approached
regularly by
opposition
companies
He says an even more formidable threat to the industry than inconsistent electricity and dysfunctional local government is dumping.
An investigation by the South African Poultry Association, which found evidence of dumping from Brazil and EU countries, won't change much, he says.
"We've had the evidence for five years at least. But the biggest dumper selling product in SA below production cost is Brazil, which is part of Brics, so the government's not really interested in challenging it."
Having an import tariff is one thing but going to the World Trade Organisation and challenging countries like Brazil, Germany or the Netherlands is something else, he says. "Our government doesn't have the political will to do that."
A poultry master plan finalised in 2019 between trade, industry & competition minister Ebrahim Patel, the poultry industry and importers has changed nothing, even with an import tariff of 62%.
Imports are still at 30% of all chicken consumed in SA, he says.
"If government wants growth, investment and development in rural areas we can do that. But not if you're being bombarded with dumped chicken."
Importers argue that the margins of local producers are too high.
He says because of high input costs their margins are currently negative.
In spite of "tough negotiations" with retailers, prices have not been raised in line to cover local producers' "massive" input costs, mainly feed.
Astral has invested R1.2bn to grow capacity in SA by 20% as per the master plan, he says.
"We've stuck to our part of the bargain with the minister. Now that capacity is idle because imports have not reduced."
It's been "an interesting year" for Schutte. He's had quadruple heart bypass surgery, contracted Covid-19 and crashed his off-road motorbike in the Karoo, leading to 22 fractures, a shattered pelvis and five broken vertebrae. He had emergency surgery in George with eight days in ICU before being flown to Johannesburg for more surgery and three weeks in hospital.
He's reached 60 but has no thoughts of retiring. He says he hopes his shareholders will be happy to hear that.
