Nedbank took R9 million in bonuses away from its executives – but they can double that by not cooking the books
- Nedbank Group runs a compulsory share scheme that sees a healthy chunk of its executive bonuses, R8.9 million worth this year, invested in its shares.
- If those executives leave under a cloud, or are caught cooking the books, they lose the money.
- But if all goes well they can double their money in three years – or even make much more, depending on the share price.
Last week just under R8.9 million in bonuses earned by executives of the Nedbank Group was taken away from them and exchanged for shares in the company, which were then locked up for three years.
If those executives leave Nedbank's employ under anything other than amicable circumstances – of if they are caught cooking the books – they will lose the shares.
But if they don't leave under a cloud or let fraud be committed on their watch, they will at least double their money - even if the Nedbank share price just remains stable. If the share price increases, the executives will benefit accordingly, at no further risk or cost to them.
While we will have to wait until 2022 to see how much the executives actually make from the scheme, the results are in for the 2016 version of the arrangement, which was settled in shares last week.
CEO Mike Brown earned a little over R6 million, chief operating officer Mfundo Nkuhlu made R3.3 million, and chief financial officer Raisibe Mortahi made R3.1 million on bonuses invested in shares on their behalf three years ago.
In terms of the scheme, the executives can choose to invest part of their bonuses in Nedbank shares, and three years later that number of shares can be doubled, as long as they don't sell any shares before the three years is up. Half the shares held are doubled up automatically as long as the executive is still employed by Nedbank. The other half is only doubled if performance targets are met.
For their current bonus period, which will pay out in 2022, Brown, Nkuhlu, and Mortahi each invested slightly under R275,000 in such voluntary share purchases.
But besides that voluntary option to double their money – or more as the share price increases – Nedbank also has a very similar compulsory share scheme. It also comes with the chance to double the number of shares bought, but has two extra conditions: all the shares are forfeit "should the employee resign and not be classified as a good leaver", and they are also forfeit if the Nedbank board decides there have been "material irregularities or misrepresentation of financial results".
For CEO Brown the compulsory part of the scheme is worth some 16,300 shares, currently worth around R4.1 million. COO Nkuhlu and CFO Mortahi each have roughly half that much skin in the game, and company secretary Jackie Katzin's stake is slightly under 1,100 shares currently worth around R275,000.
Between them the four have R8.88 million invested in the mandatory scheme.
Deferred compensation, intended to ensure executives don't build a house of cards and cash out before it topples, is common in banking around the world. But Nedbank said it is not aware of any other South African banks that combine deferred compensation with a matching share scheme as it does.
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