Ramaphosa signs Companies Act reforms pay-gap disclosure and longer accountability window for directors

President Cyril Ramaphosa has signed amendments to the Companies Act that aim to ease doing business and increase corporate transparency, including a new disclosure requirement on pay gaps in public and state-owned companies and an extended period to hold directors accountable.

What the new law requires

The Companies Amendment Act requires all public and state-owned companies to prepare a remuneration report for the previous financial year. That report must be accompanied by the company’s remuneration policy and an implementation report detailing total pay for each director and prescribed officer, and the total remuneration for the employee with the highest and the lowest pay.

Among the specific disclosure requirements, companies must report the average and median total remuneration of all employees and disclose the remuneration gap between the top 5% highest paid employees and the bottom 5% lowest paid employees of the company. Public and state-owned companies must also prepare and present a remuneration policy for shareholder approval.

Accountability and governance changes

The Companies Second Amendment Act extends the time in which proceedings can be launched to recover losses, damages or costs under the law. It extends the time bar for declaring a director delinquent from 24 months to 60 months and gives the court the power to further extend that period on good cause shown.

Additional governance measures in the amendments include empowering a court to validate the creation, allotment or issue of shares that would otherwise be invalid upon application by a company or any person with an interest in the company. The law also requires paid shares to be transferred to a stakeholder and held under a stakeholder agreement until they are fully paid.

Purpose and intended effects

The Presidency framed the changes as measures to make company law clearer, more user-friendly and less burdensome for doing business. The reforms are described as supporting the efficient conduct of the domestic economy and the attraction of foreign investment, while addressing public concerns about inequality through better disclosure of senior executive remuneration and the reasonableness of that pay.

Transparency and remedying disparities

By mandating detailed remuneration reporting and specific pay-gap indicators, the law seeks to shed light on disparities between senior management and other employees. The new requirements are aimed at increasing transparency around executive pay and the earnings gap within companies, particularly those in the public sector.

Longer window for holding directors to account

The extension of the period for bringing delinquency proceedings gives regulators and affected parties a longer timeframe to pursue recovery or declarations of delinquency for directors and prescribed officers. The change responds to recommendations from the Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector.

What companies must do next

• Prepare a remuneration report for the previous financial year, including the company’s remuneration policy and an implementation report.
• Report average and median total remuneration and disclose the remuneration gap between the top and bottom 5% of earners.
• Present the remuneration policy to shareholders for approval (for public and state-owned companies).
• Be aware that courts have new powers to validate certain share issues and to require paid shares to be held by a stakeholder until fully paid.

Media enquiries listed on the Presidency release were directed to the President’s spokesperson.