Jason Shephard – Candidate Attorney
*Supervised by: Jeff Buckland – Special Counsel
On 18 September 2024, the Johannesburg Stock Exchange (“JSE”) published for comment its proposed Amendments to the JSE Listings Requirements (“the Listings Requirements”) following the latest amendments to the Companies Act 71 of 2008 (“the Companies Act”), namely the Companies Amendment Act 16 of 2024 (“the Amendment Act”), and the Companies Amendment Act 17 of 2024, both of which were published on 30 July 2024.
It is worth noting that whilst the Amendment Acts have been assented to and signed by the President, they are not yet in force, and will only come into operation once a date has been proclaimed by the President. As at the date of publishing this article, a date has not yet been determined by the President.
Nevertheless, the JSE, in anticipation of this proclamation, has sought to amend two material provisions of the Listings Requirements relating to Corporate Governance requirements – Paragraph 3.84(j) relating to remuneration policy and the implementation reports, and Schedule 14: the requirements for share incentive schemes.
Amendments to the remuneration policy and the implementation report:
In the JSE’s publication for its proposed amendments, it makes reference to the fact that Paragraph 3.84(j) was introduced to the Listings Requirements in June 2017 to deal with, and give effect to, the King IV Code (“the King Code”) on Remuneration governance and non-binding advisory votes on remuneration policies and implementation reports. Paragraph 3.84(j) states that:
“3.84 In addition to complying with paragraph 8.62(a), issuers must implement the following specific corporate governance practices and must disclose compliance therewith in their annual reports. (The effect of incorporating certain practices from the King Code in the Listings Requirements is to make their implementation mandatory, this is notwithstanding the fact that application of the corporate governance practices in the King Code is generally voluntary):
(j) the remuneration policy and the implementation report must be tabled every year for separate non-binding advisory votes by shareholders of the issuer at the annual general meeting. The remuneration policy must record the measures that the board of directors of the issuer commits to take in the event that either the remuneration policy or the implementation report, or both, are voted against by 25% or more of the votes exercised. In order to give effect to the minimum measures referred to in the King Code, in the event that either the remuneration policy or the implementation report, or both are voted against by shareholders exercising 25% or more of the voting rights exercised, the issuer must in its voting results announcement pursuant to paragraph 3.91 provide for the following: (a) An invitation to dissenting shareholders to engage with the issuer; and (b) The manner and timing of such engagement.”
(our emphasis)
This provision mimics Section 39 of the King Code which provides that:
“in the event that either the remuneration policy or implementation report, or both were voted against by 25% or more of the voting rights exercised, the following should be disclosed in the background statement of the remuneration report succeeding the voting:
a. With whom the company engaged, and the manner and form of engagement to ascertain the reasons for dissenting votes; and
b. The nature of steps taken to address legitimate and reasonable objectives and concerns.”
Indeed, if one has regard to fundamental concepts of the King Code relating to remuneration, it states that the Code:
“aims to foster enhanced accountability on remuneration. One of the ways that it addresses this is by including a more definitive disclosure requirements, among which, that remuneration should be disclosed in three parts namely: a background statement, an overview of the remuneration policy; and an implementation report.”
“also recommends that shareholders of companies be provided the opportunity to pass separate non-binding advisory votes on the policy and the implementation report. The remuneration policy should record the measures that the board commits to in the event that either the remuneration policy or the implementation report, or both have been voted against 25% or more of the voting rights exercised by shareholders. The Code recommends that such measures should include engagement and addressing objectives and concerns.”
Paragraph 3.84(j) was therefore introduced in the Listings Requirements to ensure transparency and oversight for shareholders in that remuneration committees[1] were required, in terms of the Listings requirements, to table the remuneration policy and implementation report of the company to shareholders, so that shareholders can dispense separate non-binding advisory votes at the company’s AGM to either approve or reject the proposed remuneration policy and implementation report. In this way, it provided that should at least 25% of a company’s shareholders vote against the proposed remuneration policy or implementation report (or both), the board of directors and the company must engage the dissenting shareholders with a view to addressing their concerns.
[1] Paragraph 3.84(c) of the Listings Requirements mandates that all companies must, in accordance with the King Code, appoint a committee responsible for remuneration.
However, in light of the latest amendments to the Companies Act, the JSE has decided to do away with the requirements of paragraph 3.84(j) of the Listings Requirements. Accordingly, the latest amendment to the Companies Act has proposed that, in terms of Section 30A, all public companies and state-owned companies must prepare and present a remuneration policy to the shareholders at the company’s annual general meeting (Section 30A(2)(a)). This policy must be approved by the shareholders by ordinary resolution, and will remain in effect for three (3) years thereafter, unless amended prior to the expiration of the three years (Section 30A(2)(b)). However, should it not be passed, the policy must be presented at the next annual general meeting, or at an extraordinary general meeting called for that purpose (Section 30A(2)(a)).
In addition to the above, Section 61(8)(a) of the Companies Act is further amended by providing that a remuneration report must be presented at a shareholder’s meeting when a meeting is convened (Section 61(8)(v)). The net result of these important amendments to the Companies Act is that the JSE has proposed to do away with Paragraph 3.84(j) of the Listings Requirements as it is of the view that matters regarding remuneration “are now adequately dealt with through the Amendment Act”. Accordingly, the JSE has, instead, proposed that paragraph 3.84(j) be amended as follows:
“3.84 In addition to complying with paragraph 8.62(a), issuers must implement the following specific corporate governance practices and must disclose compliance therewith in their annual reports. (The effect of incorporating certain practices from the King Code in the Listings Requirements is to make their implementation mandatory, this is notwithstanding the fact that application of the corporate governance practices in the King Code is generally voluntary):
(j) if a foreign applicant issuer with a primary listing on the JSE, the remuneration policy and the implementation report must be tabled every year for separate non-binding advisory votes by shareholders of the issuer at the AGM. The remuneration policy must disclose the steps that the directors of the issuer commit to take if the policy or report, or both, are voted against by 50% or more of the votes exercised. If the policy or report, or both, are voted against by shareholders exercising 50% or more of the voting rights exercised, the issuer must in its voting results announcement in terms of 3.91 provide for the following: (a) an invitation to dissenting shareholders to engage with the issuer; and (b) the date and time of such engagement;”
The above amendment, interestingly, now proposes that foreign companies, similarly to the former requirements under paragraph 3.84(j), will need to comply with the presentation and voting of remuneration policies and implementation reports by shareholders, but with the proviso that the threshold has been increased from 25% to 50% of dissenting shareholders. This is in line with the proposed amendment to Section 30A of the Companies Act which requires that the remuneration policy and implementation report must be passed by ordinary resolution.
Amendments to the requirements for share incentive schemes
The second material change to the Listings Requirements is the change to the provisions of Schedule 14 (Requirements for share incentive schemes) which flows from the proposed changes to Section 30A and 30B of the Companies Act.
The JSE has adopted the view that, following the addition of Sections 30A and 30B to the Companies Act, read with the disclosures required by Section 30(6), it no longer requires an oversight role in dilutive share schemes for listed companies, save for matters concerned with: (i) the approval of dilution to shareholders; (ii) basic minimum content of dilutive share schemes; and (iii) general governance arrangements. In view of this, the JSE has proposed to remove Schedule 14 in its entirety, and replace it with the addition of new provisions in Section 5 (Methods and Procedures of Bringing Securities to Listing) dealing with dilutive share schemes.
The proposed additions to section 5 is as follows:
Requirements for dilutive schemes [Following the issue for cash provisions]
“5.54 Dilutive schemes must be approved in terms of 5.50(a) and include the following:
(a) the category of participants;
(b) a fixed maximum total number of equity securities that may be issued; and
(c) a fixed maximum number of equity securities for any one participant.
5.55 Any amendment to the above must be approved by holders of equity securities, excluding the votes of equity securities owned or controlled by persons who are existing participants in the dilutive scheme.
5.56 The following general provision apply to dilutive schemes:
(a) the trustees/responsible party may not be:
(i) executive directors;
(ii) non-executive directors benefitting from the dilutive scheme; and
(ii) participants
(b) equity securities held by a dilutive scheme may not vote at general meetings of the issuer on any resolutions proposed in terms of Section 9; and
(c) a dilutive scheme may not purchase securities during a prohibited period, save through a mechanism similar to 5.69(h).”
The definition of dilutive scheme has been added to the Listings Requirements as follows:
“a share option/incentive schemes to incentivise staff, where equity securities (including options) are issued by issuers (trusts or special purpose vehicles formed for such purpose) to employees and other persons involved in the business of the issuer resulting in a dilution to holders of equity securities. This includes a fresh issue of equity securities and/or the use of equity securities held as treasury shares. Dilutive scheme must not be used for trading purposes.”
In summary, the deletion of Schedule 14 in favour of the addition of Sections 5.54 – 5.56 means that, despite less oversight on dilutive schemes by the JSE, the JSE still requires that where a listed company intends to implement a dilutive scheme, it requires that the company’s shareholders must approve such scheme before it may be implemented.
Conclusion
In the result, whilst there may be more amendments to the Listings Requirements to come – to adjust to the amendments to the Companies Act – this is a positive step for shareholders and companies alike, and demonstrates that the legislature has taken heed of the provisions of the Listings Requirements and the King Code to ensure more transparency and oversight of remuneration payable to executives and non-executive members of public and state-owned companies. Should you wish to submit comment on the proposed amendments to the Listings Requirements, the JSE has invited public comments by close of business on Monday, 21 October 2024.
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