3 December 2010 by and

The definition of "remuneration"

"Money is a horrid thing to follow, but a charming thing to meet." - Henry James, American Novelist

With the advent of the Companies Act 71 of 2008 (the Act), some have expressed legitimate concern regarding comparable concepts utilised in the Act as well as other acts such as the Labour Relations Act, 66 of 1995 (LRA), the Basic Conditions of Employment Act 75 of 1997 (BCEA) and the Employment Equity Act 55 of 1998 (EEA) (collectively referred to as "Labour legislation"), which may give rise to legal uncertainty.

"Remuneration", which is traditionally associated with the prevailing Labour legislation, has been given another method of determination within the confines of the Act.

Labour Legislation

Section 35(5)(a) of the BCEA provides that the Minister of Labour may determine whether a particular category of payment, whether in money or in kind, forms part of an employee's remuneration for the purpose of any calculation made in terms of the BCEA.

Calculation of remuneration in the employment context incorporates payments that include housing or accommodation, car allowance or provision of a car, any cash payments made to an employee, any other payment in kind received by an employee, (except those listed as exclusions) and the employer's contributions to medical aid, pension, provident fund and funeral or death benefit schemes.

Companies Act

Section 30(6) of the Act requires that the annual financial statements of each company (whose financials are published) disclose the amount of any remuneration benefits paid to or received by persons in respect of services rendered as a Director.

The calculation of remuneration envisaged in terms of section 30(6) includes the following: fees paid to Directors for services rendered by them to or on behalf of the company, any salary, bonuses and performance related payments; expenses allowances; contributions paid under any Pension Scheme; the value of any option or right given directly or indirectly to a Director, past Director or future Director, or persons related to any of them; financial assistance to a Director, past Director or future Director or persons related to any of them for the subscription for shares and with respect to any loan or other financial assistance by the Company to a Director, past Director or future Director, or a person related to any of them, or any loan made by a third party to any such person, if the Company is a guarantor of that loan.

The calculation under the Act encompasses a broader approach and is more beneficial to Directors.

However, section 35(6) is only applicable to the calculation of remuneration insofar as it relates to the annual financial statements. In other words, there is no suggestion that the method of calculation for remuneration as contemplated in the Act can be utilised for the calculation of severance payments or otherwise.

Section 5 of the Act further provides that to the extent that there is a conflict in the provisions of the Act and the LRA, the provisions of the LRA will prevail. This section, however, is silent on the provisions of the BCEA and EEA.

Directors will not be entitled to rely on the broader approach of calculating remuneration as contemplated in the Act, and will have to settle for the calculation method adopted in the prevailing Labour legislation.

Fiona Leppan, Director and Michael Yeates, Senior Associate

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