Pay bonanza for top executives linked to corruption allegations at the PIC

Two of the Public Investment Corporation’s top executives, who are heavily implicated in allegations of corruption and impropriety at the state-owned money manager, have been rewarded with a significant financial bonanza.

According to the Public Investment Corporation (PIC) annual report for its financial year to 31 March 2019, former CEO Dan Matjila and suspended acting CEO (and long-time CFO) Matshepo More saw their salaries increase by 41% and 77% respectively over the period.

The PIC manages R2.13-trillion in government pension and other social funds including the Unemployment Insurance Fund (UIF) and Compensation Fund, making it Africa’s largest asset manager.

Matjila and More are known by PIC insiders as “the two centres of power” because the decision to invest government pension and social funds at the PIC is allegedly concentrated in two executive roles — the CEO and CFO.

Testifying at a commission of inquiry into allegations of impropriety at PIC this year, the pair have repeatedly denied the “two centres of power” concept, saying they don’t unilaterally make investment decisions.

Whatever power Matjila and More had, they were handsomely rewarded for it.

Salary increases

Matjila’s emoluments (or base salary) increased to R7.43-million during the year to 31 March 2019 from R5.28-million in the previous year – an increase of 41%. Matjila’s total compensation was R12.13-million when including R4.69-million in long-term incentives and other benefits amounting to R11,120. However, his total compensation is down, as it was R15.75-million in the previous year.

(Long-term incentives at the PIC are tied to an executive’s performance and continued employment at the money manager. These incentives have a lock-in period of about three years. Short-term incentives include accumulated leave payments, bonuses, and medical aid contributions. Other benefits include fringe benefits such as a company car.)

Meanwhile, More’s salary increased to R6.89-million from R3.9-million the previous year – an increase of 77%. Her total compensation was R10.6-million, including long-term incentives worth R2.31-million, R1.37-million in short-term incentives and other benefits worth R12,240. Compared with last year, her total compensation remained unchanged.

The salary largesse at the PIC wasn’t exclusively for Matjila and More but was across the board for the money manager’s non-executive directors. But for Matjila and More, it is a substantial increase because the last time they both received salary increases in double-digit percentage terms was in 2015, and years after they each received increases of up to 8%.

The salary bonanza comes at a period in which the PIC’s interim board chair, Dr Reuel Khoza, said the money manager faces “sustained public scrutiny in the media, which damaged the organisation’s reputation”.

“This resulted from allegations of misconduct and breaches of company governance regimes levelled against senior officials. These included flouting investment processes, making improper transactions and abusing positions of privilege in allocating funds. Allegations asserted that some former directors had behaved in a manner well below the high ethical standard required of them,” Khoza wrote in the annual report.

Lapses in governance

The PIC’s financial statements were awarded an unqualified audit opinion by Auditor-General Kimi Makwetu. This is a regression from the previous financial year’s clean audit opinion. Makwetu found that there was an irregular expenditure at the PIC during the 2018/19 financial year of about R4.3-million.

He found that some deals that the money manager concluded contravened the Public Investment Corporation Act as they didn’t comply with its governance and investment guidelines. The due diligence performed was not sufficient or appropriate and “legal contracts signed with a counterparty were not aligned to the structured deal as approved by the governance structures”.

Matjila and More have been placed at the centre of governance scandals at the PIC inquiry, which was chaired by retired Judge Lex Mpati and has heard from 77 witnesses since it began formal hearings in January 2019.

In More’s case, she signed off on the controversial R4.3-billion investment in AYO Technology Solutions, majority-owned by Sekunjalo Investments, which in turn is owned by Iqbal Survé. The AYO deal was controversial due to the high valuation it commanded when it listed in 2017 on the JSE, which saw the PIC take a 29% stake at R43/share. AYO’s shares were worth R5.60/share by the close of markets on Thursday 3 October 2019.

The PIC’s suspended assistant portfolio manager, Victor Seanie, has testified that Matjila was a close friend of Survé, which influenced the fund manager’s decision to invest in AYO, rather than commercial merit.

Defenders of Matjila and More would argue that their salary increases are justified given the good performance of the PIC’s underlying investments. The PIC’s assets under management grew to R2.13-trillion for the year to March 31, 2019, from R2-trillion during the previous year.

Government pension funds invested in the PIC’s portfolio of JSE-listed companies and the money market generated a return of 1.8% over 12 months compared with the 1.2% generated from the JSE benchmark index over the same period. Meanwhile, UIF funds invested generated a return of 0.5% vs -0.13%. Over the three years to end-March 2019, the PIC’s total funds invested (government pension funds and other social funds) returned 4.75%, compared to JSE’s return of 3.73%.

The PIC also fulfilled its socio-economic development and Black Economic Empowerment mandate. It continued to support black-owned stockbroking firms by mandating these firms on its various investments. On 31 March 2019, R107.3-billion of the PIC’s assets were managed by black-owned firms. BM