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Executive remuneration ‘a taboo subject’ for listed Latin American corporates

Vigeo Eiris and Governart analyse corporate governance practices in the region

Transparency around executive remuneration and lobbying practices are the weakest points of Latin American listed companies, according to a study that focused on five countries and 139 firms in the region.

The joint study was undertaken by Chile-based ESG consultancy GovernArt and Vigeo Eiris (acquired by Moody’s in April 2019), covering Mexico, Colombia, Peru, Chile and Brazil.

Fanny Tora, Head of South American Markets at Vigeo Eiris, said: “Transparency on executive remuneration systems is still considered a taboo subject in the region, and it negatively affects investors and civil societies’ trust. Greater transparency on lobbying practices is also essential to regain this trust.”

According to Germán Heufemann, Managing Partner of GovernArt, the study addressed whether corporate governance practices in the region are in line with the best international standards, as a source of differentiation and creation of business value.

The study found poor performance when it comes to areas of executive remuneration such as: remuneration committees, transparency on senior executives’ individual remuneration, indicators and targets for bonuses allocation, and long-term incentives.

It also analysed the gap between CEOs’ total compensation and the average salary of employees, as well as the alignment of executive remuneration and ESG strategies of the company.

Vigeo’s methodology gave companies scores from 0 to 100, “weak” being from 0 to 29 points; “limited” from 30 to 49 points; “robust” from 50 to 59 points; and “advanced” from 60 to 100 points.

The overall region achieved 12.5 points when it came to disclosing executive remuneration information – well below the 31.5 worldwide average score.

"Transparency on executive remuneration systems is still considered a taboo subject in the region," Fanny Tora, Vigeo Eiris

Tahoe Resources, a Peruvian mining and metals company, which showed “robust” performance with a score of 54 points, was an exception. The study noted that Tahoe was acquired by Pan American Silver Corp, a Canadian firm, which might have required enhanced corporate governance disclosures.

Regarding transparency of lobbying activities, Latin American companies showed “weak” performance (16.4 points), although not far behind the also “weak” worldwide average (19.3 points).

The study stated: “On a more positive note, none of the companies appear to be involved in major lobbying related controversies. Nonetheless, the weak overall performance leads to a low level of assurance on Latin American companies’ commitments and capacity to manage the risks and opportunities associated with transparent lobbying practices.”

Shareholder rights was another key area of Vigeo and GovernArt’s assessment. Companies in the region scored on average 36 points versus the worldwide score of 47 points, both within the “limited” band in Vigeo’s methodology.

Colombian and Peruvian companies achieved the highest average score, 40.2 points, with two companies among the top five scorers: Colombia’s food firm Nutresa (66 points) and Peru’s industrial goods and services Ferreycorp (62 points).

In contrast, Mexican companies showed the lowest average scores (24.7 points). This could be due to Mexican laws, the study observed: unlike Colombian and Peruvian laws, Mexico’s allow companies to issue several types of restricted shares, such as preferential and limited voting shares.

It added: “Moreover, minority shareholders’ rights do not seem to be fully protected, since legal requirements only consider a 10% ownership as the minimum to exercise some voting rights.”