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BY Nkosi Tshabalala AND Deborah Carmichael
When shareholders can overrule the regulator: the unresolved tension between the Banks Act and the new remuneration provisions of the Companies Act
On 22 May 2026, sections 30A and 30B of the Companies Act 71 of 2008, as inserted by section 6 of the Companies Amendment Act 16 of 2024, came into force (Read more here.) These provisions require all public companies and state-owned companies to submit their remuneration policies and remuneration reports to shareholders for approval by binding ordinary resolution; the policy every three years, and the report annually. The transition from the non-binding advisory vote regime that prevailed under the JSE Listings Requirements and King IV to a binding statutory vote represents a significant strengthening of shareholder oversight of executive remuneration in South Africa.
Much of the early commentary on these provisions has focused on the practical mechanics of compliance: the content of the remuneration report, the remuneration gap disclosures, the transitional arrangements for the first AGM cycle, and the JSE's consequential amendments to its Listing Requirements. These are important questions. But they are not the most interesting ones.
The most interesting, and most troubling, question concerns the interaction of sections 30A and 30B with the prudential regulatory framework governing banks and bank controlling companies under the Banks Act 19 of 1990. In strengthening the hand of shareholders, the legislature has inadvertently created a mechanism through which shareholders of a bank or bank controlling company can override the considered judgment of the Prudential Authority on a matter at the heart of prudential supervision: the composition and continuity of the board and its committees.
The architecture of prudential oversight
The Banks Act establishes a rigorous, front-end regulatory process for the appointment of every director of a bank and its controlling company. Section 60(5) requires the bank to give the Prudential Authority written notice of a nomination at least 30 days before the proposed date of appointment. The Prudential Authority may object, and if it does, the bank may not appoint the nominee, and any purported appointment has no legal effect.
The Prudential Authority's assessment is not a rubber stamp. Section 1(1A) of the Banks Act requires it to evaluate the nominee's general probity, competence, and soundness of judgment, and the diligence with which the nominee is likely to fulfil the responsibilities of office. The Prudential Authority may examine whether the nominee has been convicted of fraud or dishonesty, contravened financial services legislation, been implicated in the failure of a company, or participated in business practices that were deceitful, prejudicial or otherwise improper. This is a substantive fitness and propriety assessment, rooted in the Prudential Authority's mandate to protect depositors and the stability of the financial system.
The Prudential Authority's oversight does not end at appointment. Section 60(6) of the Banks Act empowers the Authority to object to the continued employment of a director if it reasonably believes that the director is no longer fit and proper, or if it is not in the public interest for that director to continue in office. The process involves written notice, an opportunity for representations, and an arbitration mechanism, reflecting the seriousness with which the legislature treats the removal of a bank director.
The same regime applies, mutatis mutandis, to controlling companies. The Prudential Authority must be satisfied before registering a controlling company, so that every director is fit and proper.
This architecture rests on a simple premise: the individuals who sit on the board and committees of a bank, and of the company that controls it, must be approved by the regulator. and the regulator retains the power to remove them if they cease to meet the required standard.
The remuneration committee: A statutory body under both acts
The remuneration committee of a bank or controlling company occupies a distinctive position in this architecture. Section 64C of the Banks Act requires the board to establish a remuneration committee consisting only of non-executive directors. The committee's statutory functions are wide-ranging: overseeing the compensation system's design and operation; exercising independent judgment on compensation policies and the incentives created for managing risk, capital and liquidity; evaluating deferred and uncertain compensation; ensuring consistency with the bank's financial condition and future prospects; working closely with the risk and capital management committee; conducting an annual compensation review independently of management; ensuring independent determination of remuneration for risk and compliance staff; and consulting shareholders.
These are not peripheral governance functions. They go directly to the management of incentive-driven risk, one of the principal causes of the global financial crisis of 2008, and the animating concern behind the Financial Stability Board's Principles for Sound Compensation Practices, which section 64C was designed to implement in the South African context.
Every member of this committee is, by definition, a non-executive director who has been through the Prudential Authority’s fit and proper assessment. Every member is there because the Prudential Authority has determined that they possess the probity, competence and judgment required to oversee the bank’s compensation system.
The section 30B override
Section 30B of the Companies Act now introduces a mechanism that can force the reconstitution of this committee without any involvement of the Prudential Authority and without any fitness and propriety assessment.
The mechanism operates in two stages. If the remuneration report is not approved by ordinary resolution at the AGM, the non-executive directors serving on the remuneration committee must stand for re-election as members of the committee at the following AGM, at which the committee must also present an explanation of how shareholders' concerns have been considered. If the remuneration report for the immediately following financial year is also not approved, those non-executive committee members may continue to serve as directors (provided they successfully stand for re-election at that AGM), but they are barred from serving on the remuneration committee for two years.
For a bank or controlling company, where the remuneration committee must consist exclusively of non-executive directors, the consequences are acute. The section 30B mechanism applies to the entire membership of the committee. A two-year bar following consecutive failures means the wholesale removal of the committee's institutional memory and expertise — the very qualities that the Prudential Authority assessed and approved of when those directors were appointed.
The nature of the tension
The tension arises from a fundamental difference in the purpose and method of the two regimes.
The Prudential Authority's fit and proper assessment is substantive: it evaluates the individual qualities of the director by reference to objective criteria of probity, competence and diligence, with a view to protecting financial stability and the interests of depositors. The shareholder vote under section 30B is, by contrast, a collective expression of satisfaction or dissatisfaction with the remuneration report — principally a disclosure document reflecting the quantum and structure of executive pay. A vote against the report may reflect, for example, disagreement with the level of the CEO's bonus, concern about remuneration gap disclosures, or unhappiness with long-term incentive structures. It need not, and is unlikely to, reflect any assessment of whether the individual committee members are fit and proper.
The result is that shareholders can, by voting against the remuneration report for reasons wholly unconnected with the fitness of the directors, trigger a forced reconstitution of a committee that the Prudential Authority has populated with individuals it has assessed and approved. The Prudential Authority is given no notice, no right to be consulted, and no power to intervene.
This is a structural incoherence in the legislative framework. The Banks Act says: the regulator decides who sits on the board and its committees and retains the power to remove them if they are no longer fit and proper. The Companies Act now says: shareholders can force committee members off the committee, and potentially off the board, regardless of whether the regulator considers them fit and proper, and without the regulator having any say in the matter.
The practical risks
The practical risks for systemically important banks are readily apparent.
A bank's remuneration committee is required to work closely with the risk and capital management committee in evaluating the incentives created by the compensation system. The forced departure of experienced committee members disrupts this coordination at a time when the committee may be dealing with complex risk-adjusted compensation decisions.
The committee is also required to conduct an annual compensation review independently of management, assessing compliance with the Regulations relating to Banks and any further requirements specified by the Prudential Authority. New committee members, even if they are existing non-executive directors of the bank, will need time to develop the institutional knowledge necessary to discharge this function effectively.
The 12-month carve-out in section 30B(6), which exempts committee members who have served for less than 12 months, provides a degree of protection for newly appointed members. But it also creates a perverse incentive: boards may be tempted to rotate committee membership annually to ensure that no member has served long enough to be caught by the consequences of a failed vote. This would undermine the very continuity and experience that the Prudential Authority's vetting process is designed to secure.
The legislative tools available
The Banks Act contains a mechanism that could be used to address this tension. Section 51(2) empowers the Minister, with the concurrence of the Minister of Trade and Industry, to declare by notice in the Gazette that a provision of the Companies Act shall not apply to banks or controlling companies or shall apply subject to such adjustments and qualifications as may be specified.
This is a broad power. It could be used, for example, to provide that section 30B(4)(b) and (5) do not apply to members of the remuneration committee of a bank or controlling company unless the Prudential Authority has consented to the removal of those members, or has been consulted and given an opportunity to make representations. Alternatively, the Minister could provide that the two-year bar does not apply to banks at all, given the prudential consequences for a committee that discharges functions mandated by the Banks Act.
No such notice has been published. Unless and until one is, the provisions of sections 30A and 30B apply to banks and controlling companies in full, and the tension remains unresolved.
A question of policy
The deeper question is one of legislative policy. The introduction of binding shareholder votes on remuneration is, in principle, a sound governance reform. Executive remuneration is a matter of legitimate shareholder concern, and the transition from non-binding advisory votes to binding ordinary resolutions brings South Africa into line with international practice in several major jurisdictions.
But legislature appears not to have considered, or at least not to have resolved, the specific implications for the banking sector. The Banks Act's appointment and removal regime exists for a reason: the stability of the financial system depends on the quality and continuity of the people who govern banks. The fit and proper assessment is not a formality; it is a substantive safeguard that reflects the unique position of banks as institutions that hold public deposits and whose failure can have systemic consequences.
To subject the membership of the remuneration committee, a committee that discharges functions directly linked to risk management, capital adequacy and liquidity, to the vagaries of a shareholder vote on the quantum of executive pay, without any mechanism for the Authority to protect the integrity of the committee's composition, is a gap that the legislature would do well to address.
Recommendations for banks and controlling companies
In the meantime, banks and controlling companies should consider the following practical steps.
First, they should engage with the Prudential Authority proactively to draw attention to the tension and to discuss whether a notice under section 51(2) of the Banks Act would be appropriate. The Authority has a clear interest in preserving the integrity of its fit and proper vetting process and the stability of bank governance structures.
Second, boards should develop contingency succession plans for the remuneration committee that anticipate the possibility of a vote against the remuneration report. This should include identifying alternative non-executive directors who have already been through the Authority's fit and proper assessment, or who could be put through it at short notice, so that the committee can be reconstituted without a gap in its prudential functions.
Third, and most fundamentally, banks and controlling companies should invest in structured, proactive engagement with their shareholders on remuneration matters well in advance of the AGM. The section 64C(2)(j) obligation on the remuneration committee to "consult shareholders" is no longer merely a governance aspiration, it is a practical necessity. If shareholders feel heard, the likelihood of a protest vote that inadvertently destabilises the committee is significantly reduced.
Conclusion
Sections 30A and 30B represent a welcome strengthening of shareholder oversight of executive remuneration new Companies Act regime does unfortunately . But the new regime creates a structural tension between two frameworks not designed to operate together: one that says the regulator decides who governs a bank, and another that says shareholders can force those people out.
The tension is not insoluble. The tools to resolve it exist, in particular, the Minister's power under section 51(2) of the Banks Act to adjust the application of the Companies Act to banks. What is needed is the political will to use them, and regulatory awareness to see that the problem exists before it manifests in practice. The worst time to discover that the remuneration committee of a systemically important bank has been destabilised by a shareholder protest vote is after it has happened.
Deborah Carmichael
Executive | Banking and Finance
Nkosi Tshabalala
Executive | Corporate Commercial
