What are golden handshakes really paying for?

Do not use golden handshakes as a method for removing or replacing people in an organisation

HR professionals are likely to be familiar with the term “golden handshake” as a payment to an employee – mostly at executive level – who retires early or is made redundant, for example, owing to restructuring, a merger or an acquisition. The payment would generally be in terms of the executive’s employment contract.

When the payment is made to an executive who had contributed positively to the organisation and it is properly approved and declared by the organisation, it would mostly be considered acceptable. However golden handshakes in the public sector are increasingly being viewed negatively. Not only are the number and magnitude of these payments a cause for concern, but so too are the circumstances and intended outcomes of the payments.

This year alone, golden handshakes were paid to executives at the National Prosecuting Authority (NPA), the Hawks, SARS and Eskom.

Mxolisi Nxasana served as the National Director of Public Prosecutions for only 22 months of his 10 year tenure before parting ways with the NPA – for which he received a golden handshake of R17m.

The R13 million payment to Hawks boss, Anwa Dramat, followed a long legal battle following his suspension for alleged involvement in the rendition of Zimbabweans. However, what that reason disguises is the view that Dramat was targeted for investigating dockets implicating influential people and for continuing to investigate Nkandla – in other words for failing to toe the party line.

The amount involved in the golden handshakes paid to former SARS executives Ivan Pillay and Peter Richer are yet to be revealed. The rationale for the payment confounds logic – because both were being investigated for allegedly operating a rogue spy unit within SARS. However, the combination of their resignations and payouts saw all charges being dropped.

Having been suspended in March 2015, Tshediso Matona, former CEO of Eskom, reached an agreement with Eskom in May 2015 to part ways. His golden handshake will only be revealed in Eskom’s 2016 financial report.

Adding an incisive perspective to these examples, political analyst Mzoxolo Mpolase, quoted in the Rand Daily Mail, notes as a worrying sign that “you can be in an organisation such as Ipid or the Hawks and receive a golden handshake for being fired for incompetence”.

The process of suspending someone and thereafter terminating an inquiry process or disciplinary or legal proceedings and paying the person a golden handshake when they resign appears to be a common trend. These circumstances allow one to speculate as to whether the payout is aimed at preventing the incumbent from pursuing a particular approach or line of enquiry, or if the payout is an inducement (no doubt with a very tight non-disclosure agreement) to leave quietly. Both reasons effectively open the way for someone else to be appointed who presumably would be more amendable to the party line.

Using a golden handshake as a mechanism to remove and replace those who are either incompetent or “unco-operative” is troubling on three counts. Firstly, the extent that it erodes the independence and impartiality of state institutions or state owned entities is cause for great concern. Institutions that have the responsibilities such as policing, investigation or security should operate without fear or favour.

Secondly, in many cases the payout serves to disguise or completely bury the real reason for the termination of the person’s employment. As aptly stated by Cope spokesman, Dennis Bloem, in a News 24 interview, “The truth … is a constant loser”. In the absence of the facts, speculation will invariably fill the gap with a myriad of possible reasons – and mostly negative ones at that.

Thirdly is the question of who funds these huge payouts. When payments are made by private sector corporations, shareholders who disagree with the payment have the option to sell their shares or question the company in the appropriate forum. In the public sector, it is the taxpayer who pays every time.

The UK provides an interesting example of government action against large public sector payouts. In the Queen’s Speech on 27 May 2015 at the Houses of Parliament, she announced that six-figure “golden goodbyes” for senior public sector staff who are made redundant will be banned in terms of the Enterprise Bill. Payments for departing civil servants, senior town hall staff and health service managers are set to be capped at £95,000. The UK Government said the move would save millions of pounds for the taxpayer but was primarily driven by a sense of fairness.

No such action appears to be likely in South Africa. It is therefore important that taxpayers, and civil society generally, question these payments, and if an unsatisfactory answer is given, that they exercise their voting powers accordingly at the next election.

Notwithstanding these options, the loss to the fiscus is still of great concern, particularly in a country with such great need.

By Cynthia Schoeman
Published in HR Future, August 2015