The Democratic Alliance (DA) believes that there is something crooked at Armscor.

The explanation for the massive remuneration increase for Sipho Thomo, Chief Executive Officer of Armscor, provided by Mr SA Msibi, Chairperson of the Human Resource Committee of the Board of Directors at Armscor, raises more questions than it answers.

The Armscor 2008/2009 annual report reveals that Sipho Thomo received a salary increase from R1.22 million to R1.45 million and a benefit increase from R108 624 to R 1 391 395. That is a total increase in remuneration from R1.7 million to R3.27 million, which amount to an increase in 89%, in the 2008/2009 financial year.

The explanation provided was that the remuneration increase was as a result of:

• a salary increase of 13.26% in 2008/2009;
• performance related bonuses payments in the amount of R236 667.53 for the 2006/2007 and 2008/2009; and
• a once-off restraint of trade payment "to protect the interests of the company"

The explanation reveals some facts but conceals other crucial information. For some reason the explanation does not:

• disclose actual amounts paid in salary increases;
• disclose whether annual bonus payments were made; or
• disclose the actual amount paid, which must be more than R1 million, as a result of the once-off restraint of trade payment to Sipho Thomo.

This explanation raises more question than it answers.

First, why were performance bonuses paid to Sipho Thomo over a period when:

• it was decided that Sipho Thomo should not be suspended, but should receive counselling for his management style and should face disciplinary action for making offensive remarks to employees by the Board of Directors of Armscor;
• the resolution of the a grievance lodged against Sipho Thomo by a senior manager Nthathi Borotho  cost R 1 816 722 made up of R1 216 858 for special paid leave payments, R 506 964.10 for attorney and consultant fees and R92 900 for directors fees;
• there are serious delays in major capital acquisition projects for the defence force;
• the balance sheet reflects decreasing surpluses from R44 million in 2008 to R37.9 million in 2009 and increasing government transfer payments from R415 million in 2008 to 479 million in 2009; and
• there is a concern about the long term ability of Armscor to deliver on its mandate to acquire defence material for the Department of Defence.

Second, why was it necessary to enter into a restraint of trade agreement and pay a once-off restraint of trade payment in what appears to be an effort to retain the services of Sipho Thomo at Armscor? Usually, restraint of trade payments are paid to individuals who are about to exit an organisation.

Given Sipho Thomo's dismal performance, it would seem that his departure would have created a significant opportunity to rejuvenate the top management and leadership at Armscor.

Popo Molefo, Chairperson of the Board of Directors at Armscor, who is responsible for the management and control of the state entity, appears not to be acting to protect the interests of the shareholder but rather to be acting in the interests of Sipho Thomo and Armscor.

We believe that Popo Molefe, Sipho Thomo and the management board of Armscor owes this country a proper explanation.

The DA will today write to the Chairperson of the Portfolio Committee on Defence and Military Veterans, Nyami Booi, to:

• request that a meeting which includes Popo Molefe, Chairperson of the Board of Directors of Armscor, Sipho Thomo, Chief Executive Officer of Armscor, and the entire management board of Armscor be scheduled as soon as possible; and
• request that all portfolio committee members by furnished with copies of Sipho Thomo's employment contract, all relevant Armscor policy documents relating to remuneration, annual bonuses, performance bonuses and restraint of trade payments and copies of minutes of board meetings where Sipho Thomo's remuneration was authorised.

We have to get to the bottom of how it was that higher salaries and increased benefit payments were being made to Sipho Thomo and his management team when there is a concern about the long term viability of Armscor.

Statement issued by David Maynier, MP, Democratic Alliance shadow minister of defence and military veterans, September 23 2009

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