Salary increases for executives 'subdued' says PwC report

Runaway pay increases and bonuses for JSE bosses slowed last year. (Paul Botes, M&G)

Runaway pay increases and bonuses for JSE bosses slowed last year. (Paul Botes, M&G)

Runaway pay increases and bonuses for JSE bosses slowed last year, but the pay gap between the lowest and highest wage earners in South Africa remains a concern.

According to the latest report on executive pay released by advisory firm PwC on Thursday, chief executive officers were awarded total guaranteed package increases ranging from 2.1% to 7.7%, with the median increase reaching 4.8%, or R4.3-million.

Their short-term incentives, or bonuses based on company and individual performance, rose by a modest 3% in 2014. This is significantly down from the 131% increase in short-term incentives that were given to company bosses in 2013.

Nevertheless the median short-term incentives package for large cap companies across all industries amounted to R12.3-million.

The median salary for large cap resources companies in 2014 was R21.7-million.
This was down slightly from R22.6-million in 2014.

In 2014 however, only six firms in this sector were listed on the stock exchange versus 11 in 2013. As a result the remaining six large-cap companies would be in the upper quartile, or outliers, the report noted.

The median pay package for CEOs running large cap financial services firms was R7-million in 2014 versus R6.6-million in 2013. Chief executives at large industrial firms meanwhile were paid a median of R13.9-million.

“While the average levels of pay remain high relative to workers, and are viewed as excessive by labour and the general public, increases in total guaranteed pay have generally remained subdued and are below those granted to workers,” said Gerald Seegers, head of human resource services for PwC, Southern Africa.

According to the report, some of the Top 40 JSE-listed companies have “addressed the internal wage gap in one form or another”.

“Companies have elected to address the wage gap by mitigating the average base salary increases for executives and increasing the salary increase percentages for management and general staff,” it said.

Internal wage gap

“Other companies’ CEOs have foregone salary increases entirely in order to demonstrate their commitment to addressing the internal wage gap”.

Early last year, Khetso Gordan, the former boss of cement manufacturer PPC, famously took a R1-million pay cut and froze salaries for top managers, enabling the company to increase salaries.

The report also measured the Gini co-efficient of South Africa’s employed, which is substantially lower than the national figure.

The Gini coefficient is a broad measure of inequality. It is a ratio between 1 and 0 where the higher, or closer to 1 a country’s coefficient is, the greater the inequality in that country.

According to the report, South Africa’s Gini coefficient for the employed in 2014 was 0.44, versus the national statistic of 0.65. The effect was thanks to the high levels of unemployment in South Africa.

“Reducing unemployment in South Africa is potentially a more compelling social and ethical issue than the pay gap, as it drives inequality, hardship and social tension,” it said.

The report revealed a growing concern by companies for the financial wellness of their junior employees, with a particular focus on the debilitating effect of garnishee orders.

“Several companies have been focusing on the issue of employee garnishee orders, and have reviewed the legal status and the outstanding balances of existing garnishee orders,” it said.

“In many cases they discovered
 that the orders were either improperly levied or the balances were already paid-up.”

Garnishee orders – or deductions made directly from an employee’s salary – were a major contributor to worker unhappiness on the platinum mining belt, resulting in violent strikes and the massacre of workers at Marikana.

Meanwhile, this week the Western Cape High Court’s Judge Siraj Desai declared deductions taken from employees’ salaries for garnishee orders were illegal.

The report said the importance of paying a “living wage” to workers could be part of the solution to the problem of the pay gap.

While there were fears that escalating minimum wage levels would hurt job creation, for those employed “it has been found that productivity and living standards are linked”, the report noted.

“Continued restraint in the approach to executive pay and focusing on the financial wellness of junior workers and aspiring to pay at least a ‘living wage’ is a sound strategy,” the reported recommended.

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