South Africa, mind the pay gap
The gap between the stratospheric salaries that company chief executives get paid and the median of employee wages has taken centre stage in the United States as companies are, for the first time, reporting the ratios that exist between the two extremes.
There are also increasing calls to make such disclosures mandatory in South Africa’s private sector, where salary inequality is rampant.
The first wave of company pay ratio disclosures mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act shows shocking, but perhaps expected, income inequalities between the top and bottom salaries paid by large corporates. The median is the middle salary in an organisation, meaning half of all employees earn more than the median and half less.
Walmart chief executive Doug McMillon’s compensation was 1 188 times more than what his median worker earned in 2017.
The median was $19 177; he bagged $22.8-million. The retailer, which has 2.3-million employees worldwide, said its figure included both full-time and part-time workers.
Online retailer Amazon’s median worker earned $28 446 a year, but chief executive Jeff Bezos — the richest man in the world, mainly thanks to his 16% share in the e-commerce giant — earned 59 times that amount, with a pay package of close to $1.7-million.
Fast-food retailer McDonald’s paid its boss, Steve Easterbrook, $21.76-million — 3 101 times the $7 017 paid to his median worker.
But will the disclosures at individual companies make a difference if they are not obliged to do anything about narrowing the gaps? And should a similar system be introduced in South Africa?
In South Africa, a June 2017 executive compensation report by advisory firm Deloitte found that, over the past five years, executive guaranteed pay, before options and incentives, “well exceeded inflation across the board”.
The report noted that “annual cash incentives paid to the chief executives and chief financial officers over the past six years are considerable in relation to guaranteed pay, but with little indication of the performance linkages”.
A PwC report on executive director remuneration trends shows that, in general, chief executives of the top 10 companies listed on the JSE earn a base salary of R24.6-million.
Standard Bank chief executive Sim Tshabalala’s salary has been in the news after the company released its annual report, showing that he took home R48.5-million in 2017.
The company has a headcount of 54 047 full-time and part-time workers who, on average (divided by the full cost of wages), earned R586 008 last year. This means Tshabalala earned roughly 83 times the average wage of a Standard Bank employee in 2017.
Capitec group chief executive Gerrie Fourie received a R56-million payout, mainly owing to a long-term incentive. In the same year, an average staff member at Capitec earned R243 162. This means Fourie earned 232 times more than his average worker.
The assistant general secretary of finance union Sasbo, Myan Soobramoney, voiced concern that Capitec employees earn low salaries compared with those working for the “big four” banks. The median wage for an employee in the financial sector is not available, but Soobramoney said a customer service consultant across the big four banks, where Sasbo has majority membership, could earn a minimum of about R12 207 a month or R146 493 a year.
At Capitec, for which Soobramoney admits that the union has little reliable information, he estimates that the minimum salary is between R7 500 and R8 000. Capitec had not responded to a request to verify this amount by the time of going to print.
“Previously, Capitec used to compare itself to retailers but, based on its growth and the fact that the chief executive is being paid a similar income to the other banks, it is clear that it is a bank,” said Soobramoney.
Wages in the mining sector have long been a contentious issue in South Africa. Diversified mining giant Anglo American, which operates in Southern Africa, Australia and the Americas, paid its global workforce of 69 000 an average salary of about R614 876 in 2017. Anglo chief executive Mark Cutifani, who is paid in pounds, earned R113.4‑million, 184 times more than the average employee.
Senior economist at Trade and Industrial Policy Strategies Neva Makgetla said the idea behind the pay ratio disclosure was to have the information available to the public so that, if income inequality is outrageous enough, workers, shareholders and other interest groups would mobilise against the disparity.
“Black economic empowerment works on the same principle … once the information is there, people will act. The JSE should have the same kinds of requirements as the [United States’] Securities and Exchange Commission, particularly for such an unequal country. That will be very useful because they will never publish their median pay [unless required to by law],” said Makgetla.
“They publish total remuneration costs and sometimes numbers employed. Where incomes are highly unequal, the average is always higher than the median. Half of the company earns less than the median, whereas the average is pulled up by the few people earning huge amounts. So [the average] understates the extent of inequality as experienced by ordinary people.”
Currently, the JSE has made it compulsory for all listed companies to disclose their remuneration policies and implementation reports, as outlined by the King IV governance code. The code stipulates that a board of directors must approve a remuneration policy “that articulates and gives effect to its direction on fair, responsible and transparent remuneration”. All the fees of nonexecutive members of the board, as well as the remuneration of executive management during the reporting period, must be disclosed.
Companies must set out all elements of remuneration, such as the base salary (including financial and nonfinancial benefits), variable remuneration (including short- and long-term incentives and deferrals), payments on termination of employment, and any commission and allowances paid.
Makgetla said pay inequalities in South Africa were much worse than in the rest of the developing world because executives in South Africa measured themselves against their counterparts in Europe and the US.
“We are not as rich as these other countries, so why should our chief executives get the same amounts?” asked Makgetla. “But when it comes to workers’ wages, they always measure against India or China, where people are paid much worse, so that’s where you get the inequalities. It’s that they pay Third World wages and earn First World salaries.”
Makgetla acknowledged that income inequalities would not be fixed overnight, but said a start would be to legislate for companies to publish the ratio of chief executive to median pay. In addition, the public sector should set an example by bringing down executive pay and publishing median income, she said.
Tebogo Tshwane is an Adamela Trust financial reporter at the Mail & Guardian