Corporate SA must step up to tackle income inequality
• Pay transparency can establish a society based on democratic values and fundamental human rights — as called for by our constitution
In 1998, the Truth & Reconciliation Commission (TRC) recommended steps the business sector should take to bridge the chasm between the rich and poor. Volume 5 of the TRC’s report emphasised that “the huge and widening gap between the rich and poor is a disturbing legacy of the past, which has not been reduced by the democratic process. It is morally reprehensible, politically dangerous and economically unsound to allow this to continue. Business has a particularly significant role to play in this regard.”
Yet the recommendations have been resoundingly ignored, and the stark reality is that 26 years later our country is even more unequal by some measures than it was then. As Stats SA’s 2019 Inequality Trends report demonstrates, the labour market plays a substantial role in perpetuating the nation’s enduringly high levels of inequality. The report points out that “the widening inequality is a combination of negative real earnings growth among low and median earners, with exceptionally high levels of real earnings among the very high earners”.
In addition, women experience lower employment rates and on average also earn considerably less than their male counterparts. This emphasises the urgency of addressing the multifaceted challenges of income inequality and transformation.
The private sector bears a crucial responsibility in job creation, transforming SA’s labour market and reversing its contribution to inequality. The role of business could be instrumental in propelling inclusive growth and fostering a fairer, more equitable society, as envisioned in the constitution.
The 2018 Jobs Summit, organised by the National Economic Development and Labour Council and attended by representatives of the government, business, labour unions and civil society, sought to align efforts towards meaningful job creation and economic empowerment.
The commitments and outcomes of this summit, outlined in the Presidential Jobs Summit Framework Agreement, led to some of the key provisions in the longawaited Companies Amendment Bill now before parliament.
A primary objective of the bill is to contribute to the reckoning between “injustices of the past and the inequalities of the present”. It seeks the “achievement of equity as between directors and senior management on the one hand, and shareholders and workers on the other hand as well as addressing public concerns regarding high levels of inequalities in society”.
An important measure proposed in the bill is for listed companies to disclose the wage gap “reflecting the ratio between the total remuneration of the top 5% highest-paid employees and the total remuneration of the bottom 5% lowest-paid employees of the company”.
During October various stakeholders made verbal submissions on the bill in hearings before the portfolio committee on trade, industry & competition.
TRANSPARENCY
The predominant view from the business lobby — with the notable exceptions of Old Mutual Group, Aeon Investment Management and the Association of Black Securities and Investment Professionals — as expressed in verbal and written submissions by organised business and individual companies, is that pay transparency should be resisted at all costs. This lobby insists that these measures are unnecessary and burdensome and will hinder job creation.
This is not supported by the evidence. The vehement opposition to simply disclosing the wage gap underscores the challenging nature of the battle to address the deeply ingrained issue of income inequality in our society. It also highlights why this needs to be legislated: few listed companies have to date voluntarily made this disclosure.
It is, of course, not controversial that job creation is crucial. However, employment on its own falls short of effectively addressing the persistent income inequality that dogs SA. It is also not contended that executives should not earn significantly more than workers in lower deciles. What is striking though, especially within the socioeconomic context of SA, is the sheer magnitude of some of these remuneration gaps.
Extreme wage gaps are concerning not only from a macroeconomic perspective but also from the critical viewpoint of whether the lowest-paid workers receive sufficient remuneration to cover their basic needs and those of their families, enabling them to live a life of dignity. Without pay gap transparency this cannot be ascertained.
Interventions related to pay transparency have also become increasingly important globally, including in countries such as the US and UK. Especially for companies of public interest stakeholders want to know: how workers are remunerated; how their compensation compares with others in similar roles; and if there are any disparities in remuneration based on gender or race. Responsible businesses should recognise the value of being transparent about remuneration to build trust, as well as to promote fairness and responsible pay practices.
DEMOCRATIC VALUES
Building a more equitable society necessitates co-operation and unified efforts from all social partners, with business having a central role.
The implementation of pay transparency measures is a small but foundational step towards healing the “divisions of the past and establishing a society based on democratic values, social justice and fundamental human rights”, as called for by our constitution.
If organised business is truly behind a better, fairer and more inclusive future SA, it should at the very least not be opposing the disclosure of wage gaps.
WHAT IS STRIKING THOUGH IS THE SHEER MAGNITUDE OF SOME OF THESE REMUNERATION GAPS