Sky-high executive pay
been a hotbutton issue, both in South Africa and beyond, for several years. Indignant anger and outrage at executive salaries has become commonplace, whether it is given a voice on the streets or eloquently expressed in business columns. Public outcries appear to be making an impact, with a recently released report by advisory firm PwC revealing that it is now ‘common practice’ for executive pay increases to be in line with those of the rest of the workforce. PwC analysts anticipate that the level of executive pay will start plateauing over the next few years as shareholder engagement and pay-for-performance models become high priorities for remuneration committees.
“There is major pressure being placed on reward systems, and the international trend is toward more ‘ Say on Pay’ f or shareholders,” explains Gerald Seegers, PwC Head of human resources services for Southern Africa, adding that many organisations are taking a closer look at their entire approach. In Germany, for example, there is a move toward an executive pay cap, and a call for an equal pay and board gender mix. In Italy, there are proposals for a cap on remuneration i n the public sector while the US has forced major improvements in disclosure and the explanation of executive pay programmes.
“There is still much debate about what exactly the corrective inter- ventions should be as the underlying cause may not only be the perceived high l evel of executive compensation but also a host of other problems, includi ng unemployment and poor ser vice deliver y,” adds Seegers. He points out that the pay gap in SA remains relative compared to that in the UK and in the US where income disparities are among the highest in the world.
According to the PwC report, SA companies have seen moderate increases in remuneration levels in recent years, although the numbers vary significantly across industries. While the median Total Guaranteed Pay Package (TGP) was 4.5% for the JSE as a whole, notes Seeger for the period 1 May 2012 to 30 April 2013, in many cases, the increases were above inflation.
“The median TGP for the CEOs of large- cap basic resources companies has shown a si gnificant i ncrease of 9. 3% ( R9m), af ter a decline l ast year, and i s now at a level higher than in 2011,” the report states. “After a period of negative i ncrease, the median TGP for executive directors of large-cap basic resources companies has remained static at R4.9m. The median TGP for the CEOs of large- cap companies in the financial services sector has shown a modest inflationary increase, as in the prior year (R6.6m).”
Loane Sharp, labour market analyst for Adcorp, suggests that self- regulation would be an effective way to address the issue of executive pay, and warned against the dangers of Government involvement.
“I am alarmed at the scale of Government interference in executive pay,” says Sharp, “It is going to be disastrous for the country.”
Sharp notes that there has been a marked trend of “micro-level interference” by Government in the behaviour of local companies, which he says is going to lead to “much poorer performance” in the private sector in the long term.