SA long way from a solution to pay disparity

ALTHOUGH South Africa has one of the world’s biggest so-called wage gap disparities, it is by no means alone and could possibly learn from what other countries are doing to reduce the chasm between the highest and lowest paid “workers”.

India and the US, for example, have both introduced legislation to sharply increase pay gap disclosure, focussing specifically on differences between chief executive pay and the average pay of all other employees.

Disclosure is also being upgraded in the UK and Europe. Latin America, which has South African style pay gaps, is lagging behind in terms of widening disclosure as a means towards reducing disparities.

The reality is that pay gaps in South Africa and around the world have increased significantly in the past 15 to 20 years, for a number of reasons, including:

Companies recognising and, in many cases, becoming larger with executives taking on more responsibility and accountability. Globalisation and executive mobility. Falling demand for unskilled or low skilled workers (partly through the growth of technology).

Ironically, there has also been an unintended consequence in that the increased transparency of executive pay and total earnings has not seen executive income go down or the pay gap reduce – the opposite has in fact happened.

Importantly, the remuneration committees of companies around the world are definitely becoming more careful when it comes to benchmarking pay and incentive levels. They are paying more attention to the relationship between companies, the industries they are in, and the nature of the workforce.

Short- and long-term incentives are also being more closely examined as disparities in variable pay can be huge between the top and bottom of organisations.

In South Africa, research by PE Corporate Services has shown that the ratio between top executive pay and lowest paid worker’s pay in South Africa has jumped to 50-60:1 from around 35:1 in the mid1990s. This compares the guaranteed pay of the chief executive of an intermediate company (2 500 employees with a turnover of R500 million to R1 billion) with the pay of the lowest paid worker.

However, the total earnings of a chief executive in the in the top 20percent of South Africa’s listed companies can be more than 300 times those of the lowest paid workers in those companies.

Since the implementation of King III corporate governance guidelines in South Africa, local companies have moved towards fuller disclosure of pay. King IV guidelines have reinforced this, but have not yet gone as far as recommending wage gap disclosure in South Africa.

Ammunition

As a result of increased transparency, trade unions have more ammunition with which to demand pay rises as they can easily establish what executives are being paid and how big pay gaps are in the companies and industries where they are represented. Shareholder activism has also become a major factor in South Africa and many other countries.

Increasingly, there is also a growing trend towards equal pay for equal work and tackling gender pay gaps that still exist. Society is not only interested in reducing gaps between the highest paid and the lowest paid, but also ensuring a much fairer remuneration system when it comes to gender and equitable payment for work carried out.

The bottom line is that remuneration levels and structures – and the gaps that exist – will continue to be emotive and hotly debated issues in South Africa and other countries for many years to come.

While there is more focus on introducing a minimum wage in South Africa than on placing some sort of freeze on executive pay, achieving sustainable economic growth is an overriding factor that has to be prioritised by government, industry and labour.

Increased and improved disclosure of executive pay and the differences between the top, middle and bottom of organisations is definitely having a positive impact, but there is still a long way to go towards finding an efficient solution to the ongoing issue of pay disparity.

Society is not only interested in reducing gaps between the highest paid and the lowest paid, but also ensuring a much fairer remuneration system.