Following the JSE’s requirement for all listed companies to effect the King IV governance code by disclosing their remuneration policies and implementation reports, the high disparities between executive pay and employee wages has come up for public debate. While one can argue the differences in role, scope, skills, complexity and responsibility between a skilled employee and CEO, can one really justify upwards of 200 times salary differential?
King IV 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”. The requirement for fair remuneration is also contained within Section 6 of the Employment Equity Act under the auspices of the international drive for “equal pay for work of equal value”.
Most organisations have considered the EE pay provisions by consulting their grading systems and pay practices, focusing on comparing same employees. However too few have considered the requirement to assess pay proportionality as well.
Credible studies, by Deloitte and PwC, indicate that executive director remuneration trends increasingly beat inflation, even considering guaranteed (base) pay alone. PwC’s 2017 rem trends report showed that chief executives of the top 10 JSE-listed companies earned an average base pay of R24.6 million per annum.
When one compares this with the average formal sector pay, as per the BankservAfrica Take-home Pay Index Jan 2018, at just R176 865 per annum, the difference is startling! Should we be surprised that employee organisations and trade unions are challenging the status quo and that the Department of Labour is beginning to place greater focus on the EEA4 Income Differentials reports submitted by designated employers annually?
Pay differentials, whether comparing individual performance in same jobs or employees holding differing roles across occupational levels, need to be unemotionally considered and justifiably defended within the bounds of the EEA and the Code of Good Practice.
It goes without saying that productivity and performance are intrinsically linked to reward and we concur that organisations should, wherever possible, link pay and performance to ensure fairness and the corresponding additional value creation with increased wages. However traditional remuneration practices could be challenged by reducing the overall Rand-value of executive performance bonuses and utilising this available cash to increase the performance pay opportunities throughout the business, especially at lower levels.
Reducing pay at executive level will arguably have little material impact on the individuals’ lifestyle but the corresponding change at lower levels will be fundamental. In addition to working towards a more conscious capitalism model, this simple change will meet all compliance drivers for reducing pay inequality and ensure that South Africa becomes a more equitable society.
If you’re interested in learning more about how GBS can assist you in considering how your remuneration policies and practices can be directed towards more equitable pay requirements, please contact me on [email protected].