Average levels of executive pay remain exorbitantly high, relative to that of entry-level workers, according to a report by PwC.
PwC’s Executive Directors’ Remuneration report highlights pay increases for executives, which are viewed as excessive by the general public.
“It is clear that executive remuneration has grown substantially over the past two or three decades,” said Professor Jannie Rossouw, head of the School of Economics and Business Science at Wits University. “Earning more than R20-million a year is not acceptable. It is not commensurate with the risk taken by these companies.”
PwC’s research shows that executives of JSE-listed companies earned increases above the inflation rate. Increases awarded to chief executives for large caps in the services sector were the highest, at 6% for 2015. Earnings for executives in the resources sector, which includes mining, were among the lowest, but executives still earned increases, emphasised Gerald Seegers, head of people and organisation for PwC Africa. Chief executives of large caps in the resources sector earned 1.3% more in 2015.
This contrasts with the current minimum wage demand in South Africa, which is set at R3 500 per month. The minimum wage is based on absolute poverty levels of providing a minimum level of food intake for workers and their immediate dependents, as well as the bare essentials. The benchmark for each country is specific, explained Seegers.
The UK introduced a living wage, based on more elements to sustain a decent standard of living. The living wage is a good guideline for large profitable companies to set entry-level pay for their full-time workers, the report stated. This value is estimated to be within the range of R7 000 and R10 000 for South Africa.
Curbing executive pay
The report shows a shift in thinking in terms of “pay morality”, explained Seegers. Better disclosure of executive pay involves disclosure of how variable pay is earned. Variable pay is subject to performance. The concept of pay morality means that an executive’s performance is also measured against job creation and other social development goals, besides returns on investment and value generation.
Newly-appointed UK Prime Minister Theresa May introduced more regulation for executive pay and South Africa is expected to follow the trend in time, added Seegers.
If remuneration committees and executives cannot exercise self-restraint, the only option for government will be to introduce higher personal income tax for exorbitant incomes, said Rossouw.
“As a country, with people living in poverty and executives earning close to R20-million and R30-million, we cannot afford to pay for this. The social fabric of this country cannot carry it,” he added.
Shareholders can speak out against the exorbitant earnings by executives, but it is up to the executives to exercise restraint.
“I am waiting for a South African chief executive to stand up and say that their salary has reached an unacceptable level, which is not in the greater interests for the good of the country,” said Rossouw.
PwC’s Gini coefficient for employed South Africa is estimated at 0.43. This is less than the World Bank's national statistic of 0.65. Another approach companies are taking to reduce the inequality gap is to calculate their own Gini coefficient and compare it to national average and industry norms.