A minimum wage is one thing; a living wage is another

27th July 2016 By: African News Agency

The debate around a minimum wage tends to get bogged down in headline-grabbing arguments over the gulf between executive and workers pay when a more meaningful discussion might be about another gap, that between a minimum wage and what a worker needs to earn to access a decent life.

Martin Hopkins, an executive committee member at the South African Reward Association (SARA) and a partner at the multinational professional services firm PwC, on Wednesday called for a change in focus from perceived overpayment of executives to the fact that the lowest paid workers are often unable to live decent lives.

“The real issue we should be confronting is not just the minimum wage but what a living wage is, and how to begin paying it,” he says.

A statement from SARA released on Wednesday described the minimum wage as a statutory minimum that all employers must pay, whereas the living wage was a generally higher level of income that could provide for a “frugal but dignified life”.

“Companies should see paying a living wage as a strategic imperative that will improve employee engagement, improve relations with important stakeholders and contribute to social stability,” says Hopkins.

In South Africa at present, minimum wages are set by sector, SARA added. There is a body of opinion that argues the need for a national minimum wage which, Hopkins says, would probably be between R3 500 and R3 700 per month.

What effect a national minimum wage would have on unemployment generally is a hotly contested point.

However, said SARA, it should be recognised that paying just a minimum wage can create a category of the “working poor”, people who work but do not earn enough to live decent lives. These people cannot, for example, pay for childcare before their children are of a school-going age, never mind afford to educate them properly. The working poor can be a destabilising force in companies and in society because they are living proof that “the system” is unfair.

“However, we should not lose sight of the fact that there are relatively few people equipped to lead a large company, where the slightest miscalculation can have devastating consequences for share- and stakeholders,” said Hopkins. “These executives are global, so a company that does not pay the market rate runs the risk of losing its top talent.”

Balancing the need to retain and incentivise top executives with the moral imperative to treat the lower paid workers fairly is one of the biggest challenges for remuneration committees, says Hopkins.

It is clear from the draft of the King IV Report on corporate governance, which South African listed companies will have to abide by, that the ethical implications of remuneration are to become part of the governance landscape. King IV gives remuneration committees the responsibility to ensure “fair and responsible remuneration” within the context of the wage gap between executives and the lowest-paid employees.

Apart from complying with regulations, Hopkins argues that remuneration policies should be seen as contributing to the company’s social licence to operate.

“One should not underestimate the challenges that many companies would face in paying a living wage, which would be significantly higher than the minimum wage but, equally, one should not lose sight of the fact that it is imperative in order to rebuild social trust in business and to defuse the antagonism that has built up between labour and employers – something that is impeding growth,” Hopkins said.

“We need a neutral, non-partisan body to be established to develop a rigorous methodology for establishing just what a living wage is, to advocate its implementation, especially in large profitable companies, and to conduct studies that measure its benefits,” he concluded.