A number of top South African companies have faced increased scrutiny for the huge wage gap between their executives and lower-income workers.
Recently, trade union Solidarity has called out Telkom which paid a total of R104 million to its top executives in 2019, but still plans to cut more than 3,000 jobs in 2020.
New data from Deloitte shows that this pressure on executive pay is likely to continue in the coming year, as will the requirement to justify the quantum of pay due to the high visibility of the pay gap.
Deloitte adds that over the last 20 or 50 years, executive pay in South Africa has evolved to a point where it is reasonably in balance with executive pay internationally.
“Most stakeholders in the debate, albeit some more reluctantly than others, will concede that executives should be paid well for their services to shareholders, to business and the economy, and to society as a whole,” said to Tyrone Jansen, associate director of Human Capital at Deloitte Africa.
However, he notes, the visibility of the gap in executive pay to worker pay in South Africa has long been a major societal concern, “so the pressure on executive pay will continue, and along with it the requirement to justify the quantum of pay in relation to performance”.
King IV changes
The King Committee published the King IV Report on Corporate Governance for South Africa in November 2016 and with its full implementation now in place, a single figure – comprising an executive’s salary, benefits, Short Term Incentives (STIs), Long Term Incentives (LTIs) and performance awards – is required to be disclosed.
The change will mean that some 27,000 South African businesses will have to show the salary gaps between top and bottom earners.
However, Deloitte recommends that the single figure should not merely be a metric by which annual pay comparisons are to be made.
Instead, it argues that it should be utilised in a proactive as well as a reactive sense and become a standard to inform executive pay design – allowing internal and external comparisons on pay, but most importantly inform the shareholder and societal debates around what is ‘fair and reasonable’ in executive pay.
Deloitte said that using this as a standard would allow companies to apply some level of flexibility in pay design, whilst staying within an acceptable single figure parameter.
This in contrast to the current situation in which some companies are supposedly conforming to or being dictated to conform to the many and varied ‘benchmarks’, which are currently much-maligned, misaligned and often misused, it said.
“The single figure standard might become a way by which all stakeholders could assess the full quantum of executive pay overtime, from whatever perspective they view it, whether internally, externally, or by sector and/or societally and also allow companies to tailor a pay mix that is best fit for its specific circumstances rather than just conform to an inflated benchmark across individual pay components,” said Jansen.
So is the system broken?
On the question of whether the executive pay system in South Africa is broken, Jansen said many commentators have expressed the opinion that it is too complicated and needs to be simplified, with some calling for more regulation.
“Is the system broken? The answer is no, but it does need continual review, enhancements and tailoring as businesses change,” he said.
“Should we get rid of it? The answer is an emphatic no. All parties should persevere, striving for improvement, and eradicating the irritations that justifiably lead to criticism.”