South Africa’s massive wage gap

South Africa has one of the biggest pay gaps in the world – with CEOs of the JSE’s top listed companies earning as much as 725 times their workers’ average salary.

These are the findings of a report compiled by Mergence Investment Managers, looking at executive remuneration in South Africa in context of both local and global trends.

Mergence found a number of alarming trends in the South African context – CEOs in JSE-listed companies are high earners, and in addition, earn on average 140 times more than the average worker.

And the trend looks to continue, with salary increases over the past five years showing an upward trend in pay disparity.

“Our data suggests that, since 2009, the average annual inflation rate of CEO base salary packages was above 10% per annum while average salaries across all employees within the companies in our sample increased by under 8% per annum.”

The research shows that seven of the top earning CEOs of JSE-listed companies received total compensation above R60 million in the past financial year – more than 300 times what the average worker (non-agricultural) earned in 2013: R180,000.

20 highest JSE-listed CEO pay

#	Company	Total pay (Rmillions)
1	BHP Billiton	148
2	AngloAmerican	102
3	British American Tobacco	98
4	Anglo Ashanti	77
5	Mondi Plc	73
6	Old Mutual	72
7	AVI	63
8	Sasol	54
9	Capital and Counties	52
10	Shoprite	50
11	SAB Miller	48
12	MTN	48
13	Richemont	39
14	Steinhoff	36
15	Lonmin	34
16	Aquarius	32
17	Investec	29
18	Standard Bank	29
19	Barclays Africa	29
20	Blue Label Telecom	28

However, when it comes the pay gap between chief executives and their employees, Shoprite CEO, Whitey Basson, earned a staggering 725 times more than the company’s average employee salary, with three other companies rewarding their executives over 200 times more than employees.

20 Biggest payment gaps in JSE-listed companies

#	Company	Pay gap (times greater)
1	Shoprite	725
2	AVI	375
3	Aquarius	311
4	AngloAmerican	220
5	Bidvest	188
6	SAB Miller	169
7	British American Tobacco	157
8	Steinhoff	156
9	Lonmin	151
10	Mr Price	150
11	Mondi Plc	147
12	MTN	141
13	Woolies	138
14	Assore	134
15	BHP Billiton	119
16	Tiger Brands	112
17	Lewis	106
18	JD Group	100
19	Blue Label Telecoms	98
20	Clicks	95

In greater context, however, with the exception of Shoprite, most South African company pay gaps are much lower than listed companies in the USA, where executive pay can be as high as 1,795 times greater than the average employee.

Top 5 biggest pay gap in US listed companies

#	Company	Pay gap (times greater)
1	JC Penny Co.	1,795
2	Ambercombie & Fitch	1,640
3	Simon Property	1,594
4	Oracle Corp.	1,287
5	Starbucks Corp.	1,135

According to Mergence’s research, South Africa sits with the 5th biggest average pay gap in the world, after the USA (1st), Hong Kong (2nd), Germany (3rd) and the UK (4th).

“While this data shows that high levels of income inequality between executives and workers is a global phenomenon, it is concerning to see that South Africa ranks above a number of developed and developing market peers on these measures,” Mergence said.

It’s important to note, however, that in most cases, amongst the companies measured, executive pay is equivalent to a very small percentage of total salaries paid out – and an even smaller percentage of total operating expenses.

As an example, Shoprite’s Whitey Basson earns 725 times more than the average employee – but his salary is only 1.52% of total salaries paid, and 0.13% of the group’s total operating expenses.

“Given the size and scale of the companies on this list, the amounts that are paid to executives are small relative to the total salary bill of the company and to the operating expenses of the company,” Mergence said.

“This incentivises corporate boards and shareholders to spend to obtain the best management teams.”

However, that does not mean that everything is okay and business can continue in this line.

Closing the gap

According to Mergence Investment Portfolio Manager, Brad Preston, who led the research, companies and shareolders need to be mindful and concerned about the current level of income inequality within listed South African companies.

“Executive remuneration is a complex and sensitive issue, especially in South Africa,” Preston said.

“South African companies and their stakeholders face the challenge of having to compete in a global marketplace but also having to confront the enormous levels of inequality within South African society.”

“We believe that the current level of income inequality within listed South African companies should be a concern for shareholders, as well as the fact that in some companies this inequality is rising.”

According to Preston, these issues need to be addressed before it leads to negative social consequences or regulatory or political interference, which could ultimately stifle business operations.

The portfolio manager pointed to global trends moving to limit executive remuneration through various means – notably through increased disclosure of incentives, and in other cases through legislation.

“It is important for shareholders to engage company management seriously on this issue to attempt to mitigate the risks posed by the high levels of income inequality with in South Africa, both to the long-term safety of their capital as well as to South African society as a whole,” he said.

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