ZANDILE ZONDANI AND SUZETTE VIVIERS: Why the pay gap must remain in the spotlight

SA holds the unenviable title among those countries that are measured as the most unequal society in the world. Experts attribute the situation to, among other things, exceptionally high levels of real earnings for high earners, coupled with low wages and no real earnings growth among low and median earners.

In an attempt to reduce the gap the Companies Amendment Act was signed into law in July. Once proclaimed, public companies and state-owned companies will be obligated to report the ratio between the total remuneration of the top 5% highest paid employees relative to the total remuneration of the bottom 5% lowest paid employees in their annual remuneration report.

Armed with this knowledge, and recognising that there are important differences between sectors, shareholders will be in a better position to make informed engagement and voting decisions.

As in the UK and several other common-law countries, most shareholders in SA prefer to discuss this and other matters behind closed doors, but only the largest shareholders get the opportunity to do so. Others are forced to use public mechanisms to raise their concerns. These mechanisms include asking questions at the company’s AGM and using traditional and social media to stimulate debate.

Research at 38 JSE-listed companies and five state-owned enterprises (SOEs) in 2010-16 showed that individual and minority shareholders were the largest category of activists who are resorting to the power of the pen. The vast majority of their concerns centred on the size and composition of executives’ packages and insufficient justifications provided for bonuses.

The researchers investigated changes in the targeted executives’ remuneration in the year after being publicly criticised. Both of the considered variables, namely inflation-adjusted total pay and bonuses and other performance-based incentives, decreased in the year after being publicly targeted. However, this was not the case for all executives and companies included in the sample.

We conducted a follow-up study as executive remuneration in SA remained on the agenda after 2016. JSE-listed companies such as Capitec drew the ire of shareholders when its remuneration committee decided to ignore the effect of the pandemic when awarding managers bonuses in 2021. Our study included the pandemic (2017-23) and shows that in addition to Eskom, executives at four other SOEs — Transnet Group, Airports Company SA, Denel and the SA Post Office — were targeted during this period.

Shareholders raised say-on-pay concerns at 30 JSE-listed companies, including Woolworths, Absa, Shoprite Astral Foods, Capitec, FirstRand and EOH during the research period. Executives in the financial industry were the most targeted, followed by those in charge of companies in the consumer staples and basic materials industries.

As in the earlier study, we also reviewed articles in credible financial newspapers and magazines to identify say-on-pay activists and executives who were targeted. We collected executive remuneration data from Bloomberg. As in the previous period, individual and minority shareholders remained most vocal, followed by asset managers and trade unions.

Closer analysis reveals that these activists are still questioning the size and justifications provided for remuneration-related decisions. More disconcerting is that they were no longer effective in reducing bonuses and other performance-based incentives by targeting executives in public. Bonuses and performance-based incentives often represent the largest component of executive pay packages.

Considering these findings, the onus is now, more than before, on large shareholders that have access to boardrooms, to take this matter more seriously. While acknowledging the complexities associated with attracting and retaining talent at the top, frank discussions are required on reducing vertical and horizontal pay gaps. Shareholders should also question the rationale for outsourcing the lowest-paid employees.

Several companies are already doing so to reduce their disclosed wage gap. These employees often get paltry wages with no benefits or job security. More emphasis should also be placed on ensuring that employees receive sufficient training. This will not only enhance productivity but also go a long way in building a more prosperous workforce in the country.

Despite the findings of our study, individual and minority shareholders of JSE-listed companies should continue to ask difficult questions, request more information and insist on transparency. When it comes to perseverance, nobody has better advice than Mahatma Gandhi. He said: “Whatever you do may seem insignificant to you, but it is most important that you do it.”

A concerted effort is required by shareholders, big and small, to help reduce inequality in SA.

• Zondani was a BCom Honours student in the department of business management at Stellenbosch University in 2024. Viviers is a professor in the same department. They write in their personal capacities.