The latest PwC report on executive pay, released last week, highlights a number of focus areas for South African companies and regulators to attain that elusive goal of fair and responsible pay.
As expected, the study found that women working for listed companies earned less than men in all major sectors. The median pay gap, not accounting for specific roles, ranged from 5% to 10%. Women also remain significantly underrepresented at senior leadership levels, regardless of industry.
Perhaps more interesting, the pay ratio — between the CEO’s pay and the median salary of the company’s workers — in JSE-listed firms increased from 61.8 in 2017 to 64.7 this year, according to PwC calculations. The Gini coefficient, which measures income inequality, has decreased slightly from 0.431 to 0.429 among employed South Africans, the report stated.
Given our context as one of the most unequal societies in the world, it is also time to enforce more detailed disclosures around pay ratios and the gender wage gap.
In SA, the focus has largely been on executive pay, where the King IV Code of Good Governance and changing JSE listing rules have helped to improve disclosure and accountability. However, shareholder votes on pay remain nonbinding, raising questions around the code’s effectiveness. Binding votes on pay have been adopted in a number of countries, and should be debated in more detail locally too.
Much more can and should be done to improve transparency and, in the context of recent corporate scandals such as Steinhoff’s, the accountability of well-paid executives. Detailed disclosure around the benchmarks used for pay packages, for example, can help to improve fairness.
Other options to consider include so-called claw-back provisions, which would allow companies to claim back money from an employee under certain pre-set conditions. Such provisions are already standard practice for certain risk-taking employees in the UK banking sector, and the aim is to help make people accountable for the longer-term implications of their decisions.
Institutional investors should also be encouraged to publish their proxy voting guidelines, with developments in the US seeing major shareholders stating their positions on not only executive pay and diversity requirements, but also on environmental and broader social issues. The Public Investment Corporation (PIC), the biggest investor on the JSE, publishes its guidelines and voting records, but other major institutional investors should be encouraged to explain their voting decisions regularly too, rather than opt for one-on-one discussions with management at times of controversy.
Given our context as one of the most unequal societies in the world, it is also time to enforce more detailed disclosures around pay ratios and the gender wage gap. In addition, PwC highlighted the need for discussions on ways to improve the lives of more junior workers through a "living wage".
Employment equity legislation already requires equal pay for work of equal value, but there seems to be limited enforcement. While it may help to deal with the wage gap at a specific job level, a major challenge for females in the workplace is their lack of representation in more senior — and hence better-paid — roles.
Here, too, South African regulators can do well to look internationally, where a number of countries have legislated for a minimum proportion of female representation on boards.
In Norway, for example, a company can be dissolved if it doesn’t meet the 45% threshold. This is perhaps a bit extreme, but various other models are in place, including soft quotas and a model where other directors cannot be paid unless the board is sufficiently diverse.
Frankly, given that various studies have shown that more diverse workplaces and leadership teams lead to better performance and returns for shareholders, it’s quite amazing that legislation or strict governance rules are required to get most boards – and well-paid ones at that — to do the more profitable thing.