Eskom wage bill growth unsustainable – Mike Brown

The real rise in wages at Eskom over the past decade is unsustainable and has only been possible because of government guarantees, a leading banking executive has warned.

Addressing delegates at the Nedgroup Investments Treasurers’ Conference on the progress South Africa has made to turn the economy around and promote inclusive growth, Mike Brown, CEO of the Nedbank Group and member of the CEO Initiative, said that while the country is moving in the right direction, challenges remain.

One of these is the wage bill at Eskom.

Between 2007 and 2017, the power utility’s head count grew from roughly 33 000 to 48 000, in part due to the construction of new power plants. Over the same period, the average remuneration grew from about R300 000 to R770 000 per person per year.

Brown acknowledged that the calculations were complicated and that there was some margin for error as a portion of salary costs could be capitalised. It was also not quite clear to what extent consulting fees were reported as salaries and wages.

“It’s probably not 100% correct, but it is definitely directionally correct,” he said, referring to a slide that depicted the growth trend over the period.

“That gives you a 13% real rise in wages over that period.”

The equivalent average remuneration per headcount at Nedbank, which includes bonuses and long-term incentives, is about R530 000.

“You’ve got something that’s clearly unsustainable and actually the only reason that something like this can be sustained is government guarantees, which effectively provide a bit of a free ride for an enterprise not to have to behave like those of us who have to abide by the rules of capital markets,” Brown said.

Due to its precarious financial position, Eskom’s board is under pressure to address the wage issue and has offered no salary increases to workers this year. The move has angered unions and according to reports its CEO Phakamani Hadebe had to be protected from angry workers when he received a memorandum of demands at Megawatt Park on Thursday.

During a meeting between public enterprises minister Pravin Gordhan, other stakeholders and Cosatu, Gordhan explained that Eskom’s financial situation was precarious, that economic growth continued to disappoint, and that government did not have the money to continue to bail out state-owned enterprises.

Eskom, as part of its strategic initiatives, has previously committed to further reducing its headcount and employee benefit costs, supported by a comprehensive independent review of its operating model.

Gordhan agreed that the issue of downsizing at the utility should not be raised at the same time as the wage negotiations.

The National Union of Mineworkers (NUM) on Thursday said that it is “deeply angered and concerned” by claims that the average employee at Eskom earns R789 000 per year.

“Our members do not earn that kind of money,” it said in a statement.

This followed after a tweet from chief economist at Economists.co.za, Mike Schüssler, about the matter:

The average remuneration per employee at Eskom was R789K for the year to March 17. On average they fall within the top 1% or 2% of household income. When richest 2% strike SA has a victimhood problem! Much like an owner of R260Mil upgrade says "poor pitiful me" Misplaced status

— mike schussler (@mikeschussler) June 12, 2018

The NUM said this was a serious insult to its members who were being offered a 0% wage increase by Eskom. “[The] apartheid wage gap still exists at Eskom and black women are some of the lowest paid at Eskom.”

The average salary at Eskom is a thorny issue since it is skewed by the remuneration of executives and senior managers, something Schüssler took flak for on Twitter after his tweet.

He acknowledged that a lot of Eskom employees were blue collar workers who earned well below the company average, but said Eskom remained one of the best paying companies in South Africa.

That will always be the case but still Eskom is one of the best paying companies in SA. It has increased prices a lot and sells less today than before but has more people. Time to take stock as any other firm in the world has too.

— mike schussler (@mikeschussler) June 14, 2018

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