Concerns over salary gap between top and bottom earners in SA

Different companies around the world were recently hosted by GECN Group of companies to discuss global executive remuneration and governance topics.

Representing Africa was 21^st Century, amongst companies such as Farient Advisors (United States & United Kingdom), HCM (Europe), and Guerdon Associates (Australia and New Zealand).

During the panel discussion held in Toronto, Canada on 17 June 2024, concerns were raised about the significant wage gap and inequities between top and bottom earners, especially in South Africa.

The three key themes that were tabled during the panel discussion are aligning with organisation needs, pay for performance and environmental, social and governance (ESG).

Aligning executive pay with organisational needs

Chris Blair from 21st Century said in South Africa, remuneration committees face having to address the significant wage gap and inequities between the top and bottom earners. He added they have noticed that a lot of larger companies are adopting living wage policies, and this trend is expected to grow.

During the panel discussion, it was stated that in South Africa, there has been a growing emphasis on retaining talent within the technology and AI sectors due to the country’s growing tech ecosystem. Amanda Voegeli at Southlea said due to the growing demand, a spotlight will be placed on growing companies that need to retain and promote these skills.

Another challenge that was tabled was how boards are struggling with the interpretation of market data. When bringing it to South Africa, there has been a growing trend of companies applying more judgment when interpreting market data to account for local market differences.

“Each year, companies must get the overall remuneration budget approved, and these budgets tend to remain fairly stable year-over-year.”

Michael Robinson at Guerdon Associates said there is a need to get pay positioned appropriately within reasonable guardrails so that you can let performance take care of whether the pay outcomes are high or low.

ALSO READ: Many South Africans not paid a living wage – Here’s how much they say they need

Pay for performance

Robinson said South Africa has an increasing focus on linking executive pay to tangible performance metrics. There has been research that showed companies in South Africa and Australia have consistent outperformers as far as sustained levels of return on capital and/or earnings growth are concerned.

However, this does not translate into total shareholder returns. Therefore, Robinson believes it is essential to understand performance beyond total shareholder returns and effectively communicate this to investors.

“There are ongoing discussions on the use of relative and absolute performance, with many perceiving proxy advisors advocating for a greater emphasis on relative performance.”

According to Robinson, in South Africa, there are many boardroom debates on how to reinforce more real share ownership tied to actual wealth creation instead of the historical focus on aligning a fixed multiple of salary and the inclusion of unvested share units.

ALSO READ: National minimum wage bumped up by R2.23 an hour

Environmental, Social, and Governance (ESG)

When it comes to ESG in South Africa, the panel said they have noticed a significant focus on addressing environmental and social issues, such as reducing greenhouse gas (GHG) emissions and promoting social equity.

A notable example is in the mining sector, where companies are under increasing pressure to demonstrate sustainable practices and community engagement.

“In South Africa, boards face similar challenges in addressing the time required to make meaningful progress against longer-term ESG goals.”

In the panel’s view, South Africa is still developing in its ESG maturity, with larger global companies demonstrating market-aligned practices and smaller local companies addressing more pressing issues like social needs.

“We will probably need to see a meaningful increase in the weighting of ESG within incentives to encourage executives to prioritise strategies that drive positive ESG outcomes,” said Blair.

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