Lid to come off SA wage gap

The Companies Amendment Bill is expected to make some progress during 2021 after apparently stalling somewhere along the legislative process during 2019 and 2020.

Unless watered down before enacted, some of the proposed amendments might prompt a level of restraint so far missing from executive remuneration in South Africa.

One of the most significant sections of the bill, and likely to be one of the most contentious, are the proposed changes to Section 30 of the Companies Act relating to ‘Duties to prepare directors’ remuneration report’.

If enacted, the changes will require public companies and state-owned entities (SOEs) to disclose the details of the highest and lowest paid employees in the company.

The proposed amendment, which reflects the efforts of the labour movement and some academics, will provide the first-ever detailed insight into the extent of the wage gap at individual company level in South Africa.

The Amendment Bill requires public companies and SOEs to provide “the remuneration including share options and bonuses of the employee with the highest remuneration, be it the CEO or any other individual holding any prescribed office”.

The company/SOE will also have to disclose, in its remuneration report, “the remuneration of the employee … with the lowest remuneration in the company”.

In addition, “the average and the median remuneration of all employees and the remuneration gap reflecting the ratio between the lowest paid and the chief executive officer or the highest remunerated employee in the company” must be disclosed.

While labour legislation has required companies to maintain detailed records of pay levels, there has been no requirement to make these details public.

Unless corporate lobbyists are able to overcome trade union pressure and water down the proposed amendments to the Companies Act, the much tougher disclosure requirements – which are expected to reveal extremely high pay gaps – are likely to add to calls for restraint on corporate executive pay.

So far these calls, which have not had the investor muscle of the trade unions behind them, have been ignored by the powerful executive remuneration industry which includes remuneration committee members and consultants.

Mike Martin, head of research at Active Shareholder, a notfor-profit company that helps responsible shareholders to exercise their company rights, has welcomed plans for the improved disclosure.

He urges companies not to bury the new information in increasingly long and over-complex remuneration reports.

“These reports have become so dense that valuable information is lost or, worse, covered up. Some reports only disclose information as footnotes which few read.”

If not watered down, the SA proposal will go further than any other country in the detail required. Presently the only major economies requiring much public disclosure are the US and UK.

There are concerns the new disclosure requirements might encourage companies to move low-paid employees off their books, through outsourcing arrangements, to avoid the spotlight.

Martin agrees that pressure to close the wage gap could lead to companies outsourcing functions such as cleaning and security.

This article first appeared on Moneyweb and was republished with permission.

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