After the Bell: SA’s new pay gap disclosure requirements do not go far enough

It is safe to assume that we all want to live in a country where everyone thrives, has a better quality of life and equal access to opportunity. Anyone who does not want this for their country, I’d question their sanity and empathy.

Before this column adopts a “world peace” or kumbaya tone, maybe I should inject a dose of reality.

By most accounts, South Africa goes against the aspirations listed at the beginning of this column. Inequality, whether measured by income or wealth, has always been high in the country and the Covid crisis has probably led to further regression in inequality levels.

The Gini coefficient, which measures the spread of incomes (lowest to highest) generated by households, is often used as an indicator of equality and inequality levels. Equality or inequality in the coefficient is measured on a scale of between 0 and 1. A score of 0 is perfect equality and a score closer to 1 is complete inequality. South Africa’s Gini coefficient was forecast to be 0.63 in 2023, the highest in the world. It means that in South Africa, one group or a few people receive most of the income.

There is no economic indicator that beats anecdotal experience. Far too many people in South Africa have detailed their struggles of finding a job or an entry point into the labour market, living below the poverty line, with fewer opportunities to upskill or earn a decent income.

It is in this context that executive pay in South Africa is controversial.

Recall when Sibanye-Stillwater’s CEO, Neal Froneman, received a remuneration package worth R300-million in 2021, when the world was still in the throes of Covid lockdowns.

More recently, in 2023, the financial services industry drew the public’s ire when Investec’s Fani Titi received R172.5-million (reported in sterling as the company has UK-based operations).

The amounts get more eye-watering. Over the same period, former Nedbank CEO Mike Brown received a package of R92.5-million, Standard Bank’s Sim Tshabalala took R83-million, Capitec’s Gerrie Fourie R65.7-million, Absa’s Arrie Rautenbach R37.3-million and FirstRand’s Alan Pullinger R35-million.

The generosity of pay is justified by the remuneration committees of company boards, which often say that CEOs bring a unique set of skills and have to be retained to get a company through choppy waters (such as Covid lockdowns). Some claim that the company’s share price appreciates because of the CEO.

By law (the Companies Act), companies (especially those listed on the JSE) are already required to disclose the pay of directors in their annual reports.  Recent amendments to the Act, signed days ago by President Cyril Ramaphosa, will take the disclosure a step further.

Companies, including state-owned enterprises, will have to disclose the average and median pay of all employees as well as the pay gap between the highest- and lowest-paid employees. On the latter, companies will have to disclose the gap between the total remuneration of the top 5% of highest-paid workers and that of the lowest-paid 5%.

These amendments to the Companies Act are the legacy of former trade, industry and competition minister Ebrahim Patel, who sought to address the public’s concerns over inequality and provide transparency on remuneration.

I am all for transparency around pay equity, and any initiative to do so should be commended. However,  the new requirements for transparency do not go far enough.

The amendments are generic and only touch on “highest-paid employees” and “lowest-paid employees”, without mentioning whether these employees are internally employed or outsourced.

The amendments should have made that distinction and put the obligation on companies to disclose the gap between both categories of employees. This is because a big driver of job creation in South Africa has been in the outsourced employment category.

In other countries, companies are required to disclose the pay gap in both categories of workers (internally employed or outsourced). Two researchers from Wits University, Imraan Valodia and Arabo K Ewinyu, pointed out that companies in the US with more than 100 employees hired through a labour contractor are required to file two separate reports; one for individuals paid via the firm’s payroll and a separate one to include outsourced workers.

The amendments to the Act do not require companies to disclose the gender pay gap, as is required in other countries including the UK, New Zealand, Germany and Australia.

When amendments to the Act were negotiated by the trade, industry and competition portfolio committee in Parliament, it was decided that JSE-listed companies would not need to disclose gender pay gap ratios. Including these ratios would require the Act to be amended, and resubmitted for public comment, which would have prolonged the process of making it law.

It is jarring that gender pay gap ratios were not included in the disclosure requirements. In 2020, Statistics South Africa found that women employees in SA earned approximately 30% less, on average, than male workers. It also found that male employees were more likely to be employed and have relatively better-paying jobs than women. Maybe companies are starting to do better on this measure.

More disclosures will not require much from companies. Already, South Africa’s employment equity legislation obligates employers (those with more than 50 employees or generating a certain threshold on annual turnover) to report income differentials across race and gender groups. This information is confidentially submitted to the Department of Employment and Labour and is not made public.

However, the department then compiles and publishes reports depicting general employment trends across industries — information not specific to company dynamics. Future amendments to the Companies Act should make all information specific to companies publicly available. It would be a game-changer. DM