Closing South Africa’s wage gap: The law is already in place – time for trade unions to enforce it

24 Nov 2021

Big business is understandably alarmed at proposals to close South Africa’s huge wage gap between top management and its lowest-paid workers, as proposed in the Companies Amendment Bill. But a 23-year-old section of the Employment Equity Act, which has been completely ignored, already does exactly that.

What is a greater red flag to business: more transparency or tax increases? It’s too close to call. In either event, there should be no surprise about the corporate pushback against the wage gap disclosures proposed in the Companies Amendment Bill (CAB), as Khaya Sithole and Tracey Davies report in their recent Daily Maverick article.

The tale of what lies buried in the Employment Equity Act (EEA) of 1998 might make matters more difficult for the corporate elite who wish to retain the freedom to pay themselves obscene and unwarranted salaries.

It is surprising how we – the alert public – have allowed the Employment Conditions Commission, the government and Parliament successfully to bury Section 27, the wage gap provisions of the Employment Equity Act (EEA). Had these provisions been implemented, there would have been no need for them in the Companies Amendment Bill that is now so alarming business.

Section 27 has been so successfully expunged from public notice – albeit without Parliamentary sanction – that a reminder of its main provisions is merited.

“27(1). Every employer… must submit a statement… on the remuneration and benefits received in each occupational category and level…

“27(2.) Where disproportionate income differentials are reflected… [the] employer must take measures to progressively reduce such differentials subject to such guidance as may be given by the Minister…

“27(4). The Employment Conditions Commission must research and investigate norms and benchmarks for proportionate income differentials and advise the Minister on appropriate measures for reducing disproportionate differentials.”

The government’s intention is evidently to keep S27 unknown. Hence, there is no reference to it in the proposed Companies Amendment Bill. Nor is there any mention of it in the detailed Background Note and Explanatory Memorandum on the Companies Amendment Bill issued by the Minister of Trade, Industry and Competition, Ebrahim Patel

Why keep S27 a secret yet seemingly cover its provisions in an amendment to the Companies Act? The immediate answer is, because to acknowledge the existence of S27 is to acknowledge the failure of the Employment Conditions Commission to discharge its obligations under S27(4). Worse still, is to draw attention to the government’s 23-year failure to implement its own legislation.

Hence, rather than 23 years of progressively reducing income differentials (S27.2), the differentials have grown considerably. Parliament compounds the scandal by its prolonged failure to hold the government accountable. (A new form – EEA4 – issued in 2019, is an improvement on the original one but is still inadequate, as my colleague, Dick Forslund, argued in a submission to the Portfolio Committee on Employment and Labour, in February this year.)

The other major reason for not mentioning S27 is that to do so would be to draw attention to weaknesses in the Companies Amendment Bill (CAB). More on these differences later.

The question for now is: Why introduce these proposals at all and especially at a time when the government is so desperate to attract foreign investment by showing how business friendly it is? Minister Patel provides three reasons in his previously mentioned Background Note and Explanatory Memorandum. The first of these reasons is that other countries, most notably the US, have such legislation. The second reason, in its own coy language, is “the wide range of sources” pointing to “the unusually wide inequalities in remuneration”. In other words, the embarrassment caused by being described as the world’s most unequal country. The third reason is that “this kind of inequality underpins much of the well-known workplace conflict in South Africa.”

Such frankness is a likely front for the various sleights of hand that follow. Two merit mentioning here; both are also the difference between the CAB and S27. The first one is that the enormous salaries paid to the wide range of senior public sector officials – Cabinet ministers, MPs, other elected officials, directors-general, judges, generals, etc – are exempt from scrutiny. Yet, other than themselves, everyone else is scandalised by their pay and perks.

The EEA, by contrast, makes no distinction between the public and private sector: regardless of sector, it covers all employers with 50 or more employees.

The second one is the government’s exemption of itself from all responsibility when it comes to determining the upper reaches of what is paid to the elite at the top of the salary pyramid. This is to say, the government seeks to protect itself from accusations of not being suitably friendly to corporate CEOs. To keep government hands clean, the CAB hands over the entirety of this responsibility to shareholders!

“The Bill,” we are told “does not seek to propose what the ratios between executive and worker pay should be; instead it proposes transparency and empowers shareholder voting to be more effective than is currently the case.” Rather than shareholders, S27 makes the minister responsible for determining the size of the wage gap.

It is precisely because of these differences that S27 remains ignored; ignored, moreover, without any discussion, explanation or legal sanction.

There is still more to the S27 story. The Congress of South African Trade Unions (Cosatu) demanded considerably more than what’s contained in S27. Indeed, Cosatu’s original demands were so pertinent to a genuine redressing of what was then called the notorious apartheid wage gap – the difference between the obscene salaries at the top of the pyramid and the starvation wages at the bottom – that the then Minister of Labour, Tito Mboweni, who was to become the future governor of the Reserve Bank and then minister of finance – threatened to withdraw the entire Employment Equity Act if Cosatu stuck to its demands. I was at this time the ANC’s Parliamentary Researcher attached to the Labour Portfolio Committee. I witnessed these events.

Like S27 itself, Cosatu’s 7,000-word submission remains all but unknown. It’s main points merit an airing, particularly given the subsequent realities of affirmative action and BEE. Moreover, a reminder of why it infuriated Tito Mboweni might help awaken Cosatu and other trade unions to the weaknesses of the CAB.

The submission, presented on 22 July 1998, begins with the fact that the Employment Equity Bill contained no wage-gap provisions other than those of the racial inequities of apartheid. It was entirely silent about the class inequities. Hence:

“The labour movement has for long maintained the view that the discussion around affirmative action in South Africa runs the risk of focusing narrowly on the promotion of a small number of individuals, leaving the pattern of apartheid labour market discrimination and inequality fundamentally undisturbed. …

“A narrow, state-driven strategy, relying exclusively on the imposition of affirmative action… would have a serious drawback. In particular, it would… focus in a one-sided way on the promotion of a few individuals into management position.”

Accordingly, notwithstanding Cosatu’s broad support for the bill, it made that continued support dependent on measures to close the class wage gap:

“It is estimated that the average ratio in South Africa of the Managing Director to the lowest paid worker is about 100:1, while in Japan it is on average 7:1…

“This has resulted in a hierarchy, which drains economic resources into the higher occupation layers, often the least productive strata of the economy. Bloated management, administrative, supervisory and other layers take the lion’s share of the wage and salary bill…”

The submission concluded with the following:

“We propose a set of amendments contained in Annexure A. The intention of the amendment is to ensure that closing the wage gap is reflected in the purpose of the Act; it is an explicit goal of affirmative action measures; it is reflected in the audit/analysis and the employment equity plan; and it forms part of the criteria for assessing compliance. This will provide a framework for ensuring that this issue is put on the agenda of every workplace…

“The issue of closing the massive gaps between the various strata of the workforce, between management and low-paid workers, men and women, black and white, blue collar and white collar, needs to be a central element of any meaningful employment equity strategy in South Africa. This is needed to ensure that employment equity does not just remain a formality, but is achieved in a substantive way. In particular, the act should not be confined to a degree of ‘horizontal equity’, where there is racial and gender representivity within a particular strata of the labour market, while there continues to be huge ‘vertical inequity’ – between those at the bottom and those at the top. Failure to do this would tend to merely change the complexion of inequality, without fundamentally altering its structure.”

In the event, Cosatu did more than just surrender. Having accepted what became S27 – the barely recognisable remnants of its original demands – it, too, has been party to S27’s 23-year vanishing act that would make any magician proud.

It brings me no pleasure to be writing about Cosatu’s complicity in the burying of S27. I have been a trade union official – both elected and appointed – for much of my life. I still see organised labour as playing a major role in whatever progressive changes there might be, both in South Africa and worldwide.

These expectations make it essential to understand what has gone wrong and for such a long period. The Marikana massacre made manifest the chasm between Cosatu’s leadership and its members. The expectations – and rewards – of most of this leadership were and probably still are, not dissimilar to those who more usually belong to the black bourgeoisie, as former president Thabo Mbeki called them.

S27, for all its limitations, was nevertheless anathema to most upwardly mobile people. They wanted – and still want – as much money as possible, along with the most luxurious of cars and all the other accoutrements of wealth and power. With the support of both government and Parliament, they’ve succeeded beyond their wildest dreams of not letting S27 get in their way.

We can well expect them to similarly resist the milder aspects of S27 that now confront them in the form of amendments to the Companies Act. That the minister championing these amendments happens to be a former leader of a large affiliate of Cosatu cannot be lost on them. They might take comfort in this fact, given Cosatu’s burial of S27.

And they can take comfort in what appears to be the limited and uncritical trade union interest in the CAB.

On the other hand, the rivalry between Cosatu and it’s new, left-wing rival, the South African Federation of Trade Unions, along with possible lessons learnt since Marikana, might still lead to a different ending, especially in the hostile current environment of austerity.

Today’s labour movement might yet surprise some of us while terrifying others by picking up the baton dropped by Cosatu in 1998. DM

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