The government is not seeking to prescribe the salary structures of executives in public companies, trade, industry & competition minister Ebrahim Patel said on Wednesday.
Speaking during a news conference ahead of the release of the Companies Amendment Bill for public comment, Patel said the proposed changes to legislation seek to foster greater pay transparency in the hope that this will nudge shareholders and stakeholders to be more proactive in tackling the ever-widening income gap.
“The bill 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 the case. There is no question, however, that there is widespread public concern about existing pay practices and the current regulatory regime,” Patel said.
The government believes that regulating pay by disclosure is a powerful tool because it provides shareholders with an effective means of responding to dissatisfaction at excessive remuneration. In addition, it has a so-called shrinking effect, which induces the boards of companies and senior executives to refrain from awarding and receiving excessive pay for fear of adverse reputational consequences.
SA is widely considered as one of the most unequal societies in the world, but moves to enforce the disclosure of executive pay are likely to be frowned on by business, which often opposes state interference.
The amendments to the Companies Act seek to implement stronger governance of excessive director pay and enhanced transparency of ownership and financial records.
According to the bill, which is due to be published on Friday, companies will be required to publish details of their highest- and lowest-paid employees, average and median remuneration, and the gap between the top 5% highest-paid and the bottom 5% lowest-paid employees.
The bill provides that where remuneration and benefits are received by company directors or prescribed officers, such executives must be named in the annual financial statements. This is, however, limited to companies that are required in terms of the existing act to have their annual financial statements audited.
The bill also provides shareholders with better tools to respond to how remuneration issues are dealt with in companies. It proposes the insertion of a new section obliging public companies and state-owned companies to prepare and present a directors’ remuneration report for approval by the board. A remuneration policy report should be presented at an annual general meeting for approval by ordinary resolution. Once approved, such policy would only have to be presented every three years or whenever material changes are made.
Patel said tackling the pay gap will be crucial to avert workplace conflict and sp would boost competitiveness.
“One of the matters that come up consistently is disquiet over remuneration policy ... the big challenge in a big, dynamic and competitive economy is lack of cohesion within firms. That requires that relationships are not simply transactional, but there should be a greater sense of building together.
“When a firm fails, it’s not management or shareholders that lose, but all workers,” Patel said, adding that transparency and clear data on pay across the board will help shareholders decide on appropriate pay for executives, taking into consideration what ordinary workers earn.
The government highlights a recent report by global professional services firm PwC on executive remuneration, which found that the median pretax package for a CEO of a listed company was R5.2m in 2020, and R2.8m after tax. That was 100 times the national minimum wage and 35 times the median pay for unskilled workers in big business.
Patel said this kind of inequality underpins much of the workplace conflict in SA. He suggested that the proposed publication of indicators of pay differentials will empower shareholders and other stakeholders to see trends and, where warranted, propose changes.
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