Big business has spoken out against a proposed law expected to force listed companies to declare the ratio between the top 5% of earners and the bottom 5% in their companies — with those in favour suggesting it could reduce inequality and increase fair pay.
SA is one of most unequal societies in the world, with CEOs earning salaries that are often hundreds or a thousand times more than the lowest-paid workers.
The Companies Amendment Bill, which aims to alter parts of the Companies Act, seeks to address the vast differentials in pay by improving remuneration disclosure, along with suggesting other reforms in a bid to increase transparency and corporate governance.
The bill suggests public companies must disclose the wage gap between the top 5% of earners and the bottom 5%, disclose the salary of the highest and lowest paid worker, and the average and median employee remuneration.
Parliament’s portfolio committee on trade and industry will hold public hearings on the bill this week.
Firms that have commented in 41 written submissions include Sasol, Allan Gray, Vodacom, Mr Price, the JSE, as well as legal firms Bowmans and Werksmans.
Speaking on behalf of Business Unity SA (Busa), which represents most of SA’s business community, CEO Cas Coovadia said the basis for comparing the top 5% and bottom 5% of earners seems to be “arbitrary”.
Coovadia suggested using the “Palma Ratio”, which compares the bottom 40% of earners in a firm with the top-paid 10%.
He said “substantial academic research shows the Palma Ratio is a more effective method of describing pay inequality in developing economies”. The ratio is named after the Chilean economist that inspired it, Gabriel Palma.
Busa used its appearance before parliament to urge the government to focus on creating a business-friendly environment to drive investment and job creation.
Asset management firm Coronation Fund Managers, in a written submission, warned of “detrimental unintended consequences” from disclosing pay gap ratios.
“The bulk of companies are likely to employ staff who are receiving the minimum wage, which is a known public figure. So it is largely superfluous for this to be communicated.”
PSG financial services group warned in a written submission that such a ratio may discourage companies from hiring younger employees who usually earn less, due to the “potential implications associated with maintaining these ratios”.
Vodacom stated that “draconian remuneration disclosure practices” could encourage a skills flight when specialist skills are in short supply in SA.
Disclosure means companies cannot ignore inequality
— Southern Centre for Inequality Studies
And business lobby group Sakeliga warned that disclosing median remuneration “could pit employees against each other”.
“A top-down attempt to alter the compensation determinations of companies in an inorganic way will only lead to resignations, retrenchments and unproductive behaviour.”
Mr Price said that “the pay gap ratio will not address how the gaps should be addressed and will only serve to cause division and reinforce ideologies”.
On the other hand, the Wits University Southern Centre for Inequality Studies supports better disclosure. Researcher Arabo Ewinyu said “disclosure of wage differentials will mean companies cannot continue to ignore the inequalities in pay”.
“Higher paid workers will face external pressure for wages earned and this will impose downward pressure on their wages.”
Often the lowest paid workers such as security guards and cleaners work for outsourced companies, but the centre said these workers need to be included in pay measurements of the place in which they work.
Meanwhile, Just Share, a shareholder activist organisation, said in a written submission that contrary to popular belief, it is not “just” unemployment that contributes to SA’s status as having the highest inequality in the world. Instead, it was the wage gap.
“Exceptionally high levels of real earnings growth for high earners, together with low wages and no real earnings growth amongst low and median earners, are key drivers of high levels of inequality.”
Old Mutual, the JSE and law firm Bowmans supported the proposals on pay gap disclosure.
But Mireille Wenger, Western Cape MEC for finance and economic opportunities, warned that wage disclosure would not change the fundamental reasons there was inequality, which include “inadequate economic growth and high levels of unemployment”.
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