Trade, industry & competition minister Ebrahim Patel says amendments to the law that force better wage gap disclosure in public firms “are required to tackle the injustice of excessive pay”.
“The pay gap has been a historical challenge in SA and a contributor to the country’s inequality.”
He was addressing MPs on the Companies Amendment Bill and Companies Second Amendment Bill now before the portfolio committee on trade & industry.
More than 41 organisations responded to the bills, with big business opposing the suggestion that the pay gap between the top and bottom 5% of earners of a listed firm be disclosed. Also to be disclosed are the highest and lowest salary, and the median and average salary. Old Mutual, the JSE and Aeon Investment Management were in favour of pay disclosure.
The department has responded to the submissions and proposed some changes to the Companies Amendment Bill’s wording on certain issues.
In its submission, the Wits Southern Centre for Inequality Studies calculated that CEOs could earn up to 949 more than their workers in a year, excluding bonus pay.
Patel said the Companies Amendments Bill will allow for “stronger shareholder governance on excessive director pay and enable company shareholders and stakeholders to, when necessary, address unsustainable paid discrepancies”.
“Light is the best policeman and sunlight the best disinfectant,” he said.
Patel, however, conceded that the bill’s provisions on remuneration votes at listed companies may need to change.
The Companies Act at present allows shareholders of public firms two nonbinding votes on executive pay. Should the votes fail, the listed firms must meet dissenting shareholders, but there is no real consequence if shareholders repeatedly reject the executive pay levels.
In the bill, if one vote against pay fails the directors sitting on the remuneration committee must step down from that committee. Nearly all submissions to parliament criticised the idea as unworkable and punitive, warning it would chase away highly skilled directors from serving on remuneration committees.
In its submission, Vodacom said such a rule would make SA’s regulation on remuneration the “most onerous” in the world.
The JSE suggested a two-strike rule would be more workable, forcing directors to step down from the remuneration committee if the pay votes fail twice in a row. This happens in Australia.
Patel said that “the department considers it helpful to build greater consensus on the legislation”.
He suggested that directors step down from the committee after two failed votes and remain unable to serve on a pay committee for two years. The department proposed new wording for this section of the bill that the portfolio committee could use.
Patel addressed concern that proposed pay gap disclosures do not include the gender pay gap, which measures the difference in average pay between men and women within a firm, a point raised by shareholder activist group Just Share and asset managers Aeon and Old Mutual.
Patel said that as a matter of policy it would be appropriate for legislation to cover gender pay gaps. “It is certainly an absolutely valid policy proposal”.
But he warned that because this proposal had not been put out for public comment, if it were included in the new legislation it could face legal challenges.
He said the committee will have to decide whether a gender pay gap disclosure provision can be included in the existing bill, whether further public comment is necessary and whether there was enough time for this without delaying the processing of the bill.
The bill also allows any member of the public to pay a small fee to access the annual financial statements of any private company with a public interest score of 350 or more, even when that private company sits within a listed corporate group that already publishes its annual financial statements.
Patel rejected opposition to the proposal that certain private companies that are generally large and profitable would have to disclose their annual financial statements if requested.
“Many large private companies ... have a scale of activities very often comparable with some of the leading public companies, [are] large employers of labour [and] are significant players in the SA economy generating very large turnovers.
“Thus, they should have the same duties of accountability and transparency ... a core principle in SA company law.”
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