The recent amendments to SA’s Companies Act, signed into law by President Cyril Ramaphosa, are poised to transform corporate governance through increased transparency and accountability, though not without potential challenges.
Experts have warned that these changes may not fully address salary equity issues and could lead to unintended consequences for the workforce.
The amended act has introduced changes to remuneration disclosure for both private and public companies. Key among these is the requirement for companies to list remuneration details for directors and officers by name in their annual financial statements.
Public and state-owned companies are required to develop a detailed remuneration policy and report. This must include data on the earnings of directors and officers, the highest and lowest-paid employees, and the average and median remuneration for all employees. The aim is to highlight pay disparities within companies and enhance transparency.
To safeguard shareholder interests, the amendments stipulate that remuneration policies be approved by shareholders at the AGM and every three years thereafter. If a policy is not approved, it cannot be implemented until it receives subsequent approval.
The key question that all of us now have to figure out is whether this [remuneration] report then gives us better insight into how wide the pay gaps are within the private sector and state-owned companies in particular.
— Khaya Sithole, analyst
The remuneration report must be approved by the board and presented to shareholders annually. If the report fails the approval process, nonexecutive directors on the remuneration committee must stand for re-election, ensuring that director decisions align with shareholder interests.
Economist Redge Nkosi has argued that the new provisions are unlikely to affect salary equity. He highlighted that decisions in publicly listed firms, reflecting shareholder interests, align closely with directors’ actions, making divergence unlikely. Nkosi said leaving the policing of salary equity to directors and shareholders was insufficient, as salary gaps could not be closed merely through their discretion or the filing of reports.
“Salary gaps cannot be closed merely by appealing to the whims of directors/shareholders and the filing of reports in this regard,” Nkosi said.
“In most firms, while executives/directors make all the salary decisions, they (such decisions) are often approved by the board, which is the mediating body between shareholders and staff. I do not think the new changes make any fundamental difference from current practice.
“While the intentions of the changes in the act may be good for the economy as a whole, they are unlikely to address the challenges they intend to solve,” Nkosi said.
He emphasised the need for a clear definition of “salary”, suggesting that stock options and other perks should be included in assessing total executive compensation.
Analyst Khaya Sithole argued that while these disclosures would reveal varying pay gaps across companies, they reflected broader societal inequalities. Sithole said companies could respond by accelerating pay increases for lower-paid employees, though this alone was unlikely to completely resolve pay gap issues due to inherent differences in roles and responsibilities.
“The key question that all of us now have to figure out is whether this [remuneration] report then gives us better insight into how wide the pay gaps are within the private sector and state-owned companies in particular. And if so, is it simply yet another manifestation of the many parallels that we know exist along the inequality dimensions in the country?”
SA’s move aligns with global trends in corporate governance. According to media reports, the UK requires shareholder votes on executive pay every three years, while Australia has a “spill” resolution if the remuneration report is voted down twice.
These measures aim to curb excessive executive compensation and enhance shareholder oversight.
Sithole argued that comparing the top 5% and bottom 5% of earners was arbitrary, suggesting the Palma ratio, which compared the bottom 40% of earners with the top 10%, as a more effective measure of pay inequality.
There is also concern that companies might seek to reduce the pay gap through workforce reductions or outsourcing, which could adversely affect lower-level employees.
“What exactly happens next? Because what we will then see is that once companies do undertake this disclosure, there will be many different numbers. Every company will have different answers to that question, but the key issue is that every single company will find a way to explain its reasons behind its pay processes and its pay rates.”
Investec is one of the few companies that has already begun disclosing its pay parities.
The bank’s latest annual report shows that average single-figure total remuneration of the top 5% of SA-based employees was R10.1m per annum in the 2024 financial year, while the bottom 5% pocketed just R297,000.
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