Trade, industry & competition minister Ebrahim Patel is not known for his belief in the free market. In fact, his department likes to get involved in the running of businesses using multiple tools at his disposal such as regulations, inquiries by the Competition Commission and customs investigations by the International Trade Administration Commission.
As such, business is not always in favour of the government’s level of interference. But when it comes to executive pay, the gap between the top earners and average workers is so high you can’t blame Patel’s department for wanting to shine some light on the pay discrepancies.
Take the Woolworths CEO, who earned a whopping R122m in 2023, a figure probably about 1,400 times that of the retailer’s lowest-paid employees, who take home R41.25 an hour. In Woolworths’ defence, it is rare to disclose the lowest-paid workers’ salaries.
Patel’s department is proposing changes to the Companies Act in order to improve the disclosure of the extreme gap between the top and bottom earners.
Unsurprisingly, big business is fighting the Companies Amendment Bill that would compel listed firms to disclose the highest and lowest salary plus the wage gap between the top and bottom 5% of earners in a company.
In some asset management firms, however, it is believed that the top earners are not necessarily the CEO or CFO whose pay is disclosed when the firm is listed, but those who make the highest returns.
The highest-paid salary at public investment firms would have to be disclosed if Patel and the department got their way.
Forty-one firms gave substantive written submissions to parliament who during hearings on the bill last week. Organisations that commented included Business Unity SA representing most of SA business, the Institute of Directors, the Wits Southern Centre for Inequality Studies and Coronation Fund Managers.
Industry bodies such as the Consumer Goods Council of SA, representing food retailers and producers, and the National Clothing Retail Federation which speaks for clothing chains also made submissions. Most businesses objected to the disclosures.
It is in this contested environment that Woolworths thought it appropriate to pay CEO Roy Bagattini R122m. Only three years ago, shareholders were up in arms about outgoing CEO Ian Moir’s parting package of more than R70m despite his hand in the disastrous David Jones deal.
Half of what Bagattini earned was long-term share options awarded in 2020 when he joined the group. But does any CEO deserve such remuneration when food and clothing sales are going backwards compared to the year before?
Woolworths and Bagattini like to talk about their “Good Business Journey” and how “doing good is good for business”. In August 2022, Bagattini even said that not enough is spoken about social inequality in SA.
At the time, Woolworths said it would invest R120m over three years to lift cashier pay as it believes in a “just” and “living” wage. That’s about the same as what Bagattini took home in a single year.
His salary shot up 238% between the 2022 and 2023 financial years, while the company’s share price gained just 35% between the beginning of the 2022 financial year and the end of the 2023 year. Shareholders were clearly not the main winners here.
Firms hire remuneration experts to benchmark their executive pay against rival firms’ pay levels. But since listed firms all pay their executives a lot, including those that employ advisers, all appear to conclude that what is paid is in line with peers. It’s an exercise in groupthink and futility.
Against this, you simply can’t blame Patel for getting involved.
In this case, Bagattini’s salary is hardly that of peers. In the 2023 financial year, he earned almost double that of Shoprite CEO Pieter Engelbrecht, whose firm is doing a far better job in growing market share. Engelbrecht’s leadership is in a class of its own.
Remuneration committees need to be aware of what is at stake. The bill proposes that a single vote by shareholders against pay would force the nonexecutive directors to stand down from the committee.
This has been opposed in most submissions to parliament as both punitive and impractical, creating an environment of leadership instability. In fact, law firm Bowmans points out shareholders may be too scared to vote against pay, when needed, for fear of losing a director from the committee.
Perhaps if executive pay were a bit more reasonable, the government would not need to get involved with the proposed changes to legislation, some of which do seem unworkable.
But big business tends to score own goals. It just can’t seem to help itself when it comes to rewarding CEOs with increases way above what ordinary staff and shareholders earn.
• The opinions expressed here are those of the author, a writer/columnist for Business Day.
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