Chair Trevor Manuel is “very proud” that Old Mutual has raised the minimum it pays employees to R15,000 a month, “so taking a decisive step towards narrowing the wage gap”. One presumes that this minimum does not apply to the cleaners, security guards and canteen staff contracted to supply such services. Fortunately — because if so extended, it would mean many fewer of them would be employed in these humble categories.
I would be much more inclined to share the pride in firms paying more if it was accompanied by a growing payroll. It is an outcome difficult to realise when improved rewards must be accompanied by improved performance — if the firm is to survive — through productivity augmented by computers, robots, artificial intelligence (AI) and on-the-job training. The true employment heroes are the firms that can grow salaries and the numbers employed, especially at entry level, enabling the young to begin a lifetime journey up the salary scales.
It appears that this new Old Mutual minimum is very close to industry-wide practice, sensibly so. It is reported that the equivalent minimum at Standard Bank as a cost-to-company salary in 2023 was R231,050 (R19,254 a month).
Santam, another insurer, has also announced a comparable minimum wage of R15,000 a month, noting that its “remuneration policy has ensured that we remain competitive against market salaries, so as a result of this policy we had a very low number of employees below the living wage. However, as part of our commitment to fair pay, we formally adopted the principle of paying a living wage at minimum.”
It makes good sense for a business to be competitive for all the skills it requires, including how it rewards its senior management and also the board of directors who appoint the CEOs and approve their packages. The more competitive the packages on offer, the more selective the company can be in hiring the best and the brightest. And in firing.
Paying market-related wages and salaries and bonuses is not an act of charity, at least in the private sector.
The more competitive the packages on offer, the more selective the company can be in hiring the best and the brightest. And in firing.
They must be earned and continuously justified. Though proving the point to those who have never had to meet a payroll or survive a performance review and who may not be especially well rewarded, despite their superior intelligence, may be very difficult. Think of convincing envious academics with tenure.
The notion that there will be some gap or ratio between the rewards of those at the top and the bottom of the ladder acceptable to public opinion is an economic nonsense that needs to be resisted in the interest of any company with an eye to the bottom line. That is given the very different supply and demand forces, sometimes global (visas permitting), that apply to top managers and entry-level employees alike.
SA’s problem is not the lack of benefits earned by those employed in the formal sector. It is the absorption rate in SA (the percentage of the employed to the working age population), a tragic 40.8% and lower for the youngest cohorts. Absorbing the entrants to the labour force is the huge challenge for economic policy. But it will surely not be solved paying those in good jobs ever more, after inflation, as has been the practice. And thinking how wonderful it all is to do so.
There are many potential workers who might accept the minimum wage — that is not offered to them — or accept even less if allowed to do so. These regulated minimums, however, exceed the contribution they are thought likely to make to potential employers because many potential workers are just poorly equipped by training or education to do so. Yet others, classified as unemployed, might find the minimum wage below their reservation wage. That is below the wage that makes it sensible for them to go to work, that will not exactly be fun, and possibly expensive to get to. That is given benefits in kind, perhaps occasional work, perhaps only a bare subsistence, provided for by an extended family, and cash grants — received by half of all SA households.
Such potential workers are not unemployed, they are just not working — for their own good. And foreign workers, with a lower reservation wage, in unknown numbers, take up the employment opportunities.
• Kantor is head of the research institute at Investec Wealth & Investment. He writes in his personal capacity.
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