Trade, industry & competition minister Ebrahim Patel has made good on his undertaking to release the Companies Amendment Bill requiring greater disclosure of executive pay for public comment, but business is not happy with its timing in the current economic circumstances.
Business Unity SA (Busa) wants to engage further on the proposals and is also concerned that the deliberations on the bill in the National Economic Development and Labour Council were not taken into account by Patel.
It says that in the current circumstances of low economic growth, mass unemployment and a high level of emigration of skilled business people the emphasis — especially in the midst of the Covid-19 pandemic — should be on fostering the growth of companies, retaining skills and employing more workers.
The Companies Amendment Bill which will be gazetted on Friday has three aims: to improve the ease of doing business by introducing legal certainty and flexibility and by removing onerous provisions; making mandatory the disclosure of executive pay and the wage differential between the upper and lower levels of the workforce; and addressing money laundering by requiring the disclosure of the beneficial owners of company shares.
To improve transparency, certain categories of firms will be required to disclose information on the remuneration of directors and prescribed officers and to disclose the average remuneration of all employees as well as the ratio between the total remuneration of the top 5% highest paid employees and the total remuneration of the bottom 5% of the lowest paid employees of the company. Shareholder approval will be required for the company’s remuneration policy which is not currently the case though there have been occasions when shareholders have objected to executive pay at annual general meetings.
In terms of beneficial ownership, companies will be obliged to know and disclose the identity of their true shareholders who hold a beneficial interest amounting to 5% or more of the total shares in a company.
The drive towards greater transparency of executive pay is a worldwide trend and Patel believes greater transparency and accountability will help to reduce excessive remuneration at the highest levels of a company and over time reduce the high level of inequality in society.
It is well known that SA is one of the most unequal societies in the world. Global professional services firm PwC found in a report on executive remuneration that the median pretax package for a CEO of a listed company was R5.2m in 2020, and R2.8m after tax — more or less equal to their peers at London-listed companies, 100 times the national minimum wage and 35 times the median pay for unskilled workers in big business.
Business agrees in principle that the wage gap needs to be closed and has no problem with disclosure but is not convinced that the amendments proposed by Patel are the way to go. It believes a balance has to be achieved between this goal and disincentivising executives — who are already leaving SA in droves — by reducing their pay. In the current climate the focus, it argues, should be on enabling companies to invest and grow and by these means ensure inclusive growth.
Particularly objectionable in the eyes of business is the obligation to disclose wage differentials which it says is not very useful and will only lead to acrimonious and destructive conflict without leading to a rise in labour prices.
These seem like arguments to retain the status quo. There is no evidence that a gradual reduction in executive pay over time will accelerate the exodus of skilled business people who are more likely to leave because of the gloomy prospects for the country, fuelled by political instability which in no small part is caused by widespread poverty, inequality and unemployment.
Business Day has previously expressed its support for greater disclosure of executive pay and though we are not always in support of Patel’s interventions in the economy, we believe he is on the right track with this one, a move which is aligned with his drive for greater worker ownership of company shares. Another battle between him and business in future will be his intention to introduce legislation providing for worker representation on company boards.
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