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South Africa’s Massive Wage Gap

South Africa has one of the biggest pay gaps in the world – with CEOs of the JSE’s top listed companies earning as much as 725 times their workers’ average salary.

These are the findings of a report compiled by Mergence Investment Managers, looking at executive remuneration in South Africa in context of both local and global trends.

Mergence found a number of alarming trends in the South African context – CEOs in JSE-listed companies are high earners, and in addition, earn on average 140 times more than the average worker.

And the trend looks to continue, with salary increases over the past five years showing an upward trend in pay disparity.

“Our data suggests that, since 2009, the average annual inflation rate of CEO base salary packages was above 10% per annum while average salaries across all employees within the companies in our sample increased by under 8% per annum.”

The research shows that seven of the top earning CEOs of JSE-listed companies received total compensation above R60 million in the past financial year – more than 300 times what the average worker (non-agricultural) earned in 2013: R180,000.

20 highest JSE-listed CEO pay

# Company Total pay (Rmillions)
1 BHP Billiton 148
2 AngloAmerican 102
3 British American Tobacco 98
4 Anglo Ashanti 77
5 Mondi Plc 73
6 Old Mutual 72
7 AVI 63
8 Sasol 54
9 Capital and Counties 52
10 Shoprite 50
11 SAB Miller 48
12 MTN 48
13 Richemont 39
14 Steinhoff 36
15 Lonmin 34
16 Aquarius 32
17 Investec 29
18 Standard Bank 29
19 Barclays Africa 29
20 Blue Label Telecom 28

However, when it comes the pay gap between chief executives and their employees, Shoprite CEO, Whitey Basson, earned a staggering 725 times more than the company’s average employee salary, with three other companies rewarding their executives over 200 times more than employees.

20 Biggest payment gaps in JSE-listed companies

# Company Pay gap (times greater)
1 Shoprite 725
2 AVI 375
3 Aquarius 311
4 AngloAmerican 220
5 Bidvest 188
6 SAB Miller 169
7 British American Tobacco 157
8 Steinhoff 156
9 Lonmin 151
10 Mr Price 150
11 Mondi Plc 147
12 MTN 141
13 Woolies 138
14 Assore 134
15 BHP Billiton 119
16 Tiger Brands 112
17 Lewis 106
18 JD Group 100
19 Blue Label Telecoms 98
20 Clicks 95

In greater context, however, with the exception of Shoprite, most South African company pay gaps are much lower than listed companies in the USA, where executive pay can be as high as 1,795 times greater than the average employee.

Top 5 biggest pay gap in US listed companies

# Company Pay gap (times greater)
1 JC Penny Co. 1,795
2 Ambercombie & Fitch 1,640
3 Simon Property 1,594
4 Oracle Corp. 1,287
5 Starbucks Corp. 1,135

According to Mergence’s research, South Africa sits with the 5th biggest average pay gap in the world, after the USA (1st), Hong Kong (2nd), Germany (3rd) and the UK (4th).

“While this data shows that high levels of income inequality between executives and workers is a global phenomenon, it is concerning to see that South Africa ranks above a number of developed and developing market peers on these measures,” Mergence said.

It’s important to note, however, that in most cases, amongst the companies measured, executive pay is equivalent to a very small percentage of total salaries paid out – and an even smaller percentage of total operating expenses.

As an example, Shoprite’s Whitey Basson earns 725 times more than the average employee – but his salary is only 1.52% of total salaries paid, and 0.13% of the group’s total operating expenses.

“Given the size and scale of the companies on this list, the amounts that are paid to executives are small relative to the total salary bill of the company and to the operating expenses of the company,” Mergence said.

“This incentivises corporate boards and shareholders to spend to obtain the best management teams.”

However, that does not mean that everything is okay and business can continue in this line.

Closing the gap

According to Mergence Investment Portfolio Manager, Brad Preston, who led the research, companies and shareolders need to be mindful and concerned about the current level of income inequality within listed South African companies.

“Executive remuneration is a complex and sensitive issue, especially in South Africa,” Preston said.

Brad Preston

“South African companies and their stakeholders face the challenge of having to compete in a global marketplace but also having to confront the enormous levels of inequality within South African society.”

“We believe that the current level of income inequality within listed South African companies should be a concern for shareholders, as well as the fact that in some companies this inequality is rising.”

According to Preston, these issues need to be addressed before it leads to negative social consequences or regulatory or political interference, which could ultimately stifle business operations.

The portfolio manager pointed to global trends moving to limit executive remuneration through various means – notably through increased disclosure of incentives, and in other cases through legislation.

“It is important for shareholders to engage company management seriously on this issue to attempt to mitigate the risks posed by the high levels of income inequality with in South Africa, both to the long-term safety of their capital as well as to South African society as a whole,” he said.

 

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