Perceived overpayment of executives has become a highly divisive issue, and is fuelling antagonism between labour and employers. It has also become a political football.  But the underlying cause for the bitter resentment is the fact that the lowest paid workers are often unable to live decent lives. “The real issue we should be confronting is not just the minimum wage but what a Living Wage is, and how to begin paying it,” says Martin Hopkins, an Executive Committee Member at the South African Reward Association (SARA) and a partner at PWC in the People & Organisation practice.
 
The Minimum Wage is a statutory minimum that all employers must pay, whereas the Living Wage is a generally higher level of income that can provide for a “frugal but dignified life” for the employee and his or her nearest dependants.  Paying a Living Wage is usually a voluntary measure adopted by an employer.
 
“Companies should see paying a living wage as a strategic imperative that will improve employee engagement, improve relations with important stakeholders and contribute to social stability,” says Hopkins.
 
National minimum wage debate
In South Africa at present, minimum wages are set by sector. There is a body of opinion that argues the need for a national minimum wage which, Hopkins says, would probably be between R3 500 and R3 700 per month. Whether a national minimum wage would have a positive or negative effect on unemployment generally is a hotly contested point.
 
However, it needs to be recognised that just paying the minimum wage creates a category of the “working poor”, people who simply do not have enough to live decent lives, and cannot afford to educate their children properly. The working poor are a destabilising force both in the company and in society in general because they support perceptions that “the system” is unfairly biased towards those at the top.
 
“However, we should not lose sight of the fact that there are relatively few people equipped to lead a large company, where the slightest miscalculation can have devastating consequences for share- and stakeholders,” says Hopkins. “These executives are global, so a company that does not pay the market rate runs the risk of losing its top talent.”
 
Balancing both sides
Balancing the need to retain and incentivise top executives with the moral imperative to treat the lower paid workers fairly is one of the biggest challenges for remuneration committees, says Hopkins. It is clear from the draft of King IV that the ethical implications of remuneration are to become part of the governance landscape. King IV gives remuneration committees the responsibility to ensure “fair and responsible remuneration” within the context of the wage gap between executives and the lowest-paid employees.
 
The argument for paying a Living Wage
Hopkins argues that remuneration policies should be seen as contributing to the company’s social licence to operate. It’s no mistake that in the United Nations Sustainable Development Goals - “inclusive and sustainable economic growth, employment and decent work for all” - are linked, he says. 
 
The United Kingdom-based Living Wage Foundation cites an independent study showing that it improves the quality of work, reduces absenteeism, and enhances recruitment and retention. Seventy-five percent of employees reported that the quality of work they delivered improved as a result of being paid a living wage, while 50 percent said it predisposed them to adopt changes in their working practices.
 
“One should not underestimate the challenges that many companies would face in paying a Living Wage, which would be significantly higher than the Minimum Wage but, equally, one should not lose sight of the fact that it is imperative in order to rebuild social trust in business, and to defuse the antagonism that has built up between labour and employers—something that is impeding growth,” Hopkins concludes.
 
“We need a neutral, non-partisan body to be established to develop a rigorous methodology for establishing just what a Living Wage is, to advocate its implementation, especially in large profitable companies, and to conduct studies that measure its benefits.”

ENDS
​
MEDIA CONTACT: Cathlen Fourie, 012 644 2833, cathlen@thatpoint.co.za, www.atthatpoint.co.za  

For more information on SARA please visit:
Website: www.sara.co.za  
Twitter: @SA_reward
LinkedIn: South African Reward Association
Facebook: SARA – South African Reward Association ​​​​​

​By Dr Mark Bussin
Executive Committee Member, South African Reward Association (SARA)

For many, the huge disparities between the rewards assigned to executives and the wages paid to other employees are concrete evidence of a basic unfairness underpinning 21st century capitalism. Global outrage over executive packages that are perceived to be too high was one driver of the Occupy Wall Street and similar movements, and remuneration has become a hot topic at shareholder and board meetings.

Given its past, this issue is one that is particularly toxic in the South African business world. It is an unfortunate legacy of apartheid that whites are over-represented among the ranks of senior corporate leadership. In this context, wage disparities take on a distinctly racial complexion, a fact that political parties and unions have been quick to exploit. Unhappiness about the wage gap between top and bottom earners is helping to create the unstable industrial relations that plague South African industry. 

Those who are worried have a point. In the United States, which has the highest wage gap, the average CEO earns 164.4 times what the median worker earns, according to 2014 research. The same research pegs South Africa at fifth in the world, with CEOs earning 73.1 times as much as the average worker. 

Of course, these ratios increase dramatically when CEO pay is compared with the lowest wages in the company. 

Responding to these concerns, and the negative effect of wage disparity on corporate sustainability, the draft of King IV recommends that boards should “consider and disclose the measures put in place to attain fair and responsible executive remuneration in the context of overall employee remuneration”. 

The key words here are “consider and disclose”, because it is clear that the perception that high wages are immoral can only be countered by communication and education—and here I think those companies that employ a reward professional would be well advised to use him or her. Part of the disconnect between workers and unions on the one hand, and bosses on the other, is that the principles of the company’s remuneration policy are not properly understood. This gap can only be bridged when these principles are effectively communicated in language that everybody can understand. 

Ready for scrutiny?
However, it also has to be recognised that communication and education will only work if the remuneration policies are well-constructed and that there is constant oversight by the board to ascertain that they are, in fact, working as planned. This oversight must come from the board rather than the executive team. The board must also ensure that the company’s remuneration principles and practices are communicated to, and are understood by, all stakeholders. 

It goes without saying that boards will need to heed the comments and concerns expressed by stakeholders, and will have to accept that any weaknesses in their remuneration strategy will become matters of public record. 

One of the challenges they face is that linking pay to performance is extremely tricky to get right, and has led to many unintended consequences. The guiding principle here should be to ensure that the desired outcomes are achieved before the executive is rewarded, and that the risk to which an executive exposes the company in pursuit of the outcomes is factored into the remuneration. Integrating the risk profile into the remuneration strategy will require good judgement, and will have to include difficult-to-measure risks such as liquidity risk, reputation risk and cost of capital. Considering the wider context is also important, and the optics of remuneration packages needs to be right too.

Whether or not companies have the services of a reward professional, the following best practices serve as a useful guide: 

Benchmark
When benchmarking, compare executive guaranteed pay to organisations of similar size and complexity. Benchmarking provides a basis for comparison and provides some justification for the remuneration model chosen. 

Link pay to performance 
Executive variable pay should be linked directly to company performance and the executive’s ascertainable contribution to it. The right measures need to be found to ensure that executives are not rewarded for achieving results that, in the long term, could affect sustainability. Incentives for cutting costs could be achieved by reducing R&D or maintenance, with drastic long-term consequences, for example.  

Enhance stakeholder value
It is imperative that stakeholder value is enhanced and remuneration is sustainable. In pursuit of incentives, executives can create projects that deliver once-off results. In today’s world, too, creating value for shareholders is not adequate to secure a company’s social licence to operate. 

Report remuneration in a way that is accessible to all stakeholders
Remuneration is extremely complex; as King IV makes clear, companies have an obligation to disclose their remuneration policy in a way that is understandable by all stakeholders. 

Remuneration goes to the heart of corporate sustainability in all sorts of ways. Getting it right has never been harder—or more vital.

ENDS
​
MEDIA CONTACT: Cathlen Fourie, 012 644 2833, cathlen@thatpoint.co.za, www.atthatpoint.co.za  

For more information on SARA please visit:
Website: www.sara.co.za  
Twitter: @SA_reward
LinkedIn: South African Reward Association
Facebook: SARA – South African Reward Association ​​​​

The South African Reward Association (SARA) welcomes the decision made by Minister Lynne Brown on suspending the remuneration increases of the Eskom executives. 

“We are all in the same boat and brand South Africa needs to be repaired. This can be achieved via many vehicles, one of which is better labour-management-government relations,” says Dr Mark Bussin, Executive Committee member at SARA. “As much as we welcome labour’s call for a balance between excessive wage demands and job security, we welcome Minister Brown's intervention on pay increases for executives. This is an opportunity for all to contribute to brand SA.”

“We acknowledge executive leadership’s conundrum of retaining and motivating top specialists and staff who achieve their business targets.  When done though, we need to get better at showing the link between these pay increases and bonuses and the contribution made. Strengthening the link between executive and company performance, individual contribution and customer satisfaction and clear communication to stakeholders on these issues will go a long way to better understanding and relationships.”

Audio file caption: Dr Mark Bussin, Executive Committee member at the South African Reward Association, says it is important that communication is stepped up in order to better understand the link between pay and performance. To listen to the audio file, please visit this Dropbox link

ENDS
​
MEDIA CONTACT: Cathlen Fourie, 012 644 2833, cathlen@thatpoint.co.za, www.atthatpoint.co.za  

For more information on SARA please visit:
Website: www.sara.co.za  
Twitter: @SA_reward
LinkedIn: South African Reward Association
Facebook: SARA – South African Reward Association ​​​

Responding to reports that the Congress of South African Trade Unions (Cosatu) will encourage its member unions to balance wage demands with job security, the South African Reward Association (SARA) has applauded this move.

“This is a great step in the right direction,” says Dr Mark Bussin, Executive Committee member at SARA. “Executives and management could match this statement by showing pay increase restraint for themselves and articulating concisely what was achieved to earn bonuses. We need to strengthen the link for the average person to believe in the concept of bonuses.”

The South African Reward Association shapes the industry and professionals that determine how people are paid or rewarded for the work they do.

ENDS
​
MEDIA CONTACT: Cathlen Fourie, 012 644 2833, cathlen@thatpoint.co.za, www.atthatpoint.co.za  

For more information on SARA please visit:
Website: www.sara.co.za  
Twitter: @SA_reward
LinkedIn: South African Reward Association
Facebook: SARA – South African Reward Association ​​