Written by: Morag Phillips and Martin Hopkins
 
What does fair pay really mean?
I imagine that if you asked a group what “fair pay” means, you’ll have a collection of views. If you then asked a group what “fair parenting” means, you’ll have another collection of views. The concept of fairness seems to rest partly in our own experience of the matter under consideration, and it seems that it is very tainted by our own comparison of the application in our immediate context. To step out of pay for a while into the parenting world, a sibling that was allowed to have a smartphone at age 15 may deem it unfair when a much younger sibling received their smartphone at age 12. The sense of outrage that comes with an experience of unfairness makes it a burning issue. It burns brightly when it’s happening to us! 

Fairness itself does not inherently have a bias. The concept of fairness revolves around treating all individuals or groups impartially and without favouritism or discrimination. It aims to ensure that decisions, processes, or outcomes are reasonable, justifiable, and consistent.

Fairness typically refers to the quality of being reasonable and impartial. It involves ensuring that decisions or actions are consistent, unbiased, and considerate of all relevant factors. Fairness often focuses on the process or procedure by which decisions are made rather than the outcomes themselves. For example, in a decision-making context, fairness might mean giving everyone an equal opportunity to voice their opinions or ensuring that rules are applied consistently to all individuals. So is it fair that both siblings got a Smartphone? Does the timing make it different?

Managing pay practices with a focus on fairness, justice, equity, and equality involves understanding each concept distinctly and designing a pay structure that balances these principles. Here’s a breakdown of each concept and how they relate to pay management:

1. Fairness: Fairness in pay practices implies impartiality and lack of bias. It ensures that decisions regarding pay are justifiable and reasonable. Fair pay practices take into consideration factors such as job responsibilities and content, job grade, skills required, and market rates for similar roles. Managers ensure fairness by applying consistent criteria across all employees and being transparent about how pay decisions are made – again, it is the process or procedure, and including measures to mitigate the influence of conscious and unconscious bias.
2. Justice on the other hand, is broader and often carries a moral or ethical dimension. It encompasses the concept of what is right, moral, or just. Justice seeks to ensure that individuals receive what they deserve or are entitled to, based on ethical or legal principles. In a pay context, justice refers to the moral or ethical dimension of pay practices. It involves ensuring that employees receive what they deserve based on their contributions, efforts, and performance. Just pay practices strive to reward employees proportionately to their impact on organisational goals and outcomes. Managers promote justice by aligning pay with performance metrics and recognising employees for their achievements fairly.   Consideration of a living wage for a company’s lowest paid employees is also relevant in the context of pay justice.

In summary, fairness tends to focus on the impartiality and consistency of processes or decisions, while justice is concerned with the ethical or moral correctness of outcomes. Bringing these 2 concepts together, a just pay decision could reward a high performer more than a non-performer; the fairness is in the application and communication of the rules.
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Let’s add 2 more important concepts…

1. Equity: Equity in pay practices involves ensuring that employees receive fair remuneration relative to their contributions and responsibilities, regardless of demographic factors such as gender, race or age, as examples. Equity acknowledges that different roles may have different value contributions to the organisation and seeks to reward accordingly. Managers promote equity by conducting regular remuneration audits to identify and rectify any pay gaps based on unjustifiable factors. An equity audit would be testing whether fairness has been applied. Equity is a reflection of fairness by demonstrating that the outcomes of those decisions result in fair and just        distributions of reward. In this way, equity is an outcome of fairness.
2. Equality: Equality relates to providing the same opportunities and treatment to all employees regardless of differences. In the context of pay, equality would mean paying equal wages for substantially similar work performed by employees. This concept is enshrined in laws and regulations to prevent discrimination based on protected characteristics. Managers uphold equality by ensuring that pay differentials are based on legitimate factors related to job performance and responsibilities, rather than personal characteristics.

Let's use just a few examples:



 
 









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We could ask which factor should be considered the most important. It is indeed possible that pursuit of one element may mean we don’t achieve the other. In this example, we could say there is fairness, but not justice: Imagine a scenario where a company needs to downsize due to financial difficulties. The company decides to retrench employees based solely on tenure, meaning those who have been with the company the shortest amount of time is let go first.

This decision might be considered fair because it applies the same criteria (tenure) to all employees without discrimination. However, it may not be just if some employees who are newer have made significant contributions or have higher performance ratings compared to longer-tenured employees who are retained. In this case, fairness in terms of consistent application of criteria (tenure) is maintained, but justice may be lacking because deserving employees are being retrenched based on a criterion that does not necessarily reflect their value or contributions to the organisation.

This demonstrates that fairness and justice are distinct concepts that can sometimes conflict with each other depending on the context and the specific criteria or principles being applied. Achieving both fairness and justice often requires careful consideration of both the processes used to arrive at decisions and the outcomes that result from those decisions, taking into account relevant ethical, moral, and contextual factors.

To design a pay structure that integrates fairness, justice, equity, and equality, managers can consider the following strategies and practical tools:

• Job Evaluation: Conduct systematic job evaluations to assess the relative worth of different roles within the organisation, using a formal unbiased system; this creates the framework for just and fair decision-making.
• Performance Management: Implement a robust performance management system that objectively evaluates employee contributions and ties rewards to individual and team achievements. This creates defensibility for just decision-making.
• Internal pay audits: Consider your internal pay patterns and any discrepancies that indicate equity issues.
• External market benchmarking: Regularly benchmark salaries against industry standards to ensure that pay rates are competitive and aligned with market trends, to inform your own unique pay structure.
• Transparency: Maintain transparency in pay practices by clearly communicating the criteria for determining salaries, pay increases, and bonuses to employees.
• Regular Reviews: Conduct regular reviews of pay practices to identify and address any discrepancies or biases that may exist, ensuring that pay differentials are based on legitimate factors.
• Training and Awareness: Provide training to managers and employees on pay equity principles and practices to promote understanding and adherence to fair and just pay standards.

By integrating these principles into the design and management of pay practices, managers can create a pay structure that not only attracts and retains talent but also fosters a culture of fairness, equity, and respect within the organisation. An important ingredient is the deep consideration of unintended consequences and testing whether all 4 dimensions have been considered.

In summary, while fairness focuses on the fairness of procedures and decision-making, equity assesses whether those procedures result in fair and just outcomes. Together, fairness and equity aim to promote a more just and equitable society or organisation where everyone has equal opportunities and access to resources based on their circumstances and contributions.

As we close, a challenge to our industry is to see the determination of an organisation-specific living wage as a decision sparked by justice, supported by fair policy, and resulting in an equitable outcome.

Morag Phillips is a Master Reward Specialist, a SARA Executive Committee member, Chair of the SARA Thought Leadership Committee, and a member of the SARA Conference and Reward Awards Committee.
Martin Hopkins is a Master Reward Specialist, and a member of the SARA Thought Leadership Committee, and Head of Reward Advisory Services at Bowmans Law.

ENDS

MEDIA CONTACT: Idele Prinsloo, [email protected], 082 573 9219, www.atthatpoint.co.za 
For more information on SARA please visit:
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Whether or not executives earn too much and, if so, how to address executive remuneration practices, are two questions that continue to nag at global society.

“The pressure is even greater in South Africa, where inequality, poverty and unemployment are more pronounced,” says Martin Hopkins, Master Reward Specialist and past president of the South African Reward Association (SARA).

The King IV Report on Corporate GovernanceTM recommends several approaches to governing executive reward.

​One is to give investors a greater say through remuneration voting. But what is it and what material effect does such a vote offer? 

What remuneration voting means
King IV calls for executive remuneration in each company to be disclosed to investors through a remuneration report that has three parts: a background statement, an overview of the remuneration policy, and an implementation report.

Further, shareholders are given the opportunity to pass a separate non-binding advisory vote on the policy and the implementation report.

If 25% or more of the voting rights exercised by shareholders are against the remuneration policy or the implementation report, or both, the remuneration policy should specify the measures committed to by the board to respond to this voting outcome.

These measures should include investor engagement and addressing objections and concerns, although King IV does not specify what format they should take or how they should be implemented.

King IV is not enforceable by law; it is simply presented as a framework for good corporate governance. However, its influence is “given teeth” when its recommendations are adopted by regulators with the power to enforce them.

This is true of the Johannesburg Stock Exchange (JSE) Listing Requirements, which makes certain of its practices mandatory for publicly traded companies.

So, within the JSE's purview, remuneration voting is compulsory, not optional. Even so, a non-binding advisory vote by shareholders has no legal effect on the adoption of the remuneration policy or the implementation report.

It simply allows the organisation's management and remuneration committee to gauge sentiment towards their provisions. That said, the vote serves as a powerful barometer of the company’s governance quality and of investor confidence.

Should shareholders have more power?
The effect of giving shareholders more say in how much executives earn is widely debated. They have a strong economic interest in good governance as well as a moral obligation towards equitable pay.

At the same time, giving investors too much power may unduly affect the ability of the Board to govern and management to operate the company effectively.  Investor activism can be a powerful force for good, but ultimately the directors need to balance the needs of many stakeholders and make balanced decisions that are overly influenced by any single voice.

Measures to provide for increased shareholder power are currently being debated by various interest groups, with measures such as a binding vote on the remuneration policy and/or the implementation report and the so-called “two strike” rule being considered. The binding vote means that the directors must adhere to the provisions of the approved policy and may not apply their discretion to vary the policy terms without shareholder approval.

The “two-strike” rule would mean that in the case of two successive votes of more than 25% against the remuneration policy or implementation report the members of the Remuneration Committee would have to step down from the committee for at least two years, and be replaced by other members of the Board.

There is diverse practice on remuneration voting in developed and developing countries, with a binding vote on the remuneration policy at a 50% threshold in place in the UK, which is viewed as being reasonably effective,  and non-binding voting practices in the US and Canada.  Australia has adopted the “two-strike rule” with limited success.     
 
Reward perspective
Hopkins notes that while there is a great deal of emotion regarding executive pay it's also important to recognise that it is not at all clear that executive pay can be dramatically reduced without damage to the ability of business to generate shareholder value and create jobs.

Market forces mean that any one company within a country can’t dramatically reduce executive pay without immediate loss of skills and leadership.  If regulations in a country systemically reduce all executive pay then mobile highly skilled executives may well move to other countries which have no such regulations.

Many companies aspire to pay their executives in line with their contribution to business profitability and reward them against agreed performance milestones. King IV was developed to reign in excessive remuneration practices, not prevent companies from fairly rewarding employees for their contribution and performance.

“Organisations should also look at the other end of the pay fairness equation, with increasing focus on the pay gap and how this should be measured and addressed”, says Hopkins. Together with caution in respect of executive pay, measures to increase the pay of the lowest paid staff, whilst remaining economically competitive is another important reward factor to consider.

“This is a complex issue”, concludes Hopkins. Business leadership cannot disregard calls from many quarters to address these issues, but must also seek to balance the views of multiple stakeholders with the pressing need for economic growth and job creation. 

ENDS

MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, [email protected], www.atthatpoint.co.za 

For more information on SARA please visit:
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To mark Human Rights Month, the South African Reward Association (SARA) is calling for business to look beyond the national minimum wage agreement, and vigorously explore ways to implement a living wage.  The phenomenon of “the working poor” is fuelling the ongoing resentment and violent industrial action that increasingly bedevils South African business, says Martin Hopkins, Master Reward Specialist, Executive Committee Member at SARA and partner at PWC in the People & Organisation practice.

“In many senses, the national minimum wage is something of a red herring, because it could distract companies from the need to work towards paying a living wage, rather than just a minimum wage,” says Mr Hopkins.

He argues that the minimum wage does not allow employees to live a decent, dignified life, and employers should therefore devote attention to how to do so. While there is no consensus about what a living wage in South Africa is, it is certainly substantially above the R3,500 minimum wage. Cosatu’s Patrick Craven says that the working poor earn anything below R4,125 a month; Mr Hopkins says a true living wage is probably in the region of R10,000 – R 12,000 per month, although there is no “official” living wage figure for South Africa.   The British figure is £7-8 per hour.

He cautions however that these adjustments to worker pay need to be done in an economically sustainable way, and that being good stewards of shareholders’ money is also an ethical imperative for directors.

Disclose both top and bottom pay
A consequence is that companies and society as a whole pay a great deal of attention to the rate of executive pay. In fact, companies would find it hard if not impossible to attract top talent if they did not pay a market-related rate. He thus recommends paying this rate in order to attract leaders of the right calibre but to structure packages carefully to align reward and performance.

“An equally intense focus on what the lowest earners are paid would actually tell one more about the true remuneration ethics in play within the company,” he says. “I believe that companies that are serious about the wage gap and poverty will increasingly disclose both their top and bottom wage-earners, and the detail of what they are doing to assist those at the bottom to manage their money better.”

Understand the benefit of paying living wage
Research by the United Kingdom-based Living Wage Foundation shows that 93 percent of companies that have implemented a living wage have seen benefits: 86 percent cite reputational benefit, 75 percent say it has increased motivation and retention rates, while 64 percent identify differentiation as a positive. Particularly relevant for South Africa with its adversarial labour relations, 58 percent say that paying a living wage improved relations between managers and staff.

“Paying a living wage is as much about enlightened self-interest as anything else,” Mr Hopkins comments. “Poverty and the resulting social instability are huge issues that have direct, immediate repercussions for companies, but they also affect the overall business environment. Paying a living wage will go some way towards proving business’s commitment to economic justice, and to healing our society.”

ENDS

MEDIA CONTACT: Juanita Vorster, 079 523 8374, [email protected], www.atthatpoint.co.za  

For more information on SARA please visit:
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The South African Reward Assocation (SARA) has launched A guide to the application of King IV™: Principle 14 - Governance of Remuneration. The guide was co-authored with the Institute of Directors in Southern Africa (IoDSA) and is intended to help reward specialists – as well as members of governing bodies and other stakeholders – better understand and apply the principles of King IV in regard to remuneration.

“Many reward specialists struggle with the practical application of the remuneration principles and recommendations of King IV,” says Martin Hopkins, Master Reward Specialist and Exco member of SARA. “A particular sticking point is the reporting of the organisation’s remuneration policy and the implementation report, especially given King IV’s emphasis on increased disclosure.”

Hopkins joined his fellow SARA Exco members and Master Reward Specialists Morag Phillips and Laurence Grubb in launching the Guide at a breakfast attended by 150 reward professionals who are responsible for the design, development and implementation of reward strategies, policies and processes that will support organisational strategies.

King IV is only applicable to integrated reports relating to financial years ending after 1 October 2017. The first King IV-compliant remuneration reports are only now being published. These reports will be the first examples for professionals to learn from.

One of King IV’s most notable innovations is the requirement that the remuneration disclosure should reflect a single total figure of remuneration for each member of executive management relating to the reporting period. This single figure should encompass the salary, benefits, short-term and long-term incentives and any other remuneration elements. The values for the short and long term incentives should be reflective of the period of performance covered in the annual report and not necessarily of the time of payment. The idea being that the reader can relate the payments to the performance during that period.  

The single figure follows broadly the principle established in the United Kingdom, and now part of its company law. It is intended to make it much easier for stakeholders to establish what remuneration an individual received during the reporting period, and to compare this with performance. The single figure also makes it easier for readers to compare remuneration across reporting terms.

A fundamental principle of single-figure disclosure is to identify when remuneration is received or receivable, in order to enable this comparison between remuneration and performance during a specific period.

King IV also requires unvested awards to be reported, again in order to promote transparency and to give stakeholders a clear indication of future liabilities contingent on the performance targets being met.

Establishing these values can be complex, says Hopkins, because many performance incentives have a number of variables, such as vesting dates and valuations, and may refer to share prices or other measures. The Guide details the principles informing how each of these elements should be disclosed.

More broadly, the Guide contains detailed notes on each of the Recommended Practices relating to King IV’s Principle on remuneration (Principle 14).

Remuneration is an important performance driver, but a remuneration policy that is unfair or is perceived to be unfair can negatively impact an organisation’s sustainability and it’s shareholder voting. King IV aims to provide a framework for achieving a fair and effective remuneration policy that can be defended convincingly.

“However, it is a complex area and sufficient implementation will only be achieved over time and as the result of focused effort by the remuneration committee. This Guide is designed to provide practical help to achieve the outcomes envisaged by King IV.”

The Guide is available at http://www.sara.co.za/sara/file%20storage/Documents/2017/Nov/KingIVGuide_ToTheApplicationOfRemunerationGovernance.pdfwww.sara.co.za/sara/file%20storage/Documents/2017/Nov/KingIVGuide_ToTheApplicationOfRemunerationGovernance.pdf

ENDS

MEDIA CONTACT: Juanita Vorster, 079 523 8374, [email protected], www.atthatpoint.co.za  

For more information on SARA please visit:
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Twitter: @SA_reward
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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
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MEDIA CONTACT: Cathlen Fourie, 012 644 2833, [email protected], www.atthatpoint.co.za  

For more information on SARA please visit:
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Twitter: @SA_reward
LinkedIn: South African Reward Association
Facebook: SARA – South African Reward Association ​​​​​

The fabric of the modern organisation is woven by people from a number of different generations. Generation X and Generation Y. The middle generation and the older with a smattering of the youth - each one has its own measure of reward. Each one has to be met on a different level in order for it to thrive in the corporate workplace. Recognising these differences and understanding the value of rewarding the generations on an individual level is of enormous value to the business, both in the short and long term, and more easily managed and controlled when there is a trained reward specialist on hand.
 
“Having an engaged workforce which works for more than just money is extremely valuable to any organisation,” says Martin Hopkins, Exco member of the South African Reward Association (SARA) and partner at PwC. “It also assists in attracting and retaining great employees. By customising the elements of the reward strategy to each generation, the company is able to extract the most value from its employee value proposition – or EVP – and this is where the reward specialist comes in.”
 
A reward specialist plays a vital role in ensuring the corporate reward strategy is in line with the overall business strategy and fits in with generational requirements. The differences between each are often far greater than management realises.
 
Work-life balance, positive personal impact and developmental opportunities are of significant importance to the younger generation. The middle generation is interested in career development, insurance, bursaries for children and time flexibility – rewards which map to their needs and families. The older generation is interested in retirement savings benefits and the more conventional aspects of a reward package such as pay, incentives and share or equity rewards.
 
“The first critical step is to recognise that different generations have different reward needs,” explains Hopkins. “The next is to understand these needs and to recognise which elements of the reward offering are most valued by different generations.”
 
It is more cost-effective for the organisation to customise the non-financial aspects of the employee value proposition to be in tune with specific employee segments than it is to try and satisfy all employees with a monolithic, singular offering. The company is in a unique position to take advantage of the multifaceted skill sets of each generation by recognising their strengths and establishing a culture which respects their individual contributions.
 
“There have been numerous studies undertaken which allow the reward professional to take a more granular and scientific approach to the generational differences,” concludes Martin. “Their skills and training allow them to truly harness the advantages and mitigate many of the generational challenges through well-structured reward programmes.”

ENDS
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MEDIA CONTACT: Cathlen Fourie, 012 644 2833, [email protected], 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