In this file photo AMCU president Joseph Mathunjwa joins mine workers in a song after addressing them outside the Lonmin mine in Rustenburg. Image: Siphiwe Sibeko

Executives’ earnings are of no benefit to society, but often of no real benefit to the company either, writes Fiona Forde.

Though it all ended 20 years ago, for the workers the fight continues as their labour demands become the new frontier of the struggle. The months-long platinum strike is hurting but there is still no sign of it abating.

For the striking miners, it’s about a decent living wage of R12 500 a month, excluding benefits. For some of them it is something for which they are prepared to die.

Amplats, Impala and Lonmin say they have lost approximately R14.2 billion in sales since the strike began three months ago. They insist the workers’ demands are unreasonable, out of line with inflation (5.9 percent) and out of kilter with their productivity levels. Yet little scrutiny is given to their own executive earnings, which continue to rise despite the industrial unrest.

The chief executives of the mining companies are by far the best paid in this country, though sector-wide South African chief executives have little to complain about. Take Graham McKay, the chief executive of SABMiller, whose package is just shy of R41 million a year, followed closely by his counterpart at Shoprite who is earning just over R40m.

In many instances, South African chief executives are earning hundreds of times what their lowest-paid worker is making, not counting what they take in bonuses and other incentives. One mining boss earned a bonus of R20m in one year, which equates to approximately R55 000 a day, a figure that is not far off what the striking miners are being forced to live on in a year.

Hence he who thought the miners’ pay scale was sustainable in the long term was deceiving himself but he who thinks the executive pay scale can continue for much longer is perhaps equally short-sighted.

In Executive Salaries, a new book by Kaylan Massie and Debbie Collier – the foreword for which was written by Finance Minister Pravin Gordhan – exorbitant executive pay scales, and the extent of the gap between the wealthy executive and the working poor are carefully scrutinised.

The authors compared the salaries of the chief executives of the country’s top 50 companies today with their 2005 earnings, only to find a three-fold jump in what were already sky-high salaries. Nine years ago, the chief executives were earning packages of approximately R15m including benefits, which was about 700 times the minimum wage in some sectors at the time. Today, the packages of the same chief executives have skyrocketed to an average of R49m. The only positive change in the past nine years is that a quarter of the chief executives are now black.

The problem of executive pay goes beyond the top 50 companies and is endemic across the private sector. A survey of 296 executive directors in 83 companies across 14 sectors found the average remuneration of executives in 2012 sitting at approximately R7.7m, while the earnings of chief executives climbed to an average of R11m. To put it in context, a low-wage earner would have to work 15 years to make what the average non-executive director would make in a year, but he would have to work 174 years to match the earnings of the executive director and an unthinkable 267 years to earn what the average chief executive is earning in a year.

To add insult to injury, the survey also found that while there was an average drop of 24 percent in profit, there was an average increase of 10 percent in executive pay. Executives’ earnings are of no benefit to society, but often of no real benefit to the company either. If anything, they fuel wage dissatisfaction among lower-paid workers, which is what we have been watching for the past few years in the mining sector.

Gordhan has called on chief executives across all sectors to think twice about their takings and how they are negatively impacting on the country and feeding the economic divide. He has also endorsed the authors’ call for a new business culture that could still be competitive in a global economy but which would align itself with the South African reality and its stark socio-economic divide.

“For the struggle against income inequality to succeed we need business leaders to become Homo Empathicus,” he wrote, adding that a change in culture could come only from the actions of a critical mass of ethical and accountable South African executives who through their words and deeds demonstrated good leadership, responsibility and fairness.

But it is unlikely that the men and women who are living so well off the current pay scales would voluntarily agree to do away with them, therefore the change Gordhan calls for is unlikely to happen without some radical form of intervention – which can often backfire. In countries where companies have been forced to disclose their executive packages in a name-and-shame kind of way, it has often had the negative consequences of peer comparisons that drive up the bottom-earning chief executives closer to the top.

The gap between the top and bottom earners is not a new phenomenon and is partly explained by the oversupply of low-skilled workers and the dearth of highly-skilled men and women, which exacerbates the problem.

What this doesn’t explain, however, is why South African chief executives are among the best paid in the world. It is often argued that the only way to retain the best of them and prevent them from going abroad is to pay them the kind of salaries they could fetch in the developed world. But according to a 2012 study, South African chief executives are on a scale that is second only to their peers in the US, and are earning far more than chief executives in Germany, the UK, France and Kenya and twice as much as their counterparts in Nigeria.

Executive pay is as much a problem as blue-collar pay. For a couple of years, the mining chief executives have bemoaned the greed of the miners, yet they told us little about the increases they quietly endorsed for their executives in cash and benefits.

Where it will all end no one knows, but for now the government appears to be waking up to the fact that extreme income inequality cannot be solved in this country for as long as remuneration structures award such exorbitant levels of executive pay.

Sunday Independent