South African executive directors’ guaranteed annual remuneration is about 22 times the salary of their rank and file employees and if bonuses are added to their pay, this ratio jumps to 32 times.
There is also a significant disparity between executives who receive their pay cheques in foreign currencies compared with those who are paid in rands. Those earning in dollars, pounds and euros earn nearly three times more than those paid in rands and, consequently, have much higher pay gap ratios.
These are only two of the key findings of extensive research conducted by Moneyweb and Profile Media, which analysed the remuneration packages of 966 executive directors of 329 listed companies.
These packages were then compared with the average salaries of employees in the respective sectors where the companies are plying their trade to calculate the pay gap ratio. The average sector salaries were sourced from Statistics SA’s Quarterly Employment Survey for the second quarter of 2015. (Read here for the full methodology of the research.)
This research was prompted by the US Securities and Exchange Commission’s (SEC’s) introduction of a new pay gap ratio rule earlier this year, which will force US companies from 2017 to disclose the ratio between the executive directors’ salaries and that of their rank and file employees.
The SEC introduced this rule to highlight the growing income inequality between executives and their rank and file employees in the US. This debate is probably much more contentious in South Africa and this rule may quickly find its way into the listing requirements of the JSE.
The key is the comparison of the executive salaries with that of the rank and file or ‘average’ employees of their respective companies and not that of entry level wages. Although the stated salaries of the executive directors are accurate, as they were captured from annual reports, the salaries of the rank and file employees are an estimate and the actual values of the pay gap ratios calculated should be seen as ballpark estimates. Companies do not disclose the average salaries of their employees and therefore average sector salaries were used to calculate the ratios.
The comparison with sector averages offers a more realistic measure as the average salaries of various economic sectors differ dramatically. For example, the average annual salary in the retail sector is only R92 284, while the average salary in various segments of the financial services sector can be as high as R419 216.
The directors’ remuneration excludes long-term incentives such as share schemes, as it is difficult to measure an accurate annual benefit of these schemes and different methodologies will distort the actual annual remuneration. Moneyweb and Profile Media will endeavour to find a suitable algorithm to include this data in next year’s research.
Moneyweb has built an interactive tool through which the salaries and pay gap ratios for every listed company and sector can be analysed. You can find it here. This includes the comparison of individual directors’ salaries, as well as comparisons with HEPS and share price performances.
The research revealed that the average executive director of a JSE-listed company earns a basic salary of R2.35 million, receives benefits of R1.85 million and receives a short-term bonus of around R2.07 million. This gives them a total annual package of R6.27 million.
The average guaranteed salary for CEOs and executive chairmen is around R6.3 million, while their bonuses average R2.8 million to increase the total annual package to just over R9 million.
Financial directors earn on average a guaranteed salary of R3.8 million, receive a bonus of R2.5 million and earn around R7 million. (See the table below.)
The total remuneration would however be higher if long-term incentives were included.
|Guaranteed package||Short-term incentive||Total annual based reward||Ratio ex bonus||Ratio cum bonus|
|CEOs and executive chairmen||R6 305 238||R2 854 168||R9 159 407||35||49|
|Executive directors||R4 447 896||R2 512 065||R6 959 961||22||33|
|Financial directors||R3 783 979||R1 870 877||R5 654 855||22||33|
|ZAR remunerated executives||R4 084 052||R1 932 725||R6 016 777||23||33|
|Non-ZAR remunerated executives||R11 420 324||R6 153 055||R17 573 379||50||73|
|All executive directors||R4 206 315||R2 075 398||R6 281 712||22||32|
It is however evident that executives who are paid in dollars, euros and pounds earn nearly three times the salaries of rand remunerated executives. The average salaries of these directors, including bonuses, amount to R17.5 million, while their South African peers earn about R6 million.
The highest pay gap ratio was Alan Clark of SABMiller, with a pay gap ratio which includes his bonus of 830 times. Whitey Basson of Shoprite was second with a ratio of 542 times.
|Surname||First name||Total annual based reward||Average sector salary||Ratio ex bonus||Ratio cum bonus|
|SABMiller plc||Clark||Alan||R126 857 536||R152 773||701||830|
|Shoprite Holdings Ltd.||Basson||J Welwood||R49 972 000||R92 284||542||542|
|Mondi plc||Hathorn||David A||R90 488 608||R198 805||351||455|
|Mondi Ltd.||Hathorn||David A||R90 488 608||R198 808||351||455|
|Omnia Holdings Ltd.||Humphris||Rod B||R101 349 840||R272 470||346||372|
|Woolworths Holdings Ltd.||Moir||Ian||R49 177 000||R92 284||307||533|
|Capital & Counties Properties PLC||Hawksworth||Ian||R56 377 520||R243 719||231||231|
|Shoprite Holdings Ltd.||Karp||Aubrey Errol||R24 046 000||R92 284||228||261|
|Clicks Group Ltd.||Kneale||David||R25 342 000||R92 284||226||275|
|Mondi plc||Oswald||Peter||R58 183 056||R198 807||223||293|
|Mondi Ltd.||Oswald||Peter||R58 183 056||R198 810||223||293|
|AVI Ltd.||Crutchley||Simon L||R34 393 000||R152 773||211||225|
|Investec Ltd.||du Toit||Hendrik||R145 839 328||R329 803||205||442|
|Investec plc||du Toit||Hendrik||R145 839 328||R329 803||205||442|
|The SPAR Group Ltd.||Venter||Roelof||R20 408 000||R92 284||198||221|
At a sector level, the Forestry and Paper sector has the largest pay gap ratio, followed by the Food and Drug Retailers sector.
It is interesting to note that the gold mining and broad mining sectors’ pay gap ratios are lower than the national average.
The tertiary industries, which demand higher salaries for employees, boast the lowest ratios.
Click here to access the special pay gap tool Moneyweb has developed and do your own analysis.
|Sector||Guaranteed package||Short-term incentive||Total annual based reward||Ratio ex bonus||Ratio cum bonus|
|Forestry & Paper||R31 077 356||R9 933 383||R41 010 741||164||218|
|Food & Drug Retailers||R4 580 717||R2 648 685||R7 229 402||104||129|
|Food Producers||R7 306 576||R1 524 788||R8 831 364||48||58|
|Travel & Leisure||R3 985 271||R1 347 279||R5 332 550||47||62|
|General Retailers||R4 293 826||R2 106 983||R6 400 809||43||65|
|Chemicals||R10 585 261||R3 957 333||R14 542 594||39||53|
|Banks||R1 608 815||R274 082||R1 882 897||31||43|
|Gold Mining||R5 568 550||R2 459 081||R8 027 631||29||42|
|Mining||R5 473 969||R2 380 276||R7 854 245||26||37|
|General Industrials||R4 839 573||R2 595 112||R7 434 685||24||36|
|Life Insurance||R8 474 460||R10 242 787||R18 717 247||24||54|
|Media||R5 375 000||R3 872 500||R9 247 500||24||41|
|Household Goods & Home Construction||R2 457 667||R3 714 333||R6 172 000||23||57|
|Support Services||R5 480 803||R1 170 338||R6 651 141||23||28|
|Health Care Equipment & Services||R5 124 000||R2 800 500||R7 924 500||22||34|
|Pharmaceuticals & Biotechnology||R5 129 993||R2 466 600||R7 596 593||22||33|
|Telecoms||R6 896 289||R3 581 208||R10 477 497||21||32|
|Financial Services||R5 765 174||R8 966 308||R14 731 482||20||49|
|Industrial Transportation||R4 490 707||R1 784 564||R6 275 271||20||28|
|Electronic & Electrical Equipment||R3 816 867||R1 376 428||R5 193 294||19||26|
|Construction & Materials||R2 773 031||R1 622 194||R4 395 225||18||28|
|Real Estate Investment Trusts||R3 893 441||R975 291||R4 868 732||16||20|
|Equity Investment Instruments||R3 591 487||R1 137 842||R4 729 329||15||20|
|Industrial Metals & Mining||R2 886 339||R904 570||R3 790 909||13||17|
|Industrial Engineering||R3 886 746||R1 489 237||R5 375 983||10||13|
|Technology Hardware & Equipment||R2 169 600||R1 424 400||R3 594 000||9||15|
|AltX||R1 608 815||R274 082||R1 882 897||8||9|
|Software & Computer Services||R2 912 374||R2 699 742||R5 612 116||7||13|
|Nonlife Insurance||R2 033 800||R1 028 200||R3 062 000||6||9|
|Oil & Gas Producers||R1 507 495||R410 991||R1 918 486||6||7|
Inequality is currently a major international theme and the SEC’s introduction of the pay gap rule shows how serious certain countries are about addressing the problem.Research published by Bloomberg states that in 2013 CEOs of 350 of the S&P 500 companies earned 331 times the salary of average employees, with some executives earning more than 1 500 times the salaries of their average employee. It is not only select executives who demand these salaries in the US. The average ratio has ballooned to current levels from 46 times in 1983.
Other countries with pay gap ratios exceeding 100 times include Canada, Switzerland, Germany, Spain, Czech Republic and France.
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