Ryk van Niekerk
6 minute read
9 Dec 2015
1:29 pm

Sizing up the exec pay gap

Ryk van Niekerk

New data tool: Executive directors earn 22 times more than the average worker.

Picture: Thinkstock

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.

Extensive research

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.

Main findings

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
Average salaries
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.

 

Company

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

International comparison

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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