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18 November 2021

Corporate push-back against wage-gap disclosure is an attempt by business leaders to hide an inconvenient truth

This article was first published in the Daily Maverick on 18 November 2021.

It is, perhaps, a universal truth that the rich will express great concern about the need to tackle inequality, as long as they remain untouched by any measure proposed to reduce it.

This truth has been on vibrant display since the publication on 1 October of the Companies Amendment Bill for public comment. The stream of objections from corporate SA relates mainly to the Bill’s long-overdue provisions on wage gap disclosure, especially in relation to disclosing the gap between the highest and lowest paid employees.

Few corporate leaders who engage honestly would deny that the nature of inequality in this country is unrivalled in scale and depth, and that tackling it should be our most urgent priority. Wage gap disclosure can help to create awareness of the prevalence and persistence of income and wealth inequality, and improve our understanding of how they contribute to the wider manifestations of poverty, inequality and low economic growth.

And yet, in response to proposed amendments that aim to improve transparency on wage inequality, business has deployed a barrage of conjecture-based scare-mongering to whip up opposition to the legislation.

Business Leadership South Africa (BLSA), for example, which states that it believes in and takes action “to create a more prosperous and inclusive South Africa”, has come out strongly against the wage gap disclosure provisions.

BLSA is a member of Business Unity South Africa (BUSA), the business representative at the long-running and difficult NEDLAC negotiations on the Bill. The wage gap disclosure provisions have been endorsed by BUSA, and it is contrary to the spirit and purpose of NEDLAC that a BUSA constituent should now campaign against them.

But this lack of good faith must be understood in the context of BLSA’s constituents: the CEOs of its corporate members are some of the most highly paid executives not only in South Africa, but in the world. It is inconvenient for them to acknowledge – let alone act on – the fact that wage inequality is, by a significant margin, the biggest determinant of overall inequality, and that the first step to understanding how to tackle it is to gather the right data.

Business leaders must be kept acutely aware of the persistence of income and wealth inequalities in our society, and the damage that they cause to our prospects of inclusive, sustainable growth. Transparency and disclosure will not solve the crisis on their own, but they will enable many stakeholders to engage with greater levels of awareness, and may even invite a new consciousness for shareholders and boards.

The various objections from business, including that such disclosure will drive away investment in SA, will lead to an exodus of CEOs, and will add to the regulatory burden endured by companies, are neither fact-based nor logical.

Wage gap disclosure is a feature of many developed economies, and there is no indication that it has had any negative consequences on investment or talent retention.

In addition, all companies in South Africa with more than fifty employees are already required to provide large amounts of information on wage gaps to the Department of Employment and Labour, in terms of the Employment Equity Act, negating the “regulatory burden” argument.

The objections, therefore, seem to be based entirely on a resistance to transparency, which provides further justification for requiring disclosure. Why are listed companies, which universally claim in remuneration reports that executive remuneration is “fair and responsible in the context of overall remuneration”, as the King IV Report recommends, dead set against providing shareholders with information that they could use to verify that claim?

Business also appears to be concerned that the public won’t understand why the wage gaps at, for example, a bank, will likely be smaller than they are at a retail company, and that this will result in some kind of hysterical public over-reaction. This is a patronizing under-estimation of the ability of stakeholders to contextualise information. It is also the flimsiest of arguments for opposing the disclosure altogether.

The most tired and tatty argument against disclosure is that companies will just outsource their lowest paid workers in order to improve the optics of their pay ratios. The irony of this argument being made by people who claim to have South Africa’s best interests at heart appears to pass them by. In any event, this risk is easily dealt with – as it has been overseas – by requiring companies to include the wages of outsourced workers in their pay gap ratios.

The pay gap is an important matter of public interest, and vertical wage gaps are not the only ones with significant consequences for society. The gender pay gap (paying women less for doing the same work) remains astonishingly entrenched. StatsSA finds that “there are still huge disparities in the labour market between males and females, especially in terms of earnings for comparable levels of educational attainment”.

In a recent analysis of pension fund systems, the Mercer Index illustrated that at pensions level across the globe, the pension pots of women lag behind those of men. This should not be surprising as pensions represent an accumulation of deferred wages that – in an environment where women are paid less – are naturally going to replicate the trends of the income gaps.

It is therefore inexplicable that the Companies Amendment Bill carries no requirement for the disclosure of the gender wage gap in a country where the gender pay gap is so large, there are fewer than a handful of female CEOs at JSE-listed companies, and only around 13% of executive directors are female.

Surprisingly, for business leaders who routinely sign off on annual reports that profess a commitment to equity and equality, there has been no uproar at this oversight, even from bodies like the “30% Club” of Southern Africa, which “champion[s] meaningful, sustainable change in the gender balance of boards and leadership”. Is it more important for our female corporate leaders to avoid scrutiny of the gaps between highest and lowest paid workers, than it is to shine a spotlight on the gender pay disparities to which they themselves are continuously subjected?

But perhaps the resistance to transparency should not surprise. One element of seeking to narrow the divide between the unbridled nature of executive compensation and the collective interests of stakeholders, is to be found in the current trends relating to remuneration policies and remuneration implementation reports. The rejection of the reports – when more than 25% of shareholders vote against them – has created angst amongst the business community.

Even when the rejection is non-binding, the sense of embarrassment associated with the need to justify excessive compensation has created an awareness amongst business executives that compensation bubbles cannot remain unchallenged. Given the fact that such a rejection essentially comes only from the shareholders, one can understand the worry that executives have, that under greater transparency, it won’t be just that stakeholder group that has a data-driven basis for questioning pay practices, but every stakeholder with an interest in that organisation.

Even if there were disadvantages to requiring public wage gap disclosures, we certainly should not be relying on elite business groups, whose members comprise some of the wealthiest people in our country, to drive the narrative on this issue. Corporate leaders should publicly support legislative or other measures that seek to improve transparency, and to address inequality in any of its forms. When they do not, they undermine their claims to be responsible corporate citizens, and lend credibility to the suspicion that, when push comes to shove, they are really just in it for themselves.

By Khaya Sithole and Tracey Davies

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