1. Executive Summary
The positive economic growth recorded since 1994 by the new democratic South Africa is tainted by the widening wage gap between executives and average workers. This has made South Africa one of the most unequal countries in the world.
Average Chief Executive Officer (CEO) remuneration increased by 11.5% a year from 2006 to 2009. An average worker would take 8 years to earn what a CEO earns in a 3 month period (Theuissen, 2010).
Globalisation, company acquisitions and mergers make businesses more complex and challenging to manage. Companies seek to recruit the best managers who demand higher pay (Templetion, 2007).
The involvement of the compensation committee in the ...view middle of the document...
The trend in South Africa show disproportional increase in the executive compensation compared to wage earners and continue to create greater inequality than ever (Craven, 2009).
This assignment report, analyse the executive compensation in comparison to the wage earners in South Africa, identifying the underlying reasons for wage disparity, consequences of widening wage gap and the strategies to close the wage gap.
Government intervention may go a long way in addressing the imbalance in the executive compensation and the wage earners in order to reduce the inequality.
3. Analysis of Compensation between Workers and Executives
A forensic report conducted by the accounting firm, Computus covered 326 listed South African companies and parastatal corporations. The report showed that the average CEO remuneration had increased by 11.5% a year from 2006 to 2009. In 2009 a CEO would earn R1 million rand within 3month compared with an average worker who would take 8 years to earn the same amount of money. The study showed that there was no conclusive factor determining the compensation of executives as some executives still earned substantial amounts irrespective of company performance (Theuissen, 2010).
Globally pay gaps between executives and entry-level employees has grown. The hardest hit countries are emerging countries like the BRIC nations. The reasons cited for the large pay gap is the globalisation of the market for management talent, companies must pay a premium to retain top management talent (templeton, 2007).
4. Underlying Reasons for Wage Disparities
Between 1973 and 2011, the average worker’s hourly wage increased by only 10.7 per cent (Mishel, 2012). The reason for this could be the difference between skilled and unskilled labour. Managers, among other professionals, demand and receive higher wages due to the demand for their skills and experience (Hlekiso and Mahlo, 2006). Over the past 30 years, the wages paid to skilled workers (those with higher levels of education, ability or job training) has increased dramatically relative to the wages of unskilled workers (Sill, 2002). Employees who also have a postgraduate degree have a higher wage premium than those who do not (Hlekiso and Mahlo, 2006). Skill-biased technical change, globalisation and unionisation are factors contributing to an increase in skill premium (the difference in wages between skilled and unskilled workers).
In less developed countries, low-skilled workers are more abundant than high-skilled workers. When there is an increase in the trade of goods and services with less developed countries, the low-skilled workers in poorer countries put downward pressure on the wages of low-skilled workers in the more developed country. In this way, globalisation and an increased trade with less developed countries can account for an increase in skill premium (Sill, 2002).
Unionisation is another factor considered to play a role in the increase in skill premium. The...