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Firms agree on disclosure of wage gaps

| Economic factors

The wage gap between the highest and lowest paid and between men and women should be disclosed in company financial statements, says an agreement reached at the Jobs Summit over the weekend.

Business, represented by Business Unity SA, agreed companies would be encouraged to voluntarily disclose pay differentials with a view to making these commitments compulsory within 12 months.

Disclosure of ratios between the highest and lowest paid has come to be regarded worldwide as a way to promote a fairer society as well as provide a disincentive to excessive executive pay and is compulsory in an increasing number of countries, from the US to India. Disclosure of the gender pay gap is done less widely, with the UK recently becoming the first country to make it compulsory.

In SA the differential are anecdotally believed to be excessive due to the fact that remuneration for CEOs in top firms has tended to be benchmarked against global competitors. SA is the most unequal society in the world, with a Gini co-efficient of 0.69.

On the Gini scale, 0 represents perfect equality and 1 a society in which all the wealth would be owned by one person.

The summit framework agreement states: "The purpose of the initiative is to understand the nature of the challenge … and thereby develop a consciousness that will lead to action on the part of business … By providing a mechanism for companies to provide wage ratios, [it] will highlight where there are significant disparities and encourage employers to self-reflect and address the problem."

Busa CEO Tanya Cohen said on Friday: "The idea is that business takes ownership of this and voluntarily discloses, self-reflects and addresses disparities that cannot be justified. It is a fix-it-yourself approach."

The technical details of how remuneration is measured — for instance, which bonuses to include and when — and how the ratio is arrived at will be refined by a committee within Nedlac. Several models will be explored. Cohen says the Palma ratio, which is commonly used in measuring pay differentials, compares the top 10% of earners with the bottom 40%. Other comparisons compare executive pay to the median wage — the mid-point in the salary scale — to arrive at a ratio.

Cohen said the scope for making disclosures compulsory would be either through inclusion in the King corporate governance codes or through the department of labour, to which disclosures on pay levels are made when reporting on employment equity targets. Board remuneration committees are expected to account for pay differential disclosure within companies, she said.

MD of advisory firm Xesibe Holdings, Ayabonga Cawe, who undertook initial research presented to the social partners at the Jobs Summit, said there was evidence that pay differentials in SA had risen rapidly since 1995 along with the rise in inequality.

The Palma ratio rose from 5.11 to 10.13 between 1995 and 2014 while broader inequality measured by the Gini coefficient rose from 0.58 to 0.69.

National Business Initiative programme director Gugu McLaren-Ushewokunze, who did some of the initial research for the summit on the gender pay gap, says at the broadest measure using StatsSA data, earnings of men are 23% higher than those of women.

She said that in talks leading to the summit companies had expressed "a bit of resistance to making information of the gender pay gap public", but had agreed on internal disclosure within companies.

Cohen said that through Nedlac engagements were planned with the Institute of Directors, the custodian of the King code, the auditing profession and the JSE to move towards compulsory disclosure.

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