The commencement date of the amendments has not yet been proclaimed. File photo.
State-owned enterprises (SOEs) are now required to disclose their remuneration reports, policies and the pay gap between the highest and lowest-paid employees.
The requirement is part of the First and Second Companies Amendment Bills recently signed into law by President Cyril Ramaphosa. The aim is to clarify the extent of remuneration inequality in listed companies and SOEs.
Eskom, Transnet, SAA and Denel are among the affected entities.
They are mandated to prepare a remuneration report, which consists of a remuneration policy, implementation report, total remuneration including salary and benefits of the highest and lowest paid employee and the remuneration gap of the top 5% highest paid and the bottom 5% of lowest paid employees.
The commencement date of the amendments has not yet been proclaimed.
The majority of the provisions are contained in the Companies First Amendment Bill, which was first introduced in 2018 and has undergone several revisions. The Second Amendment Bill includes changes proposed by the Zondo commission following the state capture inquiry and extends time bars for director delinquency and director liability for fiduciary duties.
Cathy Truter, head of knowledge management at Bowmans, stated these details in a recent note.
Craig Rocher, of Tax Consulting South Africa, emphasised the importance of government transparency in disclosing employee remuneration to set an example for the private sector.
“If a bonus is paid to a CEO, is it fair and reasonable? I am hoping that these changes come from the government as it is the biggest employer in the country and it’s important for municipalities and the government to not have unfair labour practices which just leads to strikes where service delivery is impacted. Fair remuneration practices is the key driver to keep employees happy,” Rocher said.
Research by compensation firm Payscale shows that increased pay transparency can boost worker satisfaction and reduce the likelihood of employees seeking new jobs, because it fosters trust in management.
Rocher said the bill aims to provide context for remuneration strategies and how companies arrive at a certain figure, and whether that figure is fair and reasonable.
He said it’s important to determine what a company’s remuneration policy states so that shareholders can speak up should they not agree with something.
“In some cases you need a foot in the door and in other cases you need to kick down the door and say: ‘it’s been unfair’. The bill attempts to give information to stakeholders on the motivation for the remuneration of its directors and prescribed officers. Transparency is very important for accountability and good governance purposes,” Rocher said.
For listed companies, similar disclosure requirements apply, but lines of accountability are less clear for SOEs. Rocher pointed out that government salaries and wages are funded by taxpayers, who have a vested interest in ensuring responsible spending.
“It’s also in the public interest,” he said.
Implications for public sector remuneration
According to the 2024 budget review, employee compensation is one of the fastest-growing spending items, with an average annual growth rate of 4.5%. Employee compensation constitutes 31.9% of total budget spending.
Rocher added that he hoped the remuneration report would include key performance indicators (KPIs) so taxpayers could assess the justification for remuneration.
“As the public I would want to be in a position to see the KPIs of Transnet’s CEO for example and be able to say, you’ve earned this much but when we look at the rails and the ports, I am not so sure we agree with your bonus. That is what this bill opens the door for,” Rocher said.
Economist Sifiso Skenjana said although mandatory disclosures are new, government job advertisements already include remuneration details. He believes the amendments aim to make executive remuneration more transparent and stratified.
“Insofar as disclosures and earnings transparency is concerned from an SOE point of view it’s a moot point. But maybe it just becomes one of the things that need to be done as part of the reporting cycle,” Skenjana said.
“I do understand that executive remuneration was always published at an SOE level and maybe this aims at stratifying it into other levels within the organisation and seeing a visible representation of that at levels beneath the executive level. That would naturally be welcomed,” he said.
As an example, Eskom disclosed that it paid former chief executive Andre de Ruyter R6.9 million in 2023, slightly less than the R7.1 million received the previous year. Transnet’s former group chief executive Portia Derby was paid R8.5 million in 2022, while Siza Mzimela, head of Transnet Freight Rail, received R6.1 million, according to Transnet’s annual results for the year ended 31 March 2023.
“I don’t think inherently there has been a Chinese wall of secrecy around it but maybe it becomes part of the exercise of opening a new way to have a conversion with the public sector about the public sector wage bill,” Skenjana said.
The treasury has said the state employees’ wage bill is one of the largest components of public spending and that the growth in compensation spending has been driven by increases in salaries and benefits rather than higher employment levels.
The Mail & Guardian recently reported that public service wages cost about R721 billion a year. Those in salary bands seven to nine, who comprise nearly half of all government employees, cost the state R211 billion a year in 2023-24. They earn on average R27 300 to R38 600 a month.
“Perhaps the disclosures of remuneration and pay gaps at an SOE level is one of the tools to address issues of the public sector wage bill but I don’t imagine it having that much more value where SOEs are concerned,” Skenjana said.