Executive remuneration has been the focus of much attention in the media recently, with questions asked as to whether corporates in South Africa are paying their top executives too much. I believe the answer is no – in fact, we underpay our executives compared to other countries, and unless we continue to pay them top salaries, we may well lose them to corporates offering more lucrative financial prospects in other parts of the world.
It is unfortunately a reality that executive leaders can currently earn much more elsewhere. For example, a bank CEO could earn twice as much in Australia than in South Africa. And 12 times as much in New York. Mining executives also typically earn much more in other countries. The competition among multi-national companies globally for senior executives is fierce.
It should also be remembered that most top executives are entrepreneurs at heart, and thus need to be enticed to apply their skills at executive level within corporates rather than venture out on their own to start businesses and create their own wealth. They also need to be compensated for the nature of the job, which at that level is often all-consuming – it means being a leader 24/7 with little private or family time, which also affects their loved ones. It really is tough at the top – the number of CEOs in recent years who have taken a year’s sabbatical just to recharge, speaks to this.
While we find that many top executives are making a lifestyle choice for their families and opting to live in South Africa with lower remuneration than they would enjoy elsewhere, it is a competitive world out there and most still choose the higher-paying countries.
I believe the issue is not one of executive remuneration per se, but of addressing the gap between the salaries of top executives and average employee compensation. We need to ensure that lower paid employees’ salaries increase at a much greater rate. How can we achieve this? In my opinion, only by improving skills. If we don’t invest in low-cost schooling and adult education that is accessible to all, we will continue to have a wage gap in this country. Greater equalisation of pay is not going to happen by regulating the market.
Government and the private sector need to work together to seize the opportunity we have in South Africa to provide low-cost education for the masses. We also need to develop a culture of educating ourselves. In China and India for example, education is paramount – it really is a matter of education above all else. We have to instill the same type of culture in South Africa, and invest in women, empowering them to enable them to send their children to school.
But bringing down the remuneration of our top executives is not going to solve the problem. We need to attract and retain the best international talent we can to be globally competitive, and to stimulate our economy and create jobs. For this, we will need to offer them remuneration packages comparable at least to those in the other emerging markets with which South African competes on the global stage.
The 17th edition of Odgers Berndtson’s global magazine is coming soon.
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