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Employee

Unrealistic wage gaps fuel dissatisfaction

Tue, 01 Nov 2011 10:40

South African companies are facing extreme pressure to address growing employee dissatisfaction due to the wage disparities that exist between top executives and entry level employees. Employers are urged to review existing structures, as well as investigate the most appropriate method of remuneration for their company structure.

This is according to Professor Barney Jordaan, Director: Africa Centre for Dispute Settlement at the University of Stellenbosch Business School (USB), who says the wage disparity in South Africa is particularly high in comparison to other developing and in some cases, first-world countries.

“This issue is clearly outlined in the PricewaterhouseCoopers (PwC), Executive Directors Remuneration Practises Report that was issued in June 2011 that illustrates how the wage gap is growing and that South Africa’s wage gap is one of the highest in the world. The report highlights that listed companies on the stock exchange increased their total guaranteed pay to executive directors and top management by 23.3%,” says Jordaan.

High executive remuneration has captured the spotlight lately and most recently it emerged that food and clothing retailer, Woolworths, paid CEO Ian Moir R13.6 million, including a bonus of R8.25m, added to his R5.312m normal package for the year. Jordaan says while there is a place for salary differentials and that chief executives should be paid more than other employees due to their experience and responsibility, however it is difficult to determine whether such complex situations are acceptable or not.

“Significant increases do not necessarily lead to better performance or productivity, albeit there are methods with which to narrow the wage gap that businesses should consider. By simply adopting and implementing good governance principles, coupled with collective bargaining, provides vehicles to narrow high gaps.”

For example, says Jordaan, management and employee incentives are an attractive alternative method that employers should adopt that rewards management and employees at all levels for good performance. “Rewards that employees receive from their work may range from money-based rewards and discounted company products to subsidise company pension schemes. In order for an employer to determine management and employee rewards, one must ensure that performance and bonus criteria are clear and applied objectively and consistently.

“If one only provides substantive rewards, employee engagement is not only limited, but also cultivates a culture of self-centred gain. On the other hand if management and employees are involved in decisions that affect them, in addition to whatever substantive rewards they might receive, one develops a culture of engagement that not only motivates but also improves decision- making and implementation of decisions.”

Jordaan says that local management and employees are motivated not only by substantive benefits such as pay increases and bonuses, but also by so- called procedural rewards whereby management and employees are involved in the decisions that affect them, be it the decision latex to their remuneration, other terms of employment or simply the quality of their working lives,” concludes Jordaan.