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‘Earning disparities cause offence’

Jul 22 2010 00:00 Andile Makholwa
“EXECUTIVE PAY systems shouldn’t sit in isolation from the rest of the organisation but must be an integral part of a company’s business model.” That’s the suggestion by Nick Topazio, of the Chartered Institute of Management Accountants, in a discussion paper published in May this year on the topic that has become under intense scrutiny by governments, the media and social commentators worldwide.

In his Budget vote, South Africa’s Finance Minister Pravin Gordhan called on companies to end excessive executive pay packages, saying: “Extreme earning disparities cause offence, not just when associated with profiteering or financial malfeasance but also when the reward for honest work seems disproportionate or weakly aligned with incentives.”

Multinational professional services company PricewaterhouseCoopers says total remuneration paid to executive directors of companies listed on the JSE continues to increase, although the rise is somewhat smaller than in previous years. “Executive compensation must strive to provide incentives and motivation for executives and other staff to act in the best long-term interest of the business. In addition, these systems must be fair and proportional to the actual effort and success,” writes Topazio.

Among other things, the paper observes imbalanced remuneration systems can hurt a company’s long-term strategy by encouraging a focus on short-term gains. It concludes a widening gap between executive pay and average wages has triggered understandable public concerns about fairness.

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