PRESIDENT Jacob Zuma’s call this week for South Africa’s
mining company executives to freeze their salaries and bonuses for the next 12
months is not only a case of attempted social justice, but clever business
Freezing salaries should go a long way towards stabilising the country, which is currently beset by wildcat strikes in the mining and
You see, if workers' wages stay low and those of executives
and directors continue to shoot through the roof each year, uncertainty will
haunt the market place and the country as a whole as workers will continue to
embark on strikes.
But if executives do not increase their wages, businesses
will be more stable and secure and workers will not go on strike as frequently
as they do now.
This logic could have informed Zuma’s clarion call this
week, when he asked executives at mining firms to take a year-long salary
freeze and called on workers to return to their jobs after a series of violent
In the wave of wildcat strikes which has hit the country's
mining companies, miners and officials have been killed. The world's biggest
platinum producer, Anglo Platinum [JSE:AMS], last week fired 12 000 striking
As is the trend in South Africa’s private and public sector,
Zuma’s call may go unheeded. As someone who has been a financial journalist all
my career, I have seen some company executives pay themselves huge salaries and
bonuses even when their company’s share price and earnings were depressed.
This has been questioned by many people but nothing has been
done to stop it. South African companies are used to being threatened by all
sorts of legislation, but not much happens to them when they transgress the law.
A good example is the employment equity laws which have been
ignored by most companies. There are still companies in South Africa which
spurn EE legislation, with staff complements that do not reflect the
demographics of the country.
But all the instruments that are supposed to deal with these
companies have not been used by the department of labour.
Additionally, the issue of pay cuts is not even legislated,
making it easier for these companies to ignore the call by Zuma. We can then
say that Zuma made a good call, but will it change attitudes of company
executives towards pay? I doubt it.
Corporates are going to defend their big executive paydays.
Their argument is always: “If we don’t pay up, our greatest minds will jump
Now, there are decent motives for compensating high-profile
executives because they make decisions that are very important to their
companies. This makes it a priority to appoint skilled people rather than pull
in their horns on pay.
But studies have dismissed the brain drain defence for high
executive salaries. They have discredited the idea that companies must
keep up with their peers by compensating their executives continuously.
This peer group logic is a huge motivator for ever-rising
compensation. Boards say this helps them set pay based on what the market will
Well, perhaps not.
Contrary to the prevailing line, it is understood that CEOs
cannot readily transfer their skills from one company to another. In other
words, the argument that they will leave if they aren’t compensated well does not
Using the peer group salary mark only pushes pay upwards.
If companies continue to buy into the logic of peer
group standards, they must know that they will destabilise the economy which is