Income inequality: Executive salaries and Pay discrimination

1. Income inequality: Executive salaries and Pay discrimination Debbie Collier & Kathy Idensohn

3. Overview of presentation • Income inequality: its context and impact • Labour law mechanisms • Wage setting • Unfair discrimination (‘equal pay for equal work’) • Law on income differentials • The regulation of executive remuneration • Company law regulation • Regulation through corporate governance codes • Additional, supplementary measures • Concluding remarks

4. Income inequality: its context and impact • Post-apartheid commitment to equality • Context of structural inequality • Commitment to substantive equality • Market realities: ‘resource curse’ / ‘skills mismatch’ • Current wages often not a living wage • South Africa’s increasing Gini coefficient • 0.679 (Bhorat 2009) • Social & economic consequences of inequality • ‘Efficient inequality range’ : 0.35 – 0.4

5. UNDP Human Development Report 2009 (life expectancy, level of education, and decent standard of living)

6. “Exploding executive pay must be reversed” (Business Day 29 July 2010) ‘... Increases have just exploded in the recent past. During the 1960s and 1970s, US CEOs earned roughly 20 times what ordinary workers earned. It doubled by the start of the 1980s and doubled again by the end of that decade. But this is trivial compared with the increase in the 2000s. At the start of the decade, the average American CEO was earning 525 times more than the average worker, and it’s only slightly less now’. (Tim Cohen)

7. Executive director salary increases : 2007/08 ** Labour Research Service : Bargaining Indicators 2009 ‘… executive director salaries, across sectors, rose 11.6 percenton average, those of chief executive officers increased by on average14 percentand non-executive directors saw their fees rise by 15 percent. The average low-wage worker saw an increase of 10.1 percentin 2008.’ [Inflation : 10.3% / Company profit 14.8%]

8. Wage increases between fourth quarter 2008 and fourth quarter 2009 * 2010 Call for restraint

9. Labour Law mechanisms: (1) Pay discrimination • Section 6 of the EEA • Individual right to ‘equal pay for equal work’ • Lack of intention is not a defence • The aggrieved employee must show that his or her salary is less than [white [or male] comparator] because of race [or gender] (listed / unlisted ground) • Mutale v Lorcom Twenty Two CC

10. ‘Equal pay for equal work’ • Hurdles: • Comparator • Louw v Golden Arrow Bus Services • Mangena & Others v Fila SA (Pty) Ltd • Link between unequal pay and alleged ground –‘Causation’ • Ntai & others v SA Breweries • For indirect discrimination – a matter of statistics / analysis • For unlisted (arbitrary) discrimination – must show impact on dignity – National Union of Metalworkers of SA & Others v Gabriels (Pty) Ltd

11. Labour Law mechanisms: (2) Income differentials • Section 27 EEA ‘income differentials’ • Obligation on designated employers to report on differentials (& reduce if disproportionate) • Limitations: • collective mechanism - generally not justiciable • NUMSA obo members and Behr Climate & Control • Need and redress not explicitly addressed in policy • Requires employment relationship

12. The regulation of executive remuneration • Company Law regulation • Regulation through corporate governance codes • Additional, supplementary measures

13. Company law regulation • The traditional common law approach  • Shareholder primacy • Some safeguards against abuse • Good faith restrictions on majority shareholders • Directors' fiduciary duties • Shareholder remedies • The limits of the common law

14. The need for more restrictions and controls • The Companies Act 71 of 2008 • Baseline requirements (ss 66(8) & (9)) • Disclosure requirements (s30)

15. Ongoing difficulties with company law regulation • Limits of fiduciary duties • Courts' reluctance to make business decisions • Enforcement difficulties • Reliance on shareholders • Limited recognition of other interest groups

16. The corporate governance movement • Corporate governance codes –King III • The principles of good governance • Independence • Reasonableness • Performance-based • Transparent

17. Independence – The Remuneration Committee • A clear remuneration policy & criteria • 'Fair and reasonable' remuneration • Performance-based • Transparent The provisions of King III •  Application to all public, private & non-profit entities • The 'apply or explain' principle • Enforcement

18. Executive remuneration provisions • Independence – The Remuneration Committee • A clear remuneration policy & criteria • 'Fair and responsible' remuneration • Performance-based • Transparent

19. The efficacy of corporate governance codes

20. Concluding remarks • Wage compression policy and its challenges • Centralised bargaining / global & business forces • Better use of existing mechanisms • Promotion of transparency • Trade union derivative actions in company law • Complexity should not lead to paralysis • Negotiated proportionality should be pursued • Social security, tax, and other mechanisms such as job subsidies should all be actively debated as mechanisms to reduce to income gap