What South Africa’s top dogs earn

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PricewaterhouseCoopers (PwC) has published its latest executive director report showing how much top CEOs earn in South Africa.

The report focuses primarily on the Johannesburg Stock Exchange and includes analyses of the FTSE 100 and FTSE 250 (Financial Times Stock Exchange indices of the top 100 and top 250 companies listed on the London Stock Exchange with the highest market capitalisation) as well as seven African stock exchanges.

Data is drawn from information publicly available on February 29, 2020 and is valid for the period from May 1, 2019 to February 29, 2020.

The report shows that the median total guaranteed package (TGP) for a JSE chief executive is R5,242,000 pre-tax (approx. US$300,000). This drops to R2,833,100 (US$163,000) post-tax.

The report shows that the chief executive salaries are significantly higher at large-cap companies such as the JSE’s top 10.

The median TGP for a JSE chief executive at a JSE top 10 company is R23,600,000 pre-tax (US$1,3 million). This drops to R12,990,000 post-tax (US$750,000).

JSE top 10 listed companies are predominantly companies whose primary operations are based in foreign territories and as a result the respective CEOs are remunerated in foreign currency terms, PwC said.

Excluding foreign-based companies and using the top 10 “local” companies listed on the JSE, the data shows that the median TGP is R11,500,000 pre-tax (US$660,000) and R6,325,000 post-tax (US$364,000).

When compared to the living wage of R12,000/US$690 (pre-tax) per month, a CEO of a top 10 company has an income ratio of 110 times and a CEO of a top 10 company that is South African-based has an income ratio of 54 times, PwC said.

“As a further comparative reference point, the median TGP for CEOs of the top 10 London Stock Exchange companies is currently £1,55 million, which translates to a pre-tax value of R28,7 million (US$1,65 million).

“Taking into account a cost of living adjustment, this aligns broadly to the JSE top 10 global median CEO TGP illustrated above.”

Are CEOs overpaid?

As the highest-paid individual within an organisation, the topic of CEO pay will always be controversial, PwC said.

It noted that it is a widely held view that CEOs are overpaid, and the comparison to the pay of an average worker is most often used as a reference point for this statement.

The classic, and oft-cited ideal CEO to average worker ratio is a ratio of 20:1 (or 25:1), as advocated by Peter Drucker.

“Drucker, who is considered to be the father of modern management theory, advocated this ratio in the 1980s and, while it may be considered dated, it continues to be cited in academic papers and articles, with institutions such as the Harvard Business Review often citing Drucker’s famous pay principle,” PwC said.

“Drucker provided early warnings on the dangers of enriching executives and argued that exceeding a ratio of 20:1 would result in an increased feeling of resentment among employees and overall, decreased employee morale.”

It is interesting to note that Americans today, according to a recent study by Harvard Business School researchers, are even less forgiving, considering a ratio of no more than 7:1 to be appropriate, PwC said.

However, the said group that Drucker’s warnings may have been in vain, with CEO to average worker pay ratios quoted at 287:1 for an average company on the S&P 500 in the US and a ratio of 117:1 for CEOs of the UK’s largest 100 companies.

In South Africa, the ratio is 66:1 when comparing to the national minimum wage, 24:1 when comparing to unskilled workers, and 18:1 when comparing skilled workers. – Business Tech

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