[South Africa] Companies Act amendments pose significant risk to lower-paid employees

In South Africa, President Ramaphosa has signed amendments to the Companies Act which pose a significant risk to lower-paid employees as businesses look for ways to report higher earnings for these workers without an impact on profits, BusinessTech reports.

Companies could potentially cut lower-paying positions and workers or pursue increased levels of outsourcing to circumvent the new laws, leading to an unstable job environment and fewer opportunities for entry-level work.

One of the new legislation’s aims is reportedly to impose greater corporate transparency on the earnings gap between a company’s highest and lowest-paid employees.

The amendments to the Companies Act compel public and state-owned companies to disclose the pay gap between their highest- and lowest-paid workers.

Companies must disclose the earnings gap between the total pay of the top 5 per cent highest paid employees and the total of the bottom 5 per cent lowest paid workers.

“This remuneration report must be accompanied by the company’s remuneration policy and an implementation report,” President Ramaphosa said.

These reports must reportedly detail the total remuneration received by each director and prescribed officer and include the total remuneration for the employees with the highest and lowest total remuneration.

“Among other indicators, companies must report the average and median total remuneration of all employees,” the president said.

Public and state-owned companies will now be required to prepare and present a remuneration policy for shareholder approval.

The new rules aim to address the high levels of inequality in South African society. However, it may not work out as expected.

Critics caution that the new legislation has risks for lower-paid employees. Though it aims to address issues of inequality and enhance transparency, several challenges and unintended consequences must be considered.

Pay gap disclosures will pressurise companies with a high disparity to rectify the situation and reduce the gap. Such companies are unlikely to cut executive pay. Instead, they could choose to report higher pay for the lower-paid employees.

This could also risk companies reducing their pay gap through workforce reduction or outsourcing. Something that is already reportedly happening at many organisations.

Outsourcing low-level jobs such as cleaning and security can allow a company to significantly increase the reported salaries of the bottom 5 per cent of workers. Lower-level employees, who are already struggling with comparatively low wages, may face job losses or reduced opportunities.

So, rather than increasing the salary of lower-level workers, it can result in fewer jobs and less stability for such workers.

Etienne Vlok - the Southern African Clothing and Textile Workers’ Union (SACTWU) national industrial policy officer - reportedly said that risks associated with the new laws are not new.

Mr Vlok acknowledged the risk of “unethical companies” outsourcing lower-paid work or cutting entry-level jobs. However, he added that outsourcing and not keeping a workforce in a company created problems for businesses.

“If directors want to hide their high remuneration to the detriment of a company, shareholders should question their actions,” he said.

Mr Vlok stated that the new pay gap disclosure will be beneficial for companies because it can lead to higher productivity.

Source: BusinessTech

(Quotes via original reporting)

In South Africa, President Ramaphosa has signed amendments to the Companies Act which pose a significant risk to lower-paid employees as businesses look for ways to report higher earnings for these workers without an impact on profits, BusinessTech reports.

Companies could potentially cut lower-paying positions and workers or pursue increased levels of outsourcing to circumvent the new laws, leading to an unstable job environment and fewer opportunities for entry-level work.

One of the new legislation’s aims is reportedly to impose greater corporate transparency on the earnings gap between a company’s highest and lowest-paid employees.

The amendments to the Companies Act compel public and state-owned companies to disclose the pay gap between their highest- and lowest-paid workers.

Companies must disclose the earnings gap between the total pay of the top 5 per cent highest paid employees and the total of the bottom 5 per cent lowest paid workers.

“This remuneration report must be accompanied by the company’s remuneration policy and an implementation report,” President Ramaphosa said.

These reports must reportedly detail the total remuneration received by each director and prescribed officer and include the total remuneration for the employees with the highest and lowest total remuneration.

“Among other indicators, companies must report the average and median total remuneration of all employees,” the president said.

Public and state-owned companies will now be required to prepare and present a remuneration policy for shareholder approval.

The new rules aim to address the high levels of inequality in South African society. However, it may not work out as expected.

Critics caution that the new legislation has risks for lower-paid employees. Though it aims to address issues of inequality and enhance transparency, several challenges and unintended consequences must be considered.

Pay gap disclosures will pressurise companies with a high disparity to rectify the situation and reduce the gap. Such companies are unlikely to cut executive pay. Instead, they could choose to report higher pay for the lower-paid employees.

This could also risk companies reducing their pay gap through workforce reduction or outsourcing. Something that is already reportedly happening at many organisations.

Outsourcing low-level jobs such as cleaning and security can allow a company to significantly increase the reported salaries of the bottom 5 per cent of workers. Lower-level employees, who are already struggling with comparatively low wages, may face job losses or reduced opportunities.

So, rather than increasing the salary of lower-level workers, it can result in fewer jobs and less stability for such workers.

Etienne Vlok - the Southern African Clothing and Textile Workers’ Union (SACTWU) national industrial policy officer - reportedly said that risks associated with the new laws are not new.

Mr Vlok acknowledged the risk of “unethical companies” outsourcing lower-paid work or cutting entry-level jobs. However, he added that outsourcing and not keeping a workforce in a company created problems for businesses.

“If directors want to hide their high remuneration to the detriment of a company, shareholders should question their actions,” he said.

Mr Vlok stated that the new pay gap disclosure will be beneficial for companies because it can lead to higher productivity.

Source: BusinessTech

(Quotes via original reporting)