Chief executives really don’t need to earn so much
There’s a limit to how much one person can spend and it falls way below what top executives are paid in South Africa. Inequality will remain until the wealthy concede this.
Author:
9 May 2022
If we want to understand what South Africa has been about since 1994, look at the pay of some of its chief executives.
The salaries of the people who run South African corporations has been a debating point for years. It is again in public view since it was reported that Neal Froneman, chief executive of the Sibanye-Stillwater mining company, was paid about R300 million last year. This is newsworthy because workers employed by the company are striking for an extra R1 000 a month in wages.
Froneman is by no means the only chief executive in the country to earn a fortune each year. His bank balance in particular swelled because the company pays him in shares as well as cash, and its shares ballooned in price last year. Had this not happened, Froneman may have been reduced to living off, say, the R84 million on which MTN Group chief executive Ralph Mupita was forced to survive.
Those who justify these pay levels point out that most of this wealth is in shares, the price of which may rise and fall. But even if we ignore the fact that shares are a source of wealth, the money chief executives are paid in salaries and bonuses is still immense. Froneman was paid just over R20 million in salary and bonus for 2021, Mupita R15 million plus R28.9 million in “short-term incentives”.
This highlights the levels of inequality within companies. Basic pay at Sibanye-Stillwater is R14 500 a month, according to reports, which means the chief executive is paid, at a minimum, 115 times more than the people who work for him. If we take the shares into account, he gets 1 725 times their wage. As usual, defenders of executive pay levels implied that critics have no idea how a market economy works, because they don’t understand that senior managers are essential to a company’s success and that large pay packets are needed to give them an incentive to bring their talents to the firm.
Like most defences of inequality in South Africa, the justification for executive pay packets is stronger in theory than in practice. Decision-makers are important to organisations (but perhaps not 1 725 times more important than manual workers) and they do need incentives. But pay can reach a level where the incentive argument makes little sense.
Status and bragging rights
To state the obvious, money is a means to an end – it is used to buy goods and services. Much money enables people to live very well indeed. But there is only so much any one person can buy and chief executives could live well-incentivised, and very affluent, lives on a fraction of what they are currently paid. Would their lives change much if they took home only R42 million a year? Or R20 million? Neither I nor anyone else reading this can speak from experience, but it does seem likely that senior executives could live very comfortable lives on a mere R1 million a month, or R12 million a year, between a quarter and a third of what MTN paid Mupita last year and 4% of Froneman’s bonanza earnings.
Given this, we can agree that in a market economy it is important to pay chief executives well, but that the salaries on offer now are way beyond what anyone would need to live even an extremely affluent life. It is difficult to avoid the conclusion that, as no one can use most of the money that top earners receive in South Africa, the only incentive is status and bragging rights. And it is hard to credit the argument that chief executives should be paid huge amounts simply so they can convince themselves that they are more important than their peers.
This point is crucial because the debate often ignores the degree to which executive pay – and the resentment it must surely cause among working people – is a symptom of the country’s development path since it achieved democracy in 1994.
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Apartheid allowed all but a few white people to live very well and forced all but a few Black people into poverty. A minority was able to live well beyond the country’s means because it suppressed a majority who were forced to get by with far less than it could offer them. But when democracy arrived, no one with any influence questioned the lifestyles of the minority. Instead, movement away from the apartheid past was measured by how many Black people could achieve the unsustainable lifestyles of the minority, not on adopting a more realistic measure of a decent and comfortable life.
This was bound to freeze or worsen inequality. What a racial minority enjoyed because they were able to deprive most people of the basics could not possibly be extended to everyone, or even close to most people. So, only some people could be included; some continue to enjoy a great deal while many have little or nothing. The fact that some of those who are now benefitting are people who were or would have been excluded under apartheid does not alter that reality.
No sense at all
One effect of this attempt to extend white privilege to all is that the country remains divided into two worlds. A minority that considers itself “First World” (as white people did under apartheid) dominates the economy, politics and society, and relegates the majority to the “Third World”. As befits its lifestyle and image of itself, its gaze remains focused on North America and Western Europe, which is why the country fought Covid-19 with methods that had failed the Americans and Europeans, ensuring a high death toll. One defence of chief executives’ pay in South Africa is that it is far less than in the United States (which does not mention that America is the most unequal rich country in the world).
If it makes sense to try to extend what white people enjoyed under apartheid to everyone, then executive pay levels are not a problem as long as some Black people enjoy them too (which they do). But it makes no sense at all.
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This means that those whose views matter need to end the fantasy that everyone can somehow enjoy what very few had, simply because they could use guns and the law against everyone else. This is far less radical than it seems. Just as chief executives don’t need most of the huge salaries they are paid, affluent people in South Africa could still live very comfortably even after sharing way more of what they have with others. It is possible to accept that market economies require some to live better than others without insisting that the standards to which everyone should aspire are those that make a small elite believe it is really American or Western European.
In one of his last public addresses, the late radical intellectual Neville Alexander chose as his theme “Enough is as good as a feast”. By this he meant that affluent South Africa could get by with a great deal less than it now has and still live lives of great comfort. The country’s conflicts are likely to continue until those who now have too much begin to hear his message and accept the need to share with those who have not nearly enough.
