As the issue of the pay gap between top executives and entry-level workers became more prominent, regulatory intervention into the matter was becoming more likely; however, advisory firm PwC warned that this could have undesired consequences.

According to PwC’s 'Executive Directors’ Remuneration Practices and Trends' report, released on Wednesday, the total guaranteed pay (TGP) of JSE-listed company CEOs increased by 4.5% during 2013, while CFOs’ packages increased by 11.6% and the TGP of executive directors rose by 4.1%.

However, PwC Southern Africa human resources services director Gerald Seegers pointed out that the pay increases varied considerably between sectors, noting that the median TGP for the CEOs of large capitalisation basic resources companies had shown a significant increase of 9.3%, or R9-million, in 2013 and was now at a level higher than that of 2011.

The report also noted that, globally, there was a trend towards greater regulation of executive pay, with changes to disclosure requirements and maximum remuneration in the public sector being capped in some countries in the European Union.

Speaking at a media briefing on the report, Adcorp labour market analyst Loane Sharp said he was alarmed by the emerging trend of government intervention in companies’ remuneration schemes.

“South African companies currently have 24% yearly return on shareholder value, which was the highest among 135 countries, which is why our business [sector] continues to expand even in depressed economic circumstances.

“The key driver of corporate performance is the incentive that exists for executives to increase their earnings. I think the trend toward regulatory intervention and interference in the remuneration of executives is going to, ultimately, be disastrous for the country,” Sharp said.

He added that everything was moving in the right direction, as at the moment, the correlation between corporate performance and executive remuneration was 68%.

PwC economic adviser Dr Roelof Botha concurred with Sharp stating that overregulation in an economy would have negative effects, as could be seen from the example of Zimbabwe.

“However, until the time that economic policymakers understand the value added [by top executives] [the] debate [will continue] about remuneration,” he said.

Meanwhile, Botha also pointed out that the average wage in South Africa was about three times higher than that of the rest of sub-Saharan Africa and was also higher than the wages earned in Brazil, Russia, India and China.

However, despite this, workers in South Africa were still striking for higher wages, with trade unions having been “opportunistic and clever” to point to the wage gap, Sharp said, adding that this was “economic nonsense”.

He said unions were fighting this battle for an entry-level wage above economic value out of jealousy regarding the wages earned by higher-level employees as well as to exclude the competition union members faced from younger, although less experienced, workers.

PwC Southern Africa human resources services partner Martin Hopkins added that, currently, junior workers in South Africa were being paid well, especially in the platinum mining sector, where the average entry-level employee earned about 6.6% more than his or her corporate counterpart.

Hopkins said this substantiated the claim that the unions were seeking these higher wages and focusing on the payment gap between executives and junior employees out of self-interest.

Sharp predicted that the South African government would likely implement regulations to curb executive pay if it was asked to do so by labour unions.

Meanwhile, Institute of Directors Southern Africa CEO Ansie Ramalho said while government regulation was not the answer, there had to be some form of regulation of executive pay.

She, therefore, suggested self-regulation measures to be implemented by the private sector.

Such measures could be based on the financial performance of the company in question in combination with other factors such as the company’s contribution to the community and the country at large.

Sharp agreed that self-regulation would be the key to addressing the payment gap, stating that this would be “the most favourable outcome you can get”.