Pay gap narrows as executive rewards shrink

South Africa has one of the highest pay differentials in the world and the gap between the highest and lowest earners has widened rapidly in the last fifteen years of democracy. In 1994 chief executives were paid on average 37 times more than the lowest paid workers, while in 2008 the chasm had widened to 58 times.

Now it seems the gap is shrinking: new research by P-E Corporate Services (Pecs), a human resources consultancy, shows that Ceos now get paid 57 times more than minimum wage employees. The change is small but significant, according to Martin Westcott, managing director of Pecs, partly because it is the first in 15 years but mainly because it is likely to be the beginning of a downward trend, which the recession will help to consolidate.

"Companies have had the challenge of refocusing their pay strategies over the past year to cope with recessionary trading conditions," says Westcott. "Lower-level workers have received higher percentage increases, while executives not only have had more modest increases due to the need for tight cost controls but they have also seen the incentive component of their remuneration squeezed by pressure on profit margins and weak share market performances adversely affecting share options."

The financial sector has been at the forefront of this drive towards pay moderation. "South Africa's financial sector has taken a conservative, common sense approach during these tough times," says Chris Blair, Ceo of 21st Century Business and Pay Solutions, a remuneration consultancy in Johannesburg. "There have been no mass retrenchments, but at executive level salaries have been frozen, with a few exceptions like hardship packages for expatriates to other African countries, while bonuses have been held back until things get better."

Westcott points out that the scarcity value of banking executives has been much reduced by the crisis in the UK and US, which has persuaded many South Africans not to leave the country and many expatriates to return.

The better availability of skills will contribute to keeping salaries down. But Blair believes the end of the recession will signal a return to higher executive rewards: "I am optimistic, like most economists here, and believe SA will recover before the US or the UK. When that happens, salaries will definitely creep up again."