May 2nd 2013
Today’s Topic: Pay of Mining CEOs
The spokesman for the National Union of Mineworkers, Lesiba Seshoka, came up with a real shocker in the run up to this week’s May 1st Workers’ Day Holiday. He said it is wrong for mining companies to say they can’t pay big rises to workers, while executive pay is often rising at many times the rate of the increases which workers are granted. So should bosses’ wage hikes be held down to the levels of the ordinary miners? Are they too well paid?
Expert views from three top Economists
1. Chris Hart from Investment Solutions:
I would suggest that the workers bring this on themselves because of the way they negotiate. Workers seek increases of inflation plus a certain amount, but bosses remunerate themselves on performance. And performance gets a bigger pay-out than inflation. That’s why you will find many managers’ salaries have been rising over the years related to the workers. If workers were paid on productivity and boosted their performance, they should get more.
2. Christo Luus from Ecoquant:
One should probably define "too well paid". Is it too well paid in relation to other sectors’ CEOs, in relation to their workers, in relation to international peers, in relation to a previous period, in relation to productivity improvements, company performance, shareholder value added …? The list can go on. My view is that the CEO’s contribution to the company’s profitability should be a key determinant of his/her remuneration, and that the biggest part of their pay should be performance related – perhaps paid in the form of stock options.
3. Loane Sharp from Adcorp :
There is a pervasive myth, propagated by trade unions for ulterior purposes, that mining bosses are overpaid in South Africa. In actual fact, there is a high correlation (73%) between CEO remuneration and company performance of JSE-listed companies: the better a mining company performs, the more highly its CEO is paid, and vice versa. In present circumstances, where mining companies’ return on capital has fallen sharply due to stagnant or falling commodity prices and rising labour costs, performance-related pay for mining CEOs will quite naturally fall. Basic remuneration, as opposed to performance-related pay, will not fall to any material extent, because mining CEOs’ basic remuneration is determined by other, non-performance related factors, such as the size of the company, the nature and complexity of the company’s operations, the experience of its CEO, and so on. The strong link between company performance and CEOs’ performance bonuses is a great strength of South Africa’s mining industry, since it promotes very high levels of accountability to shareholders.
It really is going to be a winter of discontent in South Africa, and it is not hard to make workers believe that they are being badly paid, as they do appear to be when compared to their bosses. The subtleties of remunerating scarce skills are real. But this can be lost on people who are aware of the lifestyles of those at the top of the management ladder, and only feel resentment and jealousy. Those at the centre of the wage negotiations would be well advised to do their homework on this issue, to ensure the message gets out there that this is not a South African problem alone. And if the CEO enjoys travelling to work in a car that clearly cost many multiples of the annual salary of one his lowly employees, do we shed too many gasps of surprise at the odd smashed window or slashed tyre? Save the Ferrari for the weekends, my boss.
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