African specialist remuneration and reward consultancy 21st Century says that remuneration practices have far reaching consequences, not only for individuals and companies but for the economy as a whole.
CEO Chris Blair and executive director Bryden Morton say that the bulging public sector wage bill was mentioned on numerous occasions within the 2019 South African budget speech and has been identified as a key area of concern within the economy.
Employees’ personal finances, for the most part, depend on their salaries.
They explain that these salaries allow them to procure goods and services which stimulate the economy and ultimately form the lifeblood of the economy.
These salaries, however, cannot simply be raised
As a result, individuals would
Employee remuneration is more often
The pay practices of state owned entities and private sector firms differ significantly, particularly at the lower levels.
According to 21st
Executives have been left out of the analysis as the remuneration structure of private sector executives is heavily influenced by long term incentives. The
Table 1: SOE total guaranteed package compared to the private sector by occupational l
|C||Skilled workers/Advanced operational||145%|
*Source: 21st Century Database (www.21century.co.za)
The median pay by grade at each occupational level has been calculated for each sector and has been expressed as a percentage of the private sector’s median total guaranteed package.
The lowest occupational level (A Band) has the largest diversion in pay practices between the SOE
At first glance, it may appear that the state-owned enterprises pay these employees too much but it must be borne in mind that the private sector’s low pay level at this occupational level
The data would suggest that whereas the SOEs seek to pay
A large contributor to this difference is that across all occupational levels, SOE sector employees receive larger benefits as a percentage of their basic salary (cash component of
The relatively high levels of pay enjoyed by SOE employees at the lower levels, results in their being significantly less inequality within the SOE market compared to the private sector.
The Gini Coefficient and the 10 – 10 ratio are measures of income inequality. The Gini Coefficient ranges between zero and one with zero representing absolute equality
The 10 – 10 ratio expresses the sum of the salaries of the highest paid 10% of employees as a ratio of the sum of the salaries earned by the lowest earning 10% of employees. The larger this ratio, the more inequality exists.
According to 21st Century’s salary database (www.21century.co.za), Table 2 summarises these measures within each sector.
ccording to 21st Century’s salary database (www.21century.co.za), Table 2 summarises these measures within each sector.
Table 2: Gini coefficient and 10 – 10 ratio by sector
|10 – 10 Ratio||10.21||9.23|
*Source: 21st Century Database
In both cases, the private sector has the most income inequality. A large contributor to this is the low level of pay, paid by the private sector at the lowest occupational levels.
The private sector’s profit motive and linking of pay to productivity plays a substantial role in guiding its pay practices, together with the supply of labour at each occupational level.
South Africa has an abundance of unemployed,
In contrast to the private sector, the public sector is not only profit motivated and as a result, does not adhere to the same pay principles as the private sector. The public sector focuses on service delivery and the welfare of its citizens.
This focus on welfare extends to its employees as well and is evident in
Although this is a noble ideal (paying
The SOE and private sector can learn from each other, even though they seem to have differing pay practices.
The private sector needs to avoid paying at levels which create ‘working poor’ individuals as this results in income inequality and social tension.
Similarly, the public sector needs to
The Holy Grail is possibly the merging of these