Thank you, Deputy Speaker. I am not introducing this Thursday debate to make more enemies, but to put this issue firmly on the agenda as a sincere attempt in this country with its wounded past and the huge gap between the rich and the poor not to ignore what is happening in certain sectors of society, which in many instances borders on poor board decisions and greed. Since the recession, all over the world the executive pay issue has been put under the spotlight. What is happening here in our country?
Dr Phillip Theunissen concluded a fascinating study in 2009 under the heading: Is executive remuneration out of control? Of his main findings is that public opinion polls consistently show that they think - and that is the perception - that chief executive officers' remuneration is out of control. Some of his findings are that in 2009 the average remuneration of a CEO in South Africa was R4,8 million. That is 36 times more than the average worker!
Despite the severely negative economic conditions after 2008 CEOs were still able to double their normal annual earnings with performance bonuses. He further found that the performance of individual companies is by no means a determinant of the CEO's remuneration.
The bottom line is that the current levels of CEO remuneration in all sectors are sending out the wrong message regarding fairness to the average worker and the ordinary South African. The annual basic salary of a CEO in the private sector over three years, 2006 to 09, rose by 59,6%.
What has happened in the public sector? Let's come closer to home. Over the same time the President's salary rose by 70%; a Minister's by 73,5%; a Member of Parliament's by 50%; a Premier's by 65%; a Chief Justice's by a whopping 134,7%; a judge's by 70%; a director-general's, shall I say by "only" 26%; and a cleaner's by 25%. This has led to a state wage bill now consuming almost 40% of the total budget. The average salary in the public sector is now 28% higher than in the private sector.
CEOs in state-owned enterprises, SOEs, now earn more on average than their counterparts in the private sector. Something had to give way, and it did. The freezing of the Cabinet Ministers' salaries was a good start and the President must be applauded for that. In 2009 a moratorium was put on the executive pay at SOE level. They do not like it, but some of them are still paid huge salaries and bonuses, with dismal performances.
For example, the two highest-paid executive committee members in SA Airways got R6,5 million and R9,1 million respectively. I am not even referring to the CEO. The SA Broadcasting Co-operation's company secretary earned R4,3 million last year. Telkom's CEO was paid R12 million and the chief financial officer, CFO, of the same company R8,3 million. So, I can go on! The nonexecutive Chairman of that company was paid R1,5 million just to call meetings. Municipal managers and mayors earn more than the President and Premiers of their provinces. Private fund managers who operate below the radar in the private sector earn millions. Let me put these salaries into perspective.
According to Statistics SA, 63 000 individuals earn more than R1 million per year in South Africa. Just over 2 000 earn more than R5 million per year. Thirty-six thousand taxpayers received share options totalling R6 billion 2011. In the same year, the top 612 executives pocketed share option benefits totalling R2,4 billion.
One example must take the cake, though. The CEO of a very well-known media house in South Africa totally outclassed his board of directors and the remuneration committee of that company, offering to work for them without earning a salary, but instead he wanted share options, that are now worth R6 billion, for one person! Share options are an important tool as incentives when applied correctly, without an element of greed.
The company, under his guidance, performed excellently and made many people and institutions rich. However, there must be a limit, and the board was wrong not to cap the share option. This is sending out the wrong signal.
So we all need to rethink what we are taking from the state or our companies. Eventually it is the taxpayer and consumer who pay these salaries. Let's tone down expectations for the sake and the survival of this country. [Applause.]
Hon Deputy Speaker, hon Ministers, hon Deputy Ministers and hon members, the subject introduced for debate today by the hon Koornhof is a very important one and the ANC welcomes it.
Many people will be of the opinion that executives are paid far too much; that, in fact, their salaries are quite obscene. An article in the Business Report dated 7 March 2011 entitled "Top of the Pile: The well-paid club of 15" reports that the 15 highest-paid directors of JSE-listed companies earned a total of R622 million last year. According to the 2011 edition of Who Owns Whom, these executives earn an average of more than R41 million. What do they do with it at all?
In comparison with these figures from the private sector, the top 15 earners at state-owned enterprises, SOEs, earned chicken feed - only R107 million, which works out to less than R7 million each on average.
We are not the only country in the world wrestling with this issue. Other countries are battling with it too. In the UK legislation is being proposed to amend current practices. In the US there is a Bill introducing further reforms of remuneration practices. In the EU, regulatory guidance was introduced and further reform is being considered to provide for a shareholder mandatory vote on executive remuneration.
But it is our own South African situation that concerns us here. To this end, a number of initiatives have been embarked upon to address this issue, and I want to give a brief outline of some of these.
First of all, regarding the private sector, there are three initiatives. The first is the Code for Responsible Investing in South Africa, which was introduced in July 2011 and is relevant for all institutional investors, for example, lending institutions, the Public Investment Corporation, etc.
The second is Business Leadership South Africa, which has also announced its intention to release a code on remuneration and labour practices for its members.
The third is the King III enhanced remuneration practices for the private sector and listed companies. In fact, this is now being made into law by being included in the new Companies Act.
With regard to the public sector, we have the following: the Presidential Review Commission, which was set up by the President. One of the workstreams of the commission is to look at remuneration. We await the report.
National Treasury's Review 2006-07 also looked at issues of remuneration. That was one of the things they looked at across all three spheres of government and relating to everyone in the public sector. That review is still incomplete.
In 2007, the Department of Public Enterprises brought out remuneration guidelines. They are currently reviewing the remuneration of Schedule 2 to the Public Finance Management Act entities.
So, both here and abroad it is a live issue and attempts are being made to come to grips with it.
What members also need to be aware of is that highly paid executives are highly mobile. They are on the move all over the world looking for more pay and being paid in dollars, euros or pounds.
I want to deal with what pertains to remuneration packages in our state- owned enterprises. The Department of Public Enterprises, in conducting their review of remuneration practices, was informed by comments from, among others, National Treasury, Business Unity South Africa, Solidarity and private sector experts. The PricewaterhouseCoopers survey provides insight into global modeling and how executives are remunerated. The debate is whether executives are deserving of those remunerations and incentives and, more importantly, whether the shareholders are satisfied with the performance of the executives.
In the UK, legislation on pay is being introduced. This legislation is one of its kind and comes in the wake of the global financial recession.
A report by the South African Press Association, Sapa, in April 2012 states:
Citigroup has become the first Wall Street bank to get the thumbs-down from shareholders over outsized executive pay.
At its annual meeting on Tuesday, 55% of the bank's shareholders voted against the pay packages granted to Citigroup's top executives, including CEO Vikram Pandit's $15 million ...
That equates to R118 million -
... for last year ...
The Financial Services Board has also taken the opportunity to revise its remuneration policy. So the remuneration of the executive is more aligned to current and future risks of the banking sector. The policy outlines the need for proper governance by the board to ensure that remuneration is aligned to the mandate of the organisation.
During 2010, the department placed a moratorium on remuneration increments for all SOE executive and nonexecutive directors who fall within the public sector's enterprises jurisdiction. The department has appointed a service provider to finalise the development of a new remuneration model for executive and nonexecutive directors.
State-owned enterprises have very important role to play in the developmental state and, as such, government recognises state-owned enterprises as strategic instruments of industrial policy and core players in the New Growth Path.
This recognition compels state-owned companies to align themselves with the broader government economic and strategic priorities such as skills development, job creation, and the development of local industries through the infrastructure investment programme.
Whilst state-owned companies have been under much discussion since 1994 regarding privatisation, the ANC believes that they have a critical role to play in the developmental state. The revised vision of the department reads -
... to drive investment, productivity and transformation in the department's portfolio of state-owned companies, their customers and suppliers so as to unlock growth, drive industrialisation, create jobs and develop skills.
Because of the rising levels of unemployment, not only here, but also elsewhere in the world, it is an extremely emotional issue and therefore needs to be handled responsibly and with extreme care.
Do high salaries and bonuses paid in the private sector impact on state- owned companies? Yes, they do. We as the ANC believe that much is being done to remedy the situation and we await the results of the deliberations that are in progress and look forward to a reasonable and workable solution. I thank you. [Applause.]
Deputy Speaker, in developed countries the debate about inequality is on the gap between those who earn the most and those who earn the least, as captured by that famous measure of statistical dispersion developed by the Italian mathematician Corrado Gini, income inequality among those who have jobs found in the European and North American context, in which the debate on executive pay is playing itself out.
However, in developing countries such as ours, the debate centres on the fact that we have 13,7 million South Africans who are employed and 6,7 million who are unemployed. The most compelling social problem, therefore, that defies our context and compels us to focus our minds is the problem of solving growth in joblessness.
Accordingly, in the DA's growth and jobs plan we offer proposals to do the following things: Firstly, create jobs by creating a favourable environment for investment and freeing up of our capital and labour markets. Secondly, by broadening ownership and distributing shares in state-owned enterprises to ordinary South Africans. Thirdly, promoting employee share-owner programmes. Fourthly, by reforming black economic empowerment, BEE, to focus it on job creation and make it truly broad-based. Fifthly, by promoting more charitable giving by radically increasing the threshold of tax deductibility from the current low of R150 000. Finally, by subjecting executive pay to more competitive pressure, greater transparency, more honesty and higher levels of self-regulation by way of heightened shareholder activism.
A number of ideas have been offered about how to deal with the issue of executive pay. These include: Firstly, a proposal to increase VAT on luxury items. International experience indicates that luxury goods-focused VAT is too costly and far too complex to administer.
A second proposal, the favourite of Minister Ebrahim Patel, is to put a wage cap on high-income earners. Wage caps have been tried in several countries, but to combat inflation, not to combat inequality. They have universally failed because they lead to shortages and resource misallocation.
Finally, there is a proposal to have a super-tax on high-income earners, and we must observe that South Africa's top personal income tax rate is 40%, while the global average for both developing and developed countries is 29%. More importantly, compare our 40% tax rate for top earners to middle-income countries growing at a much higher rate than ours. For example, Turkey sits at 35%, Colombia sits at 33%, Brazil sits at 27%, Malaysia at 26%, Uruguay at 25%, Egypt at 20%, the Czech Republic at 15% and Paraguay at a nice, low 10%.
These are there for proposals that are not viable in our view. Instead, we recommend the following: Firstly, that there be a new definition of total reward that represents a single amount paid to directors or prescribed officers; that represents the total monetary values of all fees, salaries, bonuses, performance-based payments, expense allowances, pension contributions, share options, financial assistance, soft loans and other relevant payments for the year, including exit payments where they are applicable.
Secondly, to have more transparent, better described and more fulsome justification for how total reward relates to the company's performance. It is fundamentally important that that link be made, to specify in an amendment to the Companies Act that annual financial statements must declare total reward as I have described it and include an explanation of how directors' remuneration relates to company performance. Justification must be given. Critical performance indicators used for pay needs have to be widely circulated both to shareholders and to citizens.
Thirdly, our immigration rules must be reformed. There are in the region of 901 800 unfilled positions for highly skilled professionals across a wide range of occupations, including senior management, in the professions such as medicine, engineering, accounting and the law; technical occupations consisting of specialised technicians and artisans, and agriculture. The shortage of skilled technicians has been artificially induced by the April 2011 amendments to the Immigration Act, which banned the use of immigration agents and quota work permits.
A cost reduction caucus must be established. It is a National Economic Development and Labour Council, Nedlac, of cost reduction, a body representing organised business, labour, government and the unemployed, whose task it is to reduce administered prices like electricity, inflation and wage increases that are not linked to productivity.
Finally, the influence of shareholders over remuneration policy must be significantly enhanced. Shareholders must heighten their interest in and the influence over pay by using critical performance information to exert pressure on corporate board remuneration policies and exit payments. Thank you very much. [Time expired.] [Applause.]
Madam Deputy Speaker, why should we be concerned about this debate and about what people make? I think there are two reasons and one has been given to us by hon Koornhof. It is because the public sector follows the private sector and as far as the private sector is concerned, it is a symptom of the economy not working. Salaries and bonuses have gone down as a consequence of the global crisis elsewhere, but they have not gone down in South Africa.
The hon Koornhof tells us that the situation is out of control. What are the controls that should have been in place, yet are not in place, surely not controls from the side of the state on private salaries.
I receive with a little of shiver of fear, if not horror, the suggestion of my delightful hon friend Dr Wilmot James that we pass legislation to tell companies how to reward their employees. That is a private relationship. The real controls are to be elsewhere and we understand the reasons why those salaries are so high. They are so high because our country maintains Petri dish characteristics of our economy. There is a lack of competition and flexibility, as Dr James correctly pointed out. The marketable skills are closed because it is not possible to import the necessary skills from abroad and those who have high positions can enjoy those salaries because there are no cheaper people available to compete with them.
The other reason why there is such a huge gap in salaries is because the companies pay them. Why do companies pay them? The hon Koornhof told us it is because they overtax consumers on their services and they charge too much, but it is the other way around. It is the possibility of charging too much in the marketplace, which is a Petri dish, which does not allow competition that enables them to pay the salaries they are paying. Once that happens within the private sector, it is necessary and unavoidable, as the hon Borman told us, for the public sector to follow suit. The public sector must compete ... [Interjections.]
Hon Deputy Speaker! Hon Deputy Speaker ...
Hon Ambrosini, there is a point of order.
It is not a point of order, but a question.
What is the question?
The question is: If hon Ambrosini believes that our migration policy does not allow skills to come to South Africa, how did he come to South Africa?
No! Hon Deputy Minister, that is not a proper question, please. Continue, hon Ambrosini.
It is a proper question. It is not proper that you should not ask first if I want to take a question, but I will respond very gladly. I came to South Africa with enormous difficulty, but thank you very much for acknowledging my skills. The fact is that if you put all the people through what I was put through ... I did it because of the love and affection that I have for Prince Mangosuthu Buthelezi. Also, the challenge of the offer to be in South Africa and what could be done here. All the people are just not going to go through this what Minister Sisulu said; we agreed that "hogwash" was parliamentarily acceptable rubbish. [Laughter.] But this is a serious difficulty.
The Petri dish characteristics of our economy are the root cause of the difficulties we have in bringing down salaries. The controls that have made the system go out of control, and the control that should be there is plain old market economy. If we allow companies to continue to regard consumers and all of us as cows to be milked, the milk would be distributed through the directors, management and shareholders. I must say I feel great fear for the proposal of my friend Dr James, that shares of public enterprises be given to the people, because we are going to have the same situation as with Eskom. In order to entrench the value of those shares, we are going to create more Petri dishes and more monopolies to give out. We need to privatise and get out of where we don't belong. Thank you. [Time expired.]
Hon Speaker, this debate today speaks to the very heart of the kind of society we are trying to build in South Africa. South Africa is often recognised as one of the most unequal societies in the world and it is clear that more needs to be done in order to address this challenge. This inequality is related to a number of factors, though, with our apartheid legacy obviously being one of the main contributors. Unfortunately, our abject failure to improve our education system in the last 18 years has also perpetuated the vast disparities we see in our country.
In addressing all these issues, however, it is important that we adopt measures that are going to make a sustainable and long-term difference in the lived reality of our people. It is too easy to fall into the trap of emotive language that simply pits one group of South Africans against another. This approach will not help us find the shared solutions that we all need to buy into if we are going to take this country forward and help build a fairer society.
I am extremely concerned about the kind of society we seem to have settled on, a society that all too often values crass materialism above the values of a common humanity. The first thing we need to do is to inculcate a spirit amongst all of us that sees hard work and sustained effort rewarded with fair compensation. A get-rich-quickly mentality seems to have pervaded our society, along with a need to ostentatiously display our wealth to others.
In a society where so many of us are struggling to survive on a daily basis, this kind of behaviour should not be venerated. Like many South Africans, I am also appalled at the obscene bonuses that many CEOs are given and shareholders need to be far more active in ensuring that this does not happen.
One way to do this is to institute empowerment schemes, in which workers can become shareholders and have a greater stake and voice in the running of companies. Political patronage that simply sees the same small group of people becoming spectacularly rich through their political connections also needs to be overhauled. Far more South Africans need to be given a stake in this economy and shared-ownership schemes is one means of achieving it.
In terms of parastatals, we also need to build a greater sense of public service, whereby advancing the public good is valued more than their monetary compensation. In Brazil they have a principle that no one in the public service, including parastatals, can earn more than the President. The only principle that we seem to have in South Africa is that no one can have a bigger house than the President.
Ultimately, we need a new social compact in our country where everyone recognises each other's contribution and where the different levels of compensation are based on performance and seen as intrinsically fair. This will, however, require visionary political leadership that can involve all of us in building the kind of society we all dreamed of in 1994. I thank you.
Hon Deputy Speaker, hon Ministers, hon members, the remuneration of company directors and executives is an issue that has attracted considerable interest and attention from members of the public in recent years. There has over the years been growing concern about the excessive remuneration of executives in the private sector and, more recently, in state-owned enterprises as well. Executive remuneration packages in South Africa are not always connected with the relevant performance measures.
The 2010 Statistics South Africa's household survey found that the top 10% of earners in South Africa took home salaries 101 times higher than the bottom 10% of earners. Income inequalities in the mining sector were discussed in detail over the past few months and were described as one of the major contributing factors to the labour unrest in that industry. These salary differences widen the income gap between executive managers and ordinary employees and thus increase inequality in a country that is already grappling with the rebellion of the poor.
In addition, there is the widespread culture of giving golden handshakes to senior managers despite poor entity performance. This culture is firmly entrenched in the public sector, and the SOEs in particular. For instance, the former South African Airways CEO, Khaya Ngqula, received a golden handshake of R8 million after he was fired for his involvement in the rigging of a tender in 2009. Dali Mpofu, former CEO of the SABC, was given a golden handshake of R11 million for suspending then head of news, Snuki Zikalala, and running the SABC into the ground. A more recent example involves the suspended Director-General of the Department of Agriculture, Langa Zita. According to media reports, Langa Zita, who was suspended for administrative reasons, will receive a golden handshake of R2,5 million.
The common denominator of all these examples and many others not cited here is the incompetence of managers deployed to run these entities. It is common knowledge that the majority of the people who have been or are tasked with running public sector institutions or SOEs are incompetent.
It is for this reason that I find it difficult to follow the logic that high private sector salaries have an effect on the public sector or SOEs. Granted, exorbitant private sector salaries are a problem that requires urgent attention. However, they would become a major factor only insofar as the competition for the highly skilled and talented among us is concerned. Given the extent of incompetence in the public sector, as I have just mentioned, I doubt it if the public sector faces any serious competition from the private sector. [Time expired.]
Adjunkspeaker, wreldwyd, maar ook in Suid-Afrika, is daar 'n ernstige bewuswording van die groeiende kloof tussen ryk en arm. Dit is kommerwekkend dat die tussengrond stadig maar seker wegkalwe word. [Deputy Speaker, across the globe, but also in South Africa, a serious awakening to the growing divide between the rich and the poor is taking place. It is disturbing that the middle ground is slowly but surely being eroded.]
With regard to the globally emergent wealth gap, the huge salaries and bonuses earned in the private sector have over time come to symbolise an economic system that is not equitable. Therefore, since the start of the Great Recession in 2008, the revolt against inequality worldwide has been focused against the likes of Wall Street, London and the global financial system run by banks.
In South Africa the revolt extends to many other industries like the mining and transport industries. And this is only the visible revolt as there is a growing overall discontent not clearly evidenced by events such as industrial action. The outline of this is, however, visible in the emergent tax revolt sparked by the Gauteng e-tolling system.
Die probleem wat vandag aangespreek word, moet egter gelees word teen Suid- Afrika se unieke sistemiese agtergrond. Daar bestaan 'n besonderse obsessie by die regering en selfs navorsers in die artikulering van die probleem van 'n groeiende welvaartgaping, om net krities te fokus op die boonste inkomstevlak van die private industrie, veral in rasseterme. Wat vergeet word, is dat die kritieke massa van werkgeleenthede van die laer vlakke afkomstig is en dat die inklusiwiteit van die mark daar gemeet moet word. (Translation of Afrikaans paragraph follows.)
[The problem under discussion today should, however, be seen against South Africa's unique systemic background. There is a distinctive obsession on the side of government, and even researchers, when articulating the problem of a growing prosperity gap, only to focus critically on the upper income level of private industry, particularly in racial terms. What is forgotten, is that the critical mass of employment opportunities originates from the lower levels and that this is where the inclusivity of the market should be measured.]
What is also significant is that the public sector has emulated the high salary practice of the private sector, but without the same productivity output. Witness how a failing Eskom awards bonuses to its directors. Witness how a freely spending Transnet plundered the pensions of its erstwhile workers while awarding huge salaries and bonuses to its directors. What is also just plain scary is that the public sector has completely overshot the salary scales of the private sector on virtually all of the other income levels.
Measured against the fact that the state is now the top generator of employment, that the state cannot deliver services properly, that there is a lack of drive and productivity in the Public Service and public enterprises and that corruption is now considered systemic, South Africa is on the path to being downgraded to pyramid scheme status.
The International Monetary Fund, IMF, has warned Parliament that the Public Service wage bill must be restrained as it acts as a constraint on labour absorption. Due to the uncertain market and the ANC's policy double-think, many businesses are hoarding cash that could have been used to stimulate the economy and create jobs.
So, what is to be done? Firstly, the ANC must stop acting as a labour broker for its cadres to be deployed into the Public Service and public enterprises. The ANC must ban itself from cadre labour broking in as much it wants to stimulate or ban economically viable free market ones. The state must be run by people appointed on merit only. Tweedens, nou verbonde hieraan is die gebruik van regstellende aksie as middel waardeur kader-ontplooiing plaasvind. Gegewe die feit dat die welvaartgaping nou intra-ras groei, kan veel eerder gebruik gemaak word van sosio-ekonomiese aanduiders vir benadeeldes. In essensie moet regstellende aksie weg.
Die feit is, indien ons nie baie vinnig bogenoemde veranderinge aanbring nie, sal Suid-Afrika verdere afgradering in die gesig staar en sal sosiale kohesie al hoe meer lostorring soos die nood verhoog. Dankie. (Translation of Afrikaans paragraphs follows.)
[Secondly, closely related to this is the use of affirmative action as a means whereby cadre deployment takes place. Given the fact that the prosperity gap is now developing intra-racially, socioeconomic indicators should much rather be used for the disadvantaged. In essence, affirmative action must go.
In fact, if we do not introduce the above-mentioned changes very soon, South Africa will be faced with further downgrading and social cohesion will unravel more and more as the emergency intensifies. Thank you.]
Madam Deputy Speaker, one in eight people in South Africa work in the public sector, with salaries 44% higher than those of their counterparts in the private sector, apparently a public sector that has grown substantially as great efforts have been made to attract skills in order to deliver much needed services.
In order to attract and keep capable people in the public sector, private sector salaries must be matched and this does impact on state-owned enterprises and state department budgets. Executives in parastatals and state-owned enterprises do earn competitively and at times outrageous packages.
The New Growth Path proposals, published early last year, call for a cap on executive pay above R700 000 per annum, plus a limit on salary increases in line with current inflation rates for all staff above basic and semi- skilled levels. Recent salary survey data confirms, however, that many senior executives in both the private and public sectors already earn in excess of this amount, making the proposals impractical.
As to how much of the rise in compensation of executives is a natural result of competition for scarce business talent, and how much is the work of manipulation and self-dealing by management unrelated to supply, demand, or reward for performance is debatable. Again, this applies as much in the public sector as in the private sector.
Absurdly, getting fired often involves huge payouts even for those whose terms of office have been marked by financial misconduct, violation of tender processes, fraud, improper behaviour, gross negligence or just plain failure.
Recently, the Minister for the Public Service and Administration warned that salary increases for public servants higher than the rate of inflation, 6,4%, are not sustainable - also relevant in the private sector - although jobs in the private sector are generally only created and maintained if the cost of the job is linked to the value created by the individual performing the job.
Public sector jobs on the other hand absorb wealth created in the private sector and a critical role of government is to ensure that the tax burden on the private sector is reasonable and does not jeopardise productivity.
The ACDP recognises that in South Africa there is enormous frustration among sections of our population at the high-income inequalities in South Africa. We have no future if it is not a shared future and change must come. Hopefully, this change will be voluntary change and not revolutionary change! Thank you.
Madam Deputy Speaker, hon Ministers, Deputy Ministers, hon members, this debate that the ANC has agreed to enter into must be engaged with for the correct reasons and not the incorrect reasons. Comrade Borman, my colleague, has outlined the statistical facts before this House and debunked particular myths that have been created for political, opportunistic and expedient reasons. The objective reality has been laid before this House with empirical data. What I shall outline, Deputy Speaker, is the essence of the problems, the driver of the distortions in the market, the private sector itself.
Deputy Speaker, let us examine the extent of the problem we face. The 15 highest paid directors of the Johannesburg Stock Exchange-listed companies that earned a total of R622 million in 2011, according to the 2011 edition of Who owns Whom averaged more than R41 million each per annum. In comparison, for the purposes of this debate, the top 15 high earners from the state-owned enterprises earned R103 million, an average of about R7 million each per annum. The highest-paid director in the private sector earned R63 million per annum.
To contextualise the issues of this debate, we have a country that, according to the UN Development Programme, has the greatest levels of inequality in the world; the gap between the wealthy and the poor. Within the demographics of our society and between racially defined groups, the gap is widening between the propertied class and other wage earners and, of course, the unemployed. The key, and principal, driver of this is the private sector. This raises questions about the nature and type of society that we are trying to build.
The major and immediate task of the national democratic revolution in this phase is the building of a national democratic society, elaborating on the broad principles of a democratic, nonracial, nonsexist, united and prosperous South Africa. To successfully build a national democratic society, we must eliminate the main antagonisms of colonialism of a special type. These antagonisms are the three interrelated contradictions and legacies, namely, national oppression based on race; super-exploitation of black workers; and the triple oppression of women based on their race, class and gender.
If this constitutes the character of the national democratic society that we are trying to build, we should be acting decisively where practices and behaviours that are both foreign and alien to this concept are taken as the norms and standards.
The threat to social cohesion and nation-building through the continued practices of remuneration packages in the private sector has brought about severe criticism from within the private sector itself, and even more so from outside the private sector. This takes place at a time when international scrutiny of executive remuneration has resulted in both legislative and regulatory intervention. A number of initiatives have been embarked upon to address this issue.
These can best be reflected in the Code For Responsible Investing in South Africa, which was introduced in late 2011, aimed at the attention of institutional investors, lending institutions, public investment corporations, and so on. Business leadership South Africa also announced its intent to release a code on remuneration and labour practices for its members, King III-enhanced remuneration practices for private sector and listed companies.
What is imperative for the ANC is that the private sector begins to demonstrate social consciousness and solidarity with the plight of all South Africans, the majority of whom are poor, with limited access to basic necessities and who have lost jobs due to the current global economic downturn. Anything else would merely be insensitive and this is exactly what we meant in the New Growth Path when we argued for a social compact around executive salaries.
If we are to examine global trends in Britain, for instance, legislation is being proposed to amend the current practices, following the exposure in the banking sector of corrupt practices and obscene remuneration packages.
In the US, a Bill has been introduced in the Senate that brings about further reforms in remuneration practices. In the EU regulatory guidance was introduced and further reform is being considered to provide for the shareholder mandatory vote on executive remuneration. Such are the steps that are being taken internationally and with good reason.
International best practice regarding directors' remuneration informs us that the main principles that should govern the remuneration of executive directors are as follows: The level of variable pay should be reasonable in relation to total pay level; variable pay should be linked to factors that represent real growth of the company and real creation of wealth for the company and its shareholders; and the severance pay for executive directors should be restricted to two years' annual remuneration and should not be paid if the termination is due to poor performance.
In conclusion, we urgently need, at the national level, to bring into line policies on recruitment, remuneration and retention of personnel across sectors of our economy without compromising the principles of equity and fairness. It is important that these principles are not distorted by market values and that work should not be treated simply on the basis of a commodity that can be bought and sold on the open market. Market-related salaries will always be prone to distortions and certainly what has been developed in state-owned enterprises and the public sector in terms of guidelines is to be welcomed. The strict adherence to these are necessary. These, Deputy Speaker, are important lessons for us. [Applause.]
Hon Deputy Speaker and hon members, parastatals and state- owned enterprises pay very close to private sector rates at executive level in respect of guaranteed pay and short-term incentives. It has been argued that government's state-owned enterprises are under pressure to match the private sector, because unless they do so, they risk the brain drain to the private sector.
Executive pay, both in government and in the private sector, remains relatively high according to global standards, yet we are a country with massive socioeconomic challenges that need redress. What the 2010 household survey revealed is that 10% of earners in South Africa took home salaries that were 101 times higher than the bottom 10%. This exposes the ridiculousness in determination of salaries in a country in which economic inequalities are compounded, where the gap between the rich and the poor continues to expand.
The disproportionality in pay, whether private or government, weakens social cohesion; and may lead to other problems, such as crime. South African executives continue to display double standards and get away with it. They advocate executive pay packages matching those in the developed world, while insisting on general labour being paid on a par with developing countries.
Top executives in South Africa earn 1 728 times that of the average worker in their respective companies, while this gap was only 319 times in the United States. Socioeconomic concerns in particular aggravate the issue in the South African context, as the gaping pay differentials impact on the resultant income inequalities found across society.
Recently, we have witnessed vocal calls for businesses to consider modesty in executive salaries. However, these calls received little or no support as government and parastatals must be seen to lead the way. Of note in this particular instance is what the President and the Minister of Public Enterprises said on the issue, and I quote:
Remuneration of executives is quite high and does not contribute to bridging the inequality gaps between the highest and the lowest paid.
However, in this particular case, government is trying to lock the stable after the horse has bolted. It is this government that said people were paid slave wages when it ascended to power. It is this government that said people were entitled to unbridled remuneration and it deployed undeserving cadres who run the enterprises such as SAA and SA Express into the ground.
Increases within the public sector continue to match or exceed private sector rates. Net wages after taxes in the South African government are higher than those in Germany, Sweden and Finland, on a dollar purchasing power per parity. I thank you. [Time expired.]
Deputy Speaker, in the Public Service, where government is considered to be both shareholder and regulator of market activities, it should come as no surprise that we are in the midst of a Public Service remuneration mismatch. Nowhere is this more evident than when one looks at the excessive increases in salaries paid to executives of inefficient state- owned enterprises.
A glance at the figures reveals an economically unsustainable trend. Eskom's recent submission to the National Energy Regulator of South Africa calling for a further 16% electricity tariff hike each year for the next five years comes on the back of R36 million spent on staff parties, a 20- month schedule overrun of an additional R60 billion in the construction of the boilers for Medupi and Kusile; and R26,9 million in fruitless and wasteful expenditure.
Despite these inefficiencies, Eskom executives have seen generous pay increases in the 2011-12 financial years. Eskom paid executive members 109% more than they were paid in the previous year. In recent years, executive pay has risen from R8,8 million in 2010-11 to R18,5 million in 2011-12 to the latest projected figure of R34 million. The Eskom Chairman earns R113 500 for every board meeting he attends.
This year, another state-owned enterprise, SAA, announced another annual loss - this time to the tune of R1,3 billion, which included R4 million in fruitless and wasteful expenditure, bringing its total losses over the past decade close to the R14,7 billion mark. The usual granting of a bail-out followed, taking its total bail-out package to R16,8 billion over the past 20 years. The subsequent resignation of the chief executive officer and six board members before the conclusion of their terms reveals an organisation in complete disarray.
Nevertheless, the failure of the state and SAA executives saw the CEO taking home R4,1 million over the past financial year. In the case of the Transnet group, only two-thirds of its objectives in key performance information targets were met last year. Furthermore, four instances of irregular expenditure amounting to well over R100 million were recorded.
Yet again, executives were handsomely rewarded. Non-executive directors were paid R8,1 million, up by 40% from the previous year. In the last financial year, the Chairman earned R125 000 per board meeting attended, whilst the CEO took home R6 million. Clearly, something is going horribly wrong with our state-owned entities' remuneration framework.
Adcorp's labour market navigator released earlier this year found that 99% of the variation in executive pay is explained by factors other than profitability. This suggests a perverse mismatch between executive performance and pay. [Time expired.] [Applause.]
Motlatsa Sepikara, Maloko a hlomphehileng a Ntlo ena ya Ketsamolao, ke a le dumedisa. Ke ema mona ke le motlotlo, ke le e mong wa ditho tse tharo tse kgethilweng ke ANC ho tla fana ka maikutlo a rona sehlohong sena sa bohlokwa. ANC e sa ntse e tla busa. (Translation of Sesotho paragraph follows.)
[Mr A D MOKOENA: Deputy Speaker, hon members of the National Assembly, I greet you all. I stand before you with pride as one of the three members chosen by the ANC to give our opinion on this topic. The ANC is here to stay and rule.]
The ANC is here to stay and rule. I must at the outset congratulate the hon member of Cope, hon Koornhof, for raising this very important subject. A very good example has been set by the President of the country, His Excellency Jacob Zuma, together with Minister Malusi Gigaba, when they publicly said that they appealed and issued a clarion call that there should be a moratorium, a freeze, on these obscene salaries of executives. I think what this House must do now is to give the President a rousing applause because he has shown leadership. [Interjections.] [Applause.] The President has already shown leadership. So we are taking our cue from him. It shows that the ANC lives and the ANC leads. [Interjections.]
I was supposed to sweep now, but there is very little to sweep because we are all in agreement about the obscenity of executives' salaries. I am quickly going to make a few remarks. Firstly, Dr Ambrosini, we missed you in the Portfolio Committee on Public Enterprises. I respect you as a lawyer; you have a good legal brain, but you surprised me when you acted like a spoilt brat when you clashed with the previous chairperson of the portfolio committee, hon Vytjie Mentoor. You then showed us "a clean pair of heels" and ran away. So we missed your input.
Mr Alberts, a member of the FF Plus, we hardly see you. You only came in once to "loer" [peep] - you peeped while we were discussing the [Inaudible.] ... [Interjections.]
Hon Deputy Chair, on a point of order: According to our procedures, it would seem that referring to an hon member as a spoilt brat not only demeans the intelligence of the speaker, but also the recipient of such an insult. Could you please rule on the matter?
I will consider it and come back to the issue.
As for the member of the UCDP, hon Mfundisi, please man, you are the last person to talk about patronage; not while your own party, the Mangope regime, was dishing out patronage in the whole of Mafikeng and so on, and building houses for the people just to keep the whole public service. So you should be the last person to talk about that issue.
Hon Mlambo, let me just share with you one little part of an anecdote. In 1994, I had the priviledge of serving on the Portfolio Committee on Public Enterprises. I was on an oversight visit to Esselpark to see the then chief executive officer, CEO, of Transnet, Dr Moolman. I asked him two questions and said: Dr Moolman, in which field of study did you obtain your doctorate? He said: Transport economics. The second question was: When did you join Transnet? He said: "You are not going to believe it. I joined Transnet at the age of 15. As a 15-year-old boy, I grew up here as part of this institution."
So this indicates the good example of what a state-owned enterprise can actually do. He mentored Saki Mocozoma, who subsequently took over. Nevertheless, the point is that those like Mr Alberts, who say that we must do away with affirmative action and that state-owned enterprises privatise themselves, are actually going against the grain. This because there is an abundance of evidence that indicates that these SOEs, if they are properly run, can become an incubator of human capital instead of our having to import expertise from overseas. An example in this regard is the case of Coleman Andrews, who came here and took a lot of money and left us with the mess that we have at the South African Airways. [Interjections.] So we should be able to advise our own people to use a plethora of these SOEs. They are about 500 or so in number.
A report of the Professional Regulating Commission, the PRC, is going to be presented to Parliament, with which the SOEs are going to be consolidated so that they can be run very, very efficiently.
This debate should be based on the context of an economic framework. You cannot be cherry-picking and saying executive salaries, executive salaries and executive salaries. You must look at the whole structure of the economy.
The ANC has created an economic policy that has an excellent framework. It hinges on two pillars. The first pillar is that of mixed economy. This mixed economy was crafted in the Harare Declaration, when the ANC leadership looked at the aspirations and the tenets of the Freedom Charter. They also looked at the reality of the transition into negotiations at the Convention for a Democratic South Africa, Codesa, and put together this policy of mixed economy. It constituted one of the 34 principles on which this Constitution is based, and was adopted by all the parties at Codesa. So that is the major contribution made by the ANC towards this mixed economy in trying to deal with the difficult situation of the structure of the economy. [Interjections.]
Hon Deputy Chair, on a point of order: Is it parliamentary to miss the point? [Laughter.]
Continue, hon member.
It is outrageous and unparliamentary to raise a point that is not a point of order. [Laughter.] So the point is that the ANC's economic policy is based the mixed economy. [Interjections.]
The second pillar is that of commercial cyclical fiscal budgeting. That means, when the economy is bad, the state must intervene, as it has already done overseas, where it pumped in monies to pick the economy up. When the economy behaves very well and becomes stable, then the state can withdraw. [Interjections.] The crux of the matter is that you must discuss these things in an economic framework.
We have all agreed that these executives' salaries are obscene and out of order. That is why the President of the country actually said they must be trimmed and frozen.
Finally, there are guidelines that are governing SEOs. The SOEs have a dual mandate. Firstly, they are supposed to be sustainable and operate efficiently. Secondly, they are supposed to continue towards the developmental goals of the government. That is what they are supposed to be doing. [Interjections.]
Is that a point of order?
Yes, Mme [Madam] Deputy Chair, on a point of order: Is it parliamentary for a member to undermine the integrity or intelligence of other members? [Interjections.]
Continue, hon member.
I will not be flummoxed by what you are saying. The broad principles that govern the SOEs are the following: Firstly, it is corporate governance. SOEs should be run properly, should have accountable boards, its executives should not receive obscene salaries, and members should not be paid when they do not attend board meetings and are doing "board hopping"; secondly, the state must own these enterprises; thirdly, there should be strategic intervention; fourthly, the state should seek meaningful partners in the SOEs; fifthly, there should be capitalisation and funding; sixthly, there should be a clear-cut policy concerning the running the SOEs; and finally ... [Interjections.] ... the Professional Regulation Commission's report is coming now after the President, in his wisdom, foresaw the need for a commission. The commission had to look into the mess of all these enterprises that are littered all over the country, the corporations and so on, which were formed during the apartheid era, some of which are hidden. You hid them and the PRC is unearthing them. Those are the parastatals that have made a lot of people very, very rich. [Interjections.]
Finally, you should not speak against affirmative action. Affirmative action was introduced not only by the ANC, but by the Nationalist Party in 1948 when they came to power. They understood that there had to be corrections for the embarrassment of the party they took over from, the United Party, and embarked on a very vigorous campaign of affirmative action and produced doctors, lawyers and engineers.
Now, we must not be shy, as the ANC, as we come from the downtrodden ... [Interjections.] ... to try and suppress them. We should not be shy. We are doing it not because we are reversing apartheid or we are hitting back, but we are carrying the burden of debt and deprivation of many, many years. [Interjections.]
In order to avoid a social revolution and an uprising, like the one you saw in Marikana, it is important that the state must intervene, and when it intervenes, it would obviously be presenting opportunities to those people who were disadvantaged. It is not affirmative action. Thank you very much. [Time expired.] [Applause.]
Deputy Speaker, I must say that the hon Mokoena has the ability to introduce his own topic and just debate it. Nevertheless, let me thank everybody who participated in the debate this afternoon. I think it was an important one. It was clear that we would like to see a more balanced approach - a more fair approach when it comes to the remuneration of chief executive officers, CEOs, in all sectors. We would like to see incentives being linked to performance. They must remain fair and reasonable and be duly communicated to the shareholders.
The debate highlighted the need for a more active and thorough approach by remuneration committees of companies. I hope the debate has not made more enemies. Remember that, as political parties, we live from donations, and the elections are coming.
Let me conclude with a story. The emperor of a country was not a devoted churchgoer; he hardly went to church. While he was dying, and he was on his death bed, a cardinal was called to come and pray for him. The cardinal came and said: Emperor, repent and reject the devil, but there was no movement. He said further: Please, now is the time to reject the devil and repent. There was absolutely no movement; then the sick man just opened his one eye and said: Cardinal, now is not the time to make more enemies. I thank you. [Interjections.]
I had a point of order!
Yes.
Hon Deputy Chair, on a point of order: Is this a prayer meeting or what? [Laughter.]
Debate concluded.