The race to the top!

We all know that capitalism is all about competition. But having just come out of the Olympics season it seems that different sets of rules apply to setting workers’ wages and chief executive officers’ (CEOs’) salaries.

With workers’ wages, the competition is a race to the bottom. Chinese workers’ low wages and their poor working conditions have become the target that employers are aiming for.

But when it comes to CEOs’ pay, judging from evidence of CEO pay rises, it’s a race to the top. British trade union research organisation, Labour Research reports that in the last year, the average increase in workers’ wages was 4,5% for workers in the private sector. However, their CEOs earned on average an inflation-beating 13,2% increase. This was in a year when the inflation rate for the year was 3,1% or less. The top CEO earned a whopping 4 927m pounds representing a 34,4% increase.

And unlike many instances where South Africa fails to compete, in this case our CEOs are doing admirably thanks very much:

Telkom made a profit of R4,5-billion during the last financial year. The company’s chief executive, was paid R11,1m in the same period. The directors received bonuses of R47 million. Telkom has retrenched 30 000 workers since 1997 and plans to retrench a further 4 181 workers.
Iscor’s headline earnings in the first six months of this year improved by 36% fuelled by massive increases in world steel prices and a 22% increase in domestic demand for steel. One of Iscor’s CEOs was paid a ‘paltry’ sum of R8m by comparison with Telkom. But workers in the most recent wage negotiations can only expect a guaranteed 5% wage increase with a possible maximum top up with productivity payments of 3,3%.
Eskom’s CEOs are also up there with the rest. Its Executive Director TS Gcabashe saw his salary and benefits rising 26% in 2003 compared with 2002 to almost R5m. His fellow Executive Director, WJ Kok, took a tidy package of R20,3m to send him on his retirement adding to his annual pay package of more than R7m.

One set of rules for workers, another one for CEOs

In 1994, Iscor Vanderbijlpark employed 18 000 people. Now a mere 6 300 take their place at the massive workplace.

Iscor is currently busy with retrenchments. Workers who take voluntary retrenchment can expect R1000 per year of service (for those above 55 years), plus severance pay of two weeks pay per year of service, Business Report recently reported that one CEO, Willem Coertzen, whose annual pay was R4m received a “loss of office” payment of just over R6m for more than 20 years service.

Using the same rules that apply to workers to work out how Coertzen’s payout was calculated, one finds a shortfall of more than R2m that cannot be accounted for. In effect, Coertzen received a severance package closer to three weeks per year of service and not two years.

Comparative scenarios for CEO and worker taking voluntaryseverance package after 25 years service
Weekly Pay
Numsa member earning R2 160 per month, R498.85 per week
Coertzen earned R4m in one year, R76 923 per week
Service payment of R1000 per year of service
25 years x R1000 = R25 000
25 years x R1000 = R25 000
Service payment of R1000 per year of service
2 x R498.85 x 25 years= R24 942.50
2 x R76 923 x 25 years= R 3 846 154
Total Package
R 49 942.50
R 3 871 154
Actual Package
R 49 942.50
R 6 000 000
R 2 128 146 Extra received