Here are two unsettling facts apparently meant to assure us that the market for labour is working well. A shopfloor worker at Woolworths would have had to work for more than three years to earn as much money as the group’s CEO Roy Bagattini made in one day. And, over at Shoprite, where the internal minimum wage is a good bit lower than at Woolies, a shopfloor worker would have had to work almost three years to make as much as Shoprite CEO Pieter Engelbrecht made in one day.

As disclosed in a recently released report by Just Share, Bagattini made R122.5m in 2023, while Woolworths’ internal minimum wage was R93,600 for the year. The figures at Shoprite are R64.7m for Engelbrecht and a minimum wage of R65,263 for the year.

Many economists and all remuneration consultants and members of remuneration committees will happily stress that this is precisely how things should be. It is the efficient working of the law of supply and demand. In this case, there is a huge supply of potential shopfloor workers and comparatively limited demand. And there is, we are constantly told, a very limited supply of potential CEOs and a comparatively hefty demand. The combined result is a pay level for shopfloor workers that only has a floor because government imposes one, and a pay level for CEOs that actually has no ceiling.

In theory, the shareholders of those companies should be imposing some sort of ceiling. After all, the architects of executive pay assure us that executive remuneration is designed to ensure that CEOs pursue the best interests of shareholders. However, this has been taken to mean that the more you pay CEOs the more keenly they will drive the interests of shareholders.

It follows that if you pay them a little less, they’ll slack off and performance will drift towards mediocrity. That is the assumption.

In practice, the institutional fund managers who engage with the corporate executives on behalf of workers and individual investors, whose money they manage, are far too entwined with the executives to exert the sort of discipline required by a robust market. They inevitably default to assuming the more you pay executives, the better the results they will generate.

This assumption prevails despite screeds of evidence to the contrary – think Steinhoff, Tongaat, Naspers, Massmart; even Woolworths offers caution about assuming a positive link between pay and performance. The retailer’s former CEO Ian Moir destroyed billions of rands of value on an ill-considered Australian acquisition despite being exceptionally well paid. Indeed, he caused such extensive damage that the Woolworths remuneration committee decided they had to use a massively generous carrot to entice Bagattini to replace Moir when he was eventually nudged out.

Much of the generosity to Bagattini was in share-based awards, which became enormously valuable when the share bounced back as the company seemed to put its Australian nightmare behind it. That was evident in the group’s financial 2023 year (to June 2023), the year that Bagattini picked up R122m.

The 2024 remuneration report is not yet available, but the group has disclosed Bagattini was paid R65.3m for 2024, which, while just half of the previous year’s pay, still looks extremely generous in the context of the group’s recently released disappointing 2024 results.

The recovery in the share price has faltered, sparking fears the group may never recover from its Australian adventure.

Just Share
Just Share’s excellent report (Pay gaps and leadership diversity in the JSE-listed wholesale and retail sector) isn’t limited to Woolworths and Shoprite. Just Share analyses the pay gaps at nine of the largest wholesale and retail companies listed on the JSE. Because the nature of employment in this sector tends to involve low skilled employees at the shop floor level, the pay gap will inevitably be greater than in, say, the banking sector where the lowest paid are relatively skilled individuals. But even allowing for this, the pay gap in the retail/wholesale sector is immense.

Woolworths and Shoprite may be outliers in the sector, but in the sector as a whole, the average lowest paid worker would need to work almost two years (21 months) to earn what an average CEO gets in one day. “In other words, CEOs in this sector earn on average 597 times the wages of the lowest paid workers,” says Just Share.

Foschini’s CEO received R36m, while the lowest paid Foschini employee got R64,537 (pay gap 560). Spar’s relatively new CEO picked up R25m the lowest paid Spar employee got R59,483 (pay gap 420). Dis-Chem was at the low end with its CEO getting R16.7m, and the lowest paid employee getting R64,537 (pay gap 259). The lowest pay gap (155) was at Pick ‘n Pay, where figures were distorted by the mid-year change in CEO.

One of the stark facts to emerge from the list is the lack of entrepreneurs amongst our high-paid executives. These CEOs are what you might call corporate bureaucrats who have worked their way through layers of management to lead businesses set up by entrepreneurs years or decades ago. Entrepreneurs, who have usually begged and borrowed money to set up a business, tend to be more tight-fisted, and as significant shareholders they are inevitably more active than the fund managers who now play at being shareholders. Entrepreneurs are traditionally more circumspect when it comes to remuneration.

Significantly, Dis-Chem is the “youngest” of these businesses. The founder, Ivan Saltzman, who stepped down as CEO in 2023, was one of the lowest paid CEOs in the sector. He was of course a major shareholder.

While Woolworths’ generosity to Bagattini in 2023 has pumped up the average, the seemingly low payment to Pick ‘n Pay’s recently re-appointed CEO Sean Summers has reduced it. Summers’ R10m package comes with four million shares, which will vest if certain performance targets are met over the next three to five years. If the former CEO’s pay had been used instead, the pay gap would probably have been closer to Spar’s. Pieter Boone, who left Pick ‘n Pay half way through the year, was paid R25m, including a “termination fee” of R16m when he walked away from a company that is facing an existential crisis.

Second-largest employer
As Just Share points out, the wholesale/retail sector is a key part of the SA economy. It is the second-largest employer in the country after government, employing about 17% of the workforce, and “it makes a substantial contribution to GDP and holds considerable importance in the daily lives of South Africans”, says the report.

Just Share’s senior inequality analyst Kwanele Ngogela adds: “While the sector undoubtedly plays an important role in providing employment to low- and semi-skilled workers, it is nevertheless crucial to also recognise the contribution of the extreme vertical wage gaps which characterise these companies to the country’s overall high levels of inequality.” The report states: “Insisting on reasonable pay gaps is a key move towards a more equitable and sustainable society and economy.”

Coming ahead of the promulgation of the Companies Amendment Act, which was recently signed by the President, the report highlights the pointlessness of companies pushing back against the more detailed disclosure requirements. By digging through the copious amounts of information already available and making reasonable assumptions, Just Share was able to do its own pay gap analysis.

“Only two of the ten companies – Woolworths and Shoprite – publicly disclose their internal minimum wage. Woolworths’ minimum wage is 57% higher than the sectoral determined annual minimum wage, and Shoprite’s is 10% higher,” says the report, explaining later that where the information was not provided by the company the authors have used the prescribed minimum wage in the sectoral determinations.

The report urges companies to be more forthcoming. “Without disclosure of wage gaps and the remuneration of the lowest-paid employees, shareholders cannot ascertain whether executive remuneration is fair and responsible within the context of overall employee remuneration, as mandated by the King Report on Corporate Governance (King IV).”