South Africa’s recent Companies Act 71 of 2008 (Companies Act) amendments mark a deliberate shift towards greater openness on executive pay, anchored in the conviction that excessive remuneration, particularly at the highest levels of a company, is a matter of great concern internationally. The international literature on this topic, as well as on the inequity of significant pay gaps between the top and bottom levels of a company is significant. By introducing a structured remuneration report regime, the amendments seek to bring South African company law in line with these international developments.

The reform rests on a clear policy rationale, as contained in the explanatory memorandum on the Bill. The provisions relating to transparency on the pay gap and the reasonableness of remuneration provide an objective benchmark which will assist the public dialogue on this topic. That dialogue carries weight because the factors giving rise to these concerns are, to an extent, responsible for the significant levels of inequity in society. Conventional wisdom is that these levels of inequity are unsustainable, and it seems that the Government has the view that this concern has even greater resonance in South Africa. To address this, the amendments make provision for augmentation in the levels of disclosure of executive remuneration.

According to the explanatory memorandum on the Bill, disclosure is a powerful regulatory mechanism for a number of reasons. First, it provides shareholders with an effective means of responding to dissatisfaction over excessive remuneration. Second, it has a shrinking effect, inducing boards and senior executives to refrain from awarding and receiving excessive remuneration for fear of the adverse reputational consequences. To give these mechanisms teeth, the amendments oblige public and state-owned companies to prepare a directors’ remuneration report and to disclose the pay gap between directors and workers, including details of the highest and lowest paid employees, average and median remuneration, and the gap between the top 5% and bottom 5% of earners. The remuneration implementation report must be approved by ordinary resolution at the annual general meeting, with consequences where approval is not obtained.

These measures emerged from negotiated compromise. The explanatory memorandum highlights that during discussions at the National Economic Development and Labour Council, the matter of wage ratios and the status of remuneration reports was raised and a number of proposals were made. The discussions focused on what an appropriate package of measures would entail, providing for disclosure of information coupled with greater rights for shareholders at annual general meetings, without placing an undue burden on small businesses. Based on the outcome of discussions with representatives of business and labour, the amendments were drafted.

Importantly, the amendments stop short of prescribing outcomes. They do not seek to propose what the ratios between executive and worker pay should be; instead, they propose transparency and empower shareholder voting to be more effective than is currently the case. This is significant, according to the explanatory memorandum on the Bill, given that this kind of inequality underpins much of the well-known workplace conflict in South Africa.

For collective bargaining, the implications are practical rather than prescriptive. By placing verifiable data on wage differentials in the public domain, the disclosures hand trade unions an objective benchmark to inform their negotiating positions, allowing them to ground demands in published median and ratio figures rather than estimates. This signals how unions are likely to deploy these figures at the bargaining table. While the amendments confer no new bargaining rights, the transparency it creates is likely to sharpen negotiation over the reasonableness of pay at both ends of the scale.