The issue of equal pay for work of equal value is of particular interest in South Africa as the country’s history has been dominated by social inequality.
The Equal Pay for Work of Equal Value legislation that came into effect in 2015 sought to eliminate unjustifiable pay discrimination within organisations.
The goal is noble, but the legislation suffered from a number of issues that limit its ability to be effective.
Two prominent examples of this are:
- Currently, there are no guidelines regarding what percentage difference in pay is acceptable at each job grade (jobs with the same job grade are deemed to have equal value as the ‘size’ of the job is the same); and
- If there are issues of inequality, there is currently no definitive guideline as to the timeline to correct this.
Another initiative that seeks to limit inequality (at an executive level) is the King IV code of good governance, which asks JSE-listed companies to “apply and explain” their remuneration policy and implementation. This has given rise to the non-binding votes on listed organisations’ remuneration policies and implementation of their policies.
This non-binding vote has led to increased shareholder activism, particularly from institutional investors, as a ‘No’ vote of more than 25% for either the policy or its implementation requires the organisation to meet with those shareholders who voted against it to determine why they did so and what changes should be made to make it more acceptable to shareholders.
Changes to the Employment Equity EEA4 form that came into effect on August 8 last year require reporting and detailing the following:
Highest paid employee per occupational level by race and gender;
Vertical wage gap between the lowest and highest paid employee within each organisation;
The sum of remuneration paid to the highest-earning 10%; and
The sum of remuneration paid to the lowest-earning 10%.
The changes listed above may seem fairly straightforward, but they lay the foundation for a significantly more powerful outcome.
Equal pay benchmarks
These figures listed in isolation do not provide a whole lot of information to the reader as they lack context. However, consolidating the information received from these forms creates the opportunity to create equal pay benchmarks. These benchmarks should be calculated for each sector to allow for differences in organisational structure across industries.
Once these benchmarks have been calculated the appropriate rules and tolerance intervals can be put in place to govern what constitutes a contravention of employment equity.
These statements and considerations may seem logical but given that Equal Pay for Work of Equal Value is a sensitive topic, companies have had difficulty implementing it effectively.
The implementation of this legislation has suffered from a lack of benchmarks to clearly indicate what is and isn’t acceptable, hence leaving a lot of room for interpretation.
When room for interpretation exists, this more often than not becomes a loophole that allows organisations to justify instances of inequality rather than addressing them directly.
In light of these considerations, how should the legislation be improved to provide organisations with more accountability in terms of employment equity and, more specifically, remuneration equity?
A few suggestions:
Scientific benchmarks and tolerance intervals must be stipulated – these benchmarks can be supplied by any of the large salary survey providers;
The grounds on which an exemption may be granted should be detailed in a formal, unambiguous manner;
The time period available to correct any indiscretions must be stipulated; and
The penalties imposed on offenders must be clear, reasonable and meaningful.
In the absence of these basic criteria, any attempts to promote equitable pay using legislation will fail as what defines equitable pay and the consequences of contravening it are not present.
This does not mean that the Equal Pay for Work of Equal Value legislation in its current form is a failure, but rather a stepping stone in the right direction.
Effective utilisation of the information collected via the EEA4 forms has the potential to provide the required benchmarks that will determine what is and isn’t acceptable within each sector.
This will provide clarity for companies to craft implementation plans and make the legislation more enforceable than it is in its current state.
Assuming that this information is utilised effectively, 2020 may be the year in which South African remuneration legislation receives some much needed ‘teeth’ which has been missing in previous years when trying to implement this legislation.
Bryden Morton is an executive director and Chris Blair is CEO of 21st Century.