Document Name: SOE Remuneration and Wage Gap analysis
Document Author/Owner: Deon Crafford
Owner Team:
Electronic Location:
SMOE
Description of Content:
Position paper as part of meeting the requirements of the Terms of Reference
Approval Status (tick relevant option)
1: Full Approval 2: Partial Approval 3: Conditional Approval
For 2 and 3, describe the exclusions, criteria, and dates of conditions
Document Sign-off Name
Deon Crafford
Dr. Simo Lushaba
DOCUMENT CONTROL INFORMATION
Effective from
Version Number
Amendment Details
&
12/12/2011 Origination of document
26/02/2012 Draft report 1
29/02/2012 Draft report 2
09/03/2012 Finalisation of report
Position/Work Stream Role
PRC Member/ SMOE Work-stream
Date Signed
Chairperson
PRC Member
Nature of the
Change
Info
Data
Data
Amended By
D Crafford
D Crafford
D Crafford
Reviewed By
S Lushaba
PMO team
SMOE team
Approved By

TABLE OF CONTENTS
1.
Introduction and problem statement ............................................................................................ 7
2.
Key objectives of the study and method employed ...................................................................... 9
2.1.
Objectives ................................................................................................................................................... 9
2.2.
Method employed ..................................................................................................................................... 10
3.
Effect of state sponsored reviews of SOE remuneration practices and frameworks .................. 11
3.1.
DPE Remuneration Guidelines for State Owned Enterprises (DPE, 2007) ............................................. 11
3.2.
The DPE commissioned Remuneration Review for State Owned Enterprises (DPE, 2010) ................... 12
3.3.
Water Affairs Remuneration Review (DWA, 2011) .................................................................................. 14
3.4.
National Treasury’s review of SOE remuneration (National Treasury, 2010) .......................................... 15
4.
Other key contributions to the question of SOE executive remuneration ................................... 17
4.1.
Labour Union inputs .................................................................................................................................. 17
4.2.
PWC Directors remuneration (PWC, 2010) ............................................................................................. 18
4.3.
Views expressed by SOE boards, executives and middle management. ................................................ 19
4.4.
International perspectives on SOE remuneration ..................................................................................... 20
5.
SOE remuneration and private sector benchmarks ................................................................... 23
6.
SOE Taxonomy model for remuneration ................................................................................... 28
7.
Wage contributions to inequality ................................................................................................ 33
8.
Consolidated findings ................................................................................................................ 41
8.1.
No standard implementation of guidelines for determining SOE remuneration ....................................... 41
8.2.
Parity between SOEs and private sector .................................................................................................. 41
8.3.
SOEs rate high in terms of income equality ............................................................................................. 41
8.4.
Sustainability of SOE income equality is questionable ............................................................................. 41
8.5.
SOE remuneration is highly inconsistent .................................................................................................. 41
8.6.
No common mechanism or tool to consider sizing and other factors influencing pay points ................... 42
8.7.
Lack of a centralised authority to manage SOE remuneration ................................................................. 42
8.8.
Inequality in SOEs are driven by underpaid operatives and overpaid executives ................................... 42
8.9.
Oversight and accountability issues ......................................................................................................... 42
8.10.
Inequality is a growing scourge in South Africa ..................................................................................... 42
9.
Recommendations on management of remuneration ................................................................ 43
9.1.
Establisment of a Central Remuneration Authority (CRA) ....................................................................... 43
9.2.
The adoption of a properly researched Sizing and Positioning Model that allows for granular analysis and differentiation in SOE remuneration ............................................................................................... 43
9.3.
Review and recalibration of SOE remuneration ....................................................................................... 43
9.4.
Stronger education and transparency in SOE remuneration .................................................................... 44
9.5.
Deliberate strategies to address inequality ............................................................................................... 44
9.6.
Extensive board re-education and enablement ........................................................................................ 44
9.7.
Regular formal benchmarking cycles ....................................................................................................... 45
10.
Conclusion .............................................................................................................................. 46

11.
References .............................................................................................................................. 47
INDEX OF GRAPHS, TABLES AND FIGURES

Regardless of where one goes in the world, the remuneration policies and practices of private and state owned enterprises remain emotive issues. The debate around remuneration often hinges on the perceived value added by the incumbent executives, managers or professionals. The perceived value is to a large degree influenced by the vantage point from which it is considered. As the world economy struggles to come to terms with the credit crises and meltdown witnessed around 2008, the issue of executive remuneration has been placed even more in the spotlight. This has been especially true concerning those private entities in Europe and the United States of America that had to be bailed out by their respective governments, effectively placing them under curatorship, if not ownership, of the state. Still there seems to be no end to excessive executive pay and bonus measures.
Organised labour often expresses dissatisfaction at the inconsistencies in bargaining unit remuneration management versus that of executive management. This issue is reflected on in this report. This dissatisfaction leads to increased industrial restlessness and culminates in protests, “go-slows” and full-blown strikes that in turn leads to lost days and declining productivity.
Economists, analysts and politicians constantly lament the poor levels of labour productivity in South Africa. This year, labour productivity (i.e. labour's unique contribution, separating out the productivity that is rightly attributable to capital equipment and machinery) fell to the lowest level in 40 years. Currently, labour's share of national income (i.e. wages as a percentage of total factor income) is at a 50-year low. Over the past three years, wages have risen by 11.5% per annum on average - treble the consumer inflation rate over the period.
Growing numbers of employers are using automation, mechanisation and other laboursaving methods as an alternative to labour, with the result that the economy's capital intensity has risen sharply (Sharp, 2011.) Industry leaders keep indicating that the country is losing out on a window of opportunity to become a more powerful economic player in the world. This is true especially as far as it’s membership of the BRICS group of countries, where labour productivity to cost ratios are considerably more positive, It holds that a continuation of the unequal treatment of labour when compared to that of management, may then be contributing to another negative trend – sliding productivity.
The World Bank considered various studies regarding inequality.and in 2005 concluded:
“ The main message is that equity is complementary, in some fundamental respects, to the pursuit of long-term prosperity. Institutions and policies that promote a level playing field . . . contribute to sustainable growth and development.
” (21 st Century, 2012).
In the light of the above, the Presidential Review Committee for State Owned Entities (PRC), in its terms of reference, was tasked to investigate:

the approach to remuneration in SOEs

the issues surrounding the wage gap or differential

how SOEs should respond to the above
The PRC took note of a number of different investigations into this issue and of submissions made to parliament by other state departments, including DPE and National Treasury.
The PRC was to investigate this matter from an independent position. It needed to determine:

The performance of SOEs are constantly under public scrutiny, not only because they often deliver services directly to the taxpayer, but also because taxpayers rightly have the perception that they are indirect shareholders since much of the funding and equity in SOEs flow directly from the tax base of the country. SOEs are therefore accountable to the taxpayer through the taxpayer representative, the executive minister providing oversight.
Government owns SOEs also to use these as instruments for addressing the development needs of the country. If they were found to be flawed in, inter alia, the area of remuneration in relation to performance, government stands to be discredited. Proper functioning SOEs with proper management (and remuneration) practices in place are critical to the perception of the state as servant of the people who elected it into power.

The Strategic Management and Operational Effectiveness (SMOE) workstream interpreted the TOR on remumeration as based on a number of key assumptions. Related questions needed to be answered as evidence to the assumptions. These are:
Assumption 1: Shareholders guide the remuneration policies of SOEs, based on national policy.
What guides the remuneration policy / remuneration governance framework within SOEs?
What are the factors that guide remuneration in SOEs?
What are the elements of the remuneration policy?
Do the guidelines include how often SOEs benchmark remuneration? If yes, against whom and how often?
Is there a rationale for establishing a national oversight structure on SOE remuneration?
Is there a central oversight structure to regulate introduction of emerging remuneration practices?
Assumption 2: Boards formulate remuneration policies in line with the shareholder remuneration guidelines.
What is the role of the shareholder and the Board in formulating remuneration policies?
Do boards enforce remuneration policy and account for any deviations, particularly those out of line with with the Shareholders’ requirements?
Assumption 3: The wage differentials in SOEs are comparable to relevant SA market sectors?
What are the wage income differentials within the SOEs and how do these differentials compare to the local market?
What is the differential index between the top 10 paid and bottom 10 paid employees in an entity?
Are there other measures to report on the wage differential?
Are there wage differential guidelines for remuneration practices on pay structures within the SOEs and do these guidelines compare to the private sector/industry, public service and sectors?
Assumption 4: SOEs remunerate executives and employees at levels comparable to relevant SA market sectors?
Do remuneration practices and packages in SOEs compare to their counterparts in the public service and private sector?
How do remuneration practices and packages in SOEs compare to their counterparts in the developing countries (e.g. BRIC and OECD )?
Assumption 5: SOE’s executives’ and employees’ total remuneration packages are commensurate with the SOE’s performance against its agreed set targets.
What performance measures do SOEs reward when they pay incentives? Are these aligned to achievements towards government policy objectives and mandates?
Do the SOEs’ executives sign performance agreements with the Board and are remuneration packages linked to the performance agreements ?
What percentage of the remuneration package is variable due to performance reward?

While most of these questions are answered in the report, there are some areas where the availability of information was not sufficient to allow for an authoritative perspective. One of these areas are in the linking of remuneration to performance. There is a perception that
SOEs are not performing to the expected standard. This is evidenced in feedback from customers and the SOE middle management level as well as in the unachieved objectives.
Many of these objectives are strongly tied to the mandate of the entity. With this view of performance the extradordinary levels of remuneration creates an even more distorted picture..
The method employed by SMOE to cover this TOR included the following:
Idetifying the key outputs of the TOR;
Gathering and analysing existing data on remuneration practices and frameworks in SOEs;
Asking SOEs for their perspectives on remuneration;
Commissioning primary research and statistical analysis on remuneration data of
SOEs to determine key parameters and trends ….. statement too vague.
Commissioning the development of an economic perspective on the prevailing wage differentials in SOEs as compared to the broader market.
Deriving critical findings as far as SOE remuneration practices and metrics are concerned.
Concluding with recommendations on how the matter of SOE remuneration could be approached in future.
(Note: SMOE focused mainly on the remuneration of executives and operatives in the SOEs and not on board remuneration practices as these were seen to fall within the scope of the
Governance and Ownership work stream)

The issue of SOE remuneration has prompted a number of reviews by Executive Oversight
Departments, especially the Department of Public Enterprises (DPE), as it has oversight over the key commercial enterprises. It appears though that the main focus of the remumeration reviews has been on the more commercially positioned entities and that the large number of state owned entities (numbering almost 600) has not been served by a standardised approach or framework for remuneration.
In 2007 the Department of Public Enterprises issued guidelines for SOE remuneration based on market data sourced from 600 South African companies. In this they distinguised four broad bands within which SOEs could fall – predominantly based on size as determined by assets and revenue generated.
These four bands included:

Very Large SOEs (> R 16bn in assets; > R 2.5bn in revenue)

Large SOEs (>R1.55bn; >R243m)

Medium SOEs (>R143m; >R22.8m)

Small SOEs (<R143m; <R 22.8m).
The headlines of these guidelines are as follows:
Guaranteed executive pay, short term incentives and long term incentives are not to exceed the median of the model developed by DPE – the median remains the threshold throughout
Boards have to seek approval for not adhering to the above and have to develop a strong motivation for such
The shareholder has to agree in writing that the pay of executives adhere to these guidelines
Full disclosure of all components of executive pay shall be done in accordance with the Companies Act, the PFMA and King Code for Corporate Governance
Total value of short term and long term incentives shall not exceed 125% of guaranteed pay in a year for CEOs and 85% for other executives
The Execu-measure guideline to be applied takes into consideration: o Company/entity size o Strategic level at which executive is expected to operate o Direct/indirect impact level that the executive has on company results o Complexity of role and problem solving required from the executive
The role of the remuneration committee is clearly spelt out, inter alia, to ensure that there is a clear and direct link between remuneration and contribution to performance, that the shareholder is fully informed on remuneration policies applied (including management of deviations from the guidelines) and that the contracts with executives ensure that SOEs would not be at risk to pay in the event of executive failure.
These guidelines are quite detailed and seem to be supported by strong research and analysis. The determination of pay points
– monetary level at which the person is remunerated per job level - is multi-dimensional; the dimensions used appear to not all

adhere to the same level of detail to enable proper discrimination of a role. The shortfall of these guidelines are that they are predominantly focused on those SOEs that report into
DPE. However, they are not applicable to by far the largest component of SOEs. As reported in section 3.2 the guidelines have not been complied to at the levels the shareholder have demanded. This report will show that the remuneration practices and pay-points have deviated significantly from what is indicated in these guidelines.
This Review was commissioned by DPE in 2010 and had as primary objective to ascertain the degree of compliance of SOE remuneration practices with the DPE guidelines as referred to in 3.1 above. Secondary to this objective, the review was also to assess the remuneration practices of SOEs against the general market practice and to determine if compliance was satisfactory. If compliance was found to be unsatisfactory, the reason for this was to be determined. unsatisfactory, why this was the case.
The headline findings of this review were:
SOEs do not follow the DPE guidelines issued in 2007 and updated in 2009.
The SOE remuneration practices are aligned to what happens in the general market.
The non-compliance largely pertains to guaranteed or base pay. There is more compliance on the incentive scheme.
Although short- and long-term incentives are aligned to the guidelines, there is a lack of substantiating evidence to prove that payments are matched to achievements.
There is a significant lack of standardisation in the way remuneration is determined (some using guidelines, others not). The approval process followed and the structuring of the remuneration packages also lack standardisation.
Employment contracts for CEOs and executives do not comply with the Basic
Conditions of Employment Act in terms of detailing work, job descriptions, job specifications, job outputs and benefit components.
The Review found that some of the main reasons of non-compliance with the guidelines can be traced back to inadequate differentiation between SOEs. Broad categories are used to differentiate between SOEs which lead to SOEs clustered together that are not similar.
These dissimilar SOEs are then treated as if the same. Data frequency and quality in underpinning the model also presented a problem. It was furthermore concluded that there is a misalignment between the remuneration of board and committee members and the accountability and risk these members faced. This made it difficult for SOEs to attract strong board members.
Some of the guaranteed pay discrepancies are indicated in the table below:
Table1. Inconsistencies in remuneration to median as per guidelines (DPE, 2010)
State Owned Enterprise
(DPE oversight)
Executive remuneration %
ABOVE median
Executive remuneration %
BELOW median
Alexkor
Aventura
Denel
Eskom
66%
15%
8%
31%

State Owned Enterprise
(DPE oversight)
Executive remuneration %
ABOVE median
Executive remuneration %
BELOW median
Infraco
PBMR
SA Express
26%
10%
8%
SA Airways
Safcol
18%
27%
What this clearly indicates is that even in a small population of SOEs (those reporting into
DPE at the time), the inconsistency in remuneration is significant. The review furthermore engaged a broad base of specialist stakeholders and derived from their feedback the following:
The role of SOEs in the development of the economy and the country and the fact that the SOEs executives are effectively leveraging taxpayer contributions should be blended together to produce a realistic remuneration framework to attract the right people.
Remuneration should be calculated in a formal, transparent and coherent manner to ensure the shareholders ‘ interests (also taxpayers’) are protected.
Remuneration packages should not create perverse incentives ie. huge short term driven pay-outs where performance and achievements do not align with monies paid.
The monopolistic nature of many of the entities should be brought into consideration to ensure that profitability is not the predominant measure. Internal efficiencies should also receive its rightful focus as it shows the responsible application of the taxpayer’s contribution to the state.
Workers cannot be expected to earn increases on productivity when it is not a determinant that applies to executives.
All staff members (executives included) must be subject to the same disciplinary procedures ie no golden handshakes to get rid of poor performing executives.
The private sector cannot be used as an appropriate benchmarking model for
SOE remuneration because it is in this sector where the skills are to be sourced for ……. The recruitment approach should focus on a different kind of professional who is motivated not by excessive pay-packages but by the ability to contribute to nation building and development.
Remuneration committees must apply a much stronger degree of discretion in evaluating and putting forward executive remuneration proposals.
The boards and remuneration committees must ensure a proper risk sensitive approach in setting remuneration. These committees should also ensure that claw-back mechanisms are in place to recoup monies paid to executives based on unsubstantiated performance which later proves not to be a fair reflection .
This Review underlines the problem of inconsistency in the remuneration of SOEs and has as a major recommendation the establishment of a permanent advisory committee on remuneration within the ambit of the Department of Public Enterprises to address this problem. It furthermore highlights a problem with the executive oversight role of state departments with SOEs. This problem can briefly be stated as if in the context of a small

population of SOEs (nine) which falls under Department of Public Enterprises, the compliance with guidelines is as inconsistent as it is, it points to a low degree of monitoring and evaluation – either contributed by the lack of capacity, or by ignorance.
In July 2011 the Department of Water Affairs (DWA) issued a Remuneration Policy
Framework for Water Board Chief Executives. This had its origins in 1998 and had now been developed to the point where clear principles and agreements about remuneration could be communicated. The clear motivation for this protracted review process was to ensure that
Water Boards were able to attract and retain Chief Executives (CEs) with the capability of managing the Water Board as a company where costs were budgeted for and covered by income. Any excess could then either be offset against future cost increases. It could also be earmarked for use in capital projects to refurbish or enhance the assets required to ensure the sustainable uninterrupted supply of water to communities and industry. This also had to permeate to General Manager (GM) level technical people as the Public Service linked remuneration was not strong enough to ensure retention of critical skills.
The headlines from this Policy Framework include:
The need for central involvement in setting remuneration levels for CEs, especially as indicated by the Minister of Water Affairs approving remuneration levels which the board may have recommended.
The requirement for a common set of standards and centralised set of available remuneration data (through ongoing market surveys) to enable the minister to give appropriate approvals
A proper organisation and job sizing approach using recognised grading systems
(eg. Hay) to justify decision making
Ongoing benchmarking and comparisons to relevant market or industry grouping
Currently benchmarking is done against a mixture of companies which include: state-owned enterprises, tribunals, government-linked entities, and provincial- and municipal-linked entities.
Annual Ministerial recommendations for CE remuneration bands – per Water
Board
The overriding principle to be applied that if the Water Board cannot through its financial parameters afford the payment of the recommended salary then it shall not be paid and the Minister should be notified of the situation
The Board of the Water Board has the responsibility to implement the recommendations of the Minister for CEs. These recommendations apply to CEs who have met all the expectations for the year and are already on the appropriate pay scales.
Where the Board is of the opinion that the performance of the CE - above the requirements of the job - warrants a remuneration adjustment that falls outside that of the Minis ter’s recommendation, such motivation shall then be made to the
Minister. The Minister will apply his/her discretionary powers to ratify such an adjustment.
Should a Water Board for whatever reason change in size or complexity to such an extent that the role requirements of the incumbent will significantly change, the
Board can then motivate to the Minister why a remuneration adjustment is recommended.
The essence of what this DWA remuneration policy entails is that there is a central authority
– in this case the Minister of Water Affairs - that applies a proper process of evaluation and setting principles and standards on which to base remuneration. The private sector is not used as a benchmark for setting remuneration. This practice is different to other

commercially orientated SOEs, but may already have led to higher executive turn-over. This remuneration practice calls for a strong shareholder oversight role to ensure appropriate and acceptable remuneration numbers for these particular SOEs.
In further personal engagement with officials of the DWA it was ascertained that Water
Boards CEOs had not received increases in salaries over the past two years due to the absence of the proper remuneration policy. Furthermore, they expressed a discomfort in having to deal with the increases in terms of the necessary knowledge of remuneration practices and was keen to refer this to DPE. It indicates that despite the strong efforts of the
Department to bring some standardisation, the quality of implementation was still curtailing the effectiveness of the strategy. Institutional oversight capacity and capability still does not match up to the strategic intent of what the Department wishes to achieve.
In September 2010 National Treasury released a review of Board and Executive
Remuneration of Schedule 1, 2, 3A and 3B entities (as per PFMA). This review was presented to the PRC in the form of a presentation and contains telling information about the inconsistencies of especially executive remuneration in SOEs.
Notable findings from this study include (the period under review being 2007
– 2010):
Under Constitutional Entities (Schedule 1) there are anomalies of remuneration increases at CEO level of more than 100% in one year at the Human Rights
Commission (R 750k to R 1.6m) and more than 90% at ICASA over the last two years (R820k to R1.55m). However, t he IEC Chief Executive’s pay remained virtually the same in this period.
Under Major Public Entities (Schedule 2) two extraordinary remuneration jumps are notable. At Transnet the CE ’s total remuneration went from R11m to R19m and back to R11m in the last three years. In the same period SAA CE total remuneration went from R7m to R14m and then back to R 4m. What is not clear is why these fluctuations occurred, with the possibility that this was related to the personalities appointed.
Under National Public Entities the Road Accident Fund (RAF) over the last four years saw CEO salary increases from R3.5m to R 7.6m (more than 100%); at
SARS it went from R2.8m to R4.8m (71%) and at the National Home Builders
Registration Council (NHBRC) it went from R1.7m to R4m. At their Chief
Executive pay levels the RAF and NHBRC are way ahead of the rest of the entities in their group where the average CE remuneration is R1.5m. (It is worth noting that all the entities mentioned here collects funds, but that SARS is effectively the only one that does so actively while the others collect through levies and taxes, thus passively – and yet they pay exorbitantly higher CEO salaries).
The base pay (salary alone) at Major Public Entities range between R2m and
R4m, whilst at National Public Entities it ranges from R1m to R4m. At National
Business Enterprises it ranges between R700k and R3.1m. The rest is made up of bonuses, expenses and a category called other.
At National Business Enterprises the CSIR CE pay has increased from R2.8m to
R4.7m in the last four years; at Sentech from R1.6m to R4.6m and at the PIC from R2.6m to R3.8m. These increases vary between 46% and 187%. It is very difficult to explain such varying degrees of remuneration increases when there are no apparent reasons for such extraordinary movements. It should be noted

that this includes base pay, bonus, expenses and a category called ‘other’’. It is thus the total package.
National Treasury has suggested that the remuneration of CEs of State Owned
Entities should be:
 Based on the Public Service salary structure
 Should have a 5% of package short term incentive
 Should have maximum 50% of package long term incentive (once in three years and twice in 5 years)
 Should allow for cost of living adjustments.
Clearly these numbers show that there is something drastically wrong in the way the remuneration of SOEs are determined – either by their boards or by their executive authorities. National Treasury makes some recommendations as a counter to this situation including taking public sector remuneration as a broader guideline, but this may be counter again to finding suitable professionals for commercial entities. There are further anomalies in that whilst Treasury is promoting stronger alignment with Public Sector pay scales it clearly has stood by the increase allocated to SARS of 71% in four years – raising the CE pay to R
4.8m. This inconsistency does not help the credibility of the Treasury suggestions.
Eskom and Transnet are two entities that are equally critical to the economy and development of the country. However, the Transnet CEO earns double that of the Eskom
CEO. .

As has been stated before the issue of SOE executive remuneration is an emotive issue and has elicited various contributions from a number of different stakeholders. These are briefly summarised below:
According to a study undertaken by Solidarity in July 2010, CE remuneration in SOEs make up 1.7% of total profit while the average for all companies in the market is 0.6%. The incentive portion of CE pay is at 53%, that is 3% higher than the average for all companies.
Solidarity also found that the average CEO remuneration of all companies is 38.5 times that of the average worker in South Africa. T he CEO’s of SOEs earn on average 43.9 times more than the country’s average worker. Solidarity concluded that these excesses are contributing to inequality as predicated by the Gini coefficient.
At these high incentive rates there needs to be very clear indications of how a CE has contributed to the success or profits of an entity. More often than not this is not the case.
CEs often get handsomely rewarded for something all employees contributed to. Solidarity argues for a more equal distribution of the incentives amongst all levels of employees for achieving certain targets. They furthermore believe that there should be a direct link between the basic CEO pay and the pay of the lowest paid salaried employee. This is to avoid exorbitant increases at the executive level while labour has to endure with inflationary increases, if that much.
In a strongly worded memorandum to Eskom, the National Union of Mineworkers (NUM) raised its frustrations about the way in which Eskom was going about the issue of remuneration. It stated that Eskom seeks to implement multi-year wage agreements with labour and is attempting to do so unilaterally; the practice of exorbitant increases in executive pay continues unabated. The lack of transparency in remuneration decisions is particularly frustrating. For instance, as soon as a 9% increase for labour was concluded,
Eskom executives were awarded considerable increases and incentives. They further lament the practice of “phantom shares” for long term incentives of executives – a practice which they believe makes no sense in a state-owned entity and to which the ordinary worker has no access (e.g. as with ESOP schemes in mining houses like Kumba and Impala).
The general impression gained from the NUM memorandum is of two different treatments for two different classes of employees, resulting in an ever-increasing wage gap (in this memorandum reported as 1 to 85 – worker to executive). From a labour point of view uncontained executive remuneration is igniting growing dissatisfaction and militancy.
In view of some of the increases and numbers mentioned in the review of National Treasury above, the position of the labour organisations is stated There are clear indications that the system of remunerating SOEs and their executives is out of control. As will be shown later in this report, SOEs do tend to pay above the market in just about all job categories and there is a strong sense of this not being sustainable. However, as will furthermore be shown, increasingly the major contributor to this “practice of unsustainability” is the ever growing increases in especially executive pay. This means that every other category needs to catch up. Furthermore, it appears that the huge bonus allocations made to CEs and their executives are indicative of the monopolising of performance as if the rest of the staff
(including labour) made no contribution to the performance.

PWC issued the results of a study of executive remuneration in 2010 from which it became apparent that the remuneration levels of executives throughout the market was starting to move further and further away from the lowest level workers and so ensuring an ever widening wage gap. They determined that the remuneration paid to executive directors of large-cap JSE listed companies at a median level was around R 10m per annum – R4m base pay; R2m average performance bonus and R4m average share plan benefits.
Compared to this lowest paid workers were paid R 42 000 per annum – a wage differential in the order of 1:250/300. This is an absolute comparison of highest paid versus lowest paid and not the best way of expressing the measure of inequality. A more acceptable measure of taking CEO pay against the median of all those under the CEO, appear to be more useful and is also more widely used (21 st Century).
But it is in this environment of perceived severe inequality and high executive pay, that SOE remuneration frameworks, policies and practices are established. SOE executives (PRC round tables) justify their high pay by stating that “we compete in the same market for skills” .
According to PWC SOE executive remuneration has also become increasingly more in the spotlight as large severance packages are paid out to underperforming executives and serving executives in underperforming entities continue to receive large increases and bonuses. One of the main reasons for this increased public interest is that the taxpayer rightfully believes the SOE executive and board has some accountability to him/her as the assets and liabilities of the SOE are state funded or underwritten.
The added interest has come from SOE executives in many cases being paid above similar roles in the private sector. A general impression exists that it should at least be market aligned and should go hand in hand with much greater accountability. According to the PWC report, government has taken a stronger look at remuneration through the establishment of a panel of review. This has been criticised by Mervyn King (Convener, King III - Code of
Governance Principles), who believes that this is interference in board duties and that boards are sufficiently equipped to address the matter of remuneration responsibly.
This view may very well indicate the level of misperception that exists around SOEs – often seen as only those large entities like Transnet and Eskom. If the critics of the government’s intervention into remuneration took a more informed look at the SOE remuneration environment, they may conclude that there are many boards who have apparently lost their way in dealing with the issues of executive remuneration. The reasons why this happens should also be dealt with and accountability should be allocated, especially if it relates to poor fiduciary duties or inappropriate motivations. The Congress of South African Trade
Unions (COSATU) has welcomed the establishment of a forum that will recommend a more appropriate and morally acceptable management of executive remuneration. It is fair to expect that remuneration should be commensurate with value add or contribution of the individual to the effectiveness of the SOE. From the indications provided by PWC and assuming that SOEs have themselves fallen trap to what is witnessed in the overall market, a strong intervention is required to bring alignment and appropriateness to remuneration in these entities.
Again, when studying these findings one is left with the distinct impression that without the necessary discipline of holding boards accountable for implementing guidelines there seems to be little constraint to the ever escalating executive pay scales. What is however also true is that in cases where there are strong boards and where proper remuneration practices have long been in place, SOEs do present a better overall picture of wage alignment and equality. An example that comes to mind is that of Transnet.

During a round-table exercise conducted with board, executive and middle management representatives during November 2011 the question of remuneration was pertinently raised.
The responses from the board representatives included strong calls for independent review and guiding principles to assist boards with making the right decisions. They also felt that
SOEs should not be painted with a single brush and that proper sizing and benchmarking is of critical importance. The mandates of SOEs would also have to play key roles in determining remuneration benchmarks.
They emphasised that board should account for the remuneration they awarded to executives against the performance of those executives. On the wage gap issue they stated that this is a global and systemic issue, which is best addressed as such. It would be irresponsible to just focus on SOEs as the “fix” to the remuneration gap. This feedback indicates that boards would welcome the existence of an independent advisory body.

Executives felt that remuneration had become such a big issue due to (1) the perception of non-performance of the entities and (2) the fact that in many cases SOEs are seen to be monopolistic and not having the same challenges as businesses operating in highly competitve environments. They believed though that the converse was true, that is, executives in SOEs have a much more complex environment to deal with. This is due to the diversity of stakeholders and the challenge to balance commercial objectives with developmental objectives. They felt though that the private and SOE sector were both looking for skills in the same market and this had an impact on remuneration levels.
These executives stated that an entitlement culture was still highly prevalent in SOEs and that nonperforming executives were still “paid to go” rather than answer for their nonperformance. The reason for existence of some SOEs also had to be looked at much deeper as it appeared that amalgamated entities did much better and warranted higher salaries for executives. They felt that longer term performance cycles needed to be used in setting remuneration. However, they were not comfortable with a higher performance-based component of executive pay.
On remuneration guidelines they were clear that what DPE issued in 2007 was not appropriate for the market in which they were operating and having to procure skills. They felt that guidelines should be put aside and that boards should retain ultimate responsibility for setting remuneration.
With regard the wage gap it was clear that not many SOEs at this level give much attention to it. There was however a strong view expressed that the wage gap is more of a symptom of a skills gap. The right way to address this was through more vigorous skills development.
This would, however, make SOEs vulnerable again to losing the skills to the private sector.

Middle managers stated that SOEs:
 carried too much staff and
 there were high degrees of laziness witnessed

According to middle managers remuneration was not linked to performance and that in general SOEs were ineffective in measuring performance. They held a different position to executives on guaranteed versus variable performance based pay. They believed a larger portion of remuneration needed to be put at risk (variable) by linking it to performance.
Middle managers also stated that the setting of remuneration levels needed to take into account:
 skills
 skills scarcity
 the size of the organisation
 the market influences on the organisation
An analysis of the feedback above brought the following to light:
there are vast differences as to how various levels in the organisation view the issue of remuneration
some boards in SOEs seem not to be able to provide proper leadership and guidance in remuneration practices and metrics. They are not held accountable for poor decision making thus perpetuating an already flawed situation
there is support for an independent body that could provide proper benchmarks and guidelines for remuneration;
comparison of remuneration of SOEs to the general market was acceptable given the challenges facing executives of SOEs
the link between performance and remuneration was not properly managed and accounted for in SOEs
there was no process in place for managing consequences, especially poor performance
the consolidation of SOEs was one way of improving performance and motivating higher levels of remuneration.
During November 2011 a subgroup of the PRC was sponsored to undertake a benchmarking tour to Europe where countries like Poland, Norway, Germany, Netherlands and France were visited. Although the group was asked to gather more details on remuneration, information sharing was limited. It appeared the issue of remuneration is as much a problematic, if not confusing, area by these European countries as it is in South Africa.
Following are some of the key findings of this subgroup:
In the Netherlands a previous government introduced a strategy to reduce SOE salaries to come in under that of the senior politician, but it seems they had problems implementing this. The remuneration of board members though was made partly dependent on the financial and public performance of the company.
In the Netherlands too, the shareholders had the right to define the remuneration policy headlines of the SOE. The Ministry of Finance also produced a policy in remuneration, which identified three categories of SOEs. Upper pay ranges for each category were capped. These categories are: (1) SOEs with a role in the economy and close to government (e.g. services); (2) SOEs with a clear public role and interest, also competing with private sector companies and (3) SOEs that were clearly private companies e.g. airports company.

In Germany salaries of SOEs are positioned to be competitive but it is aimed to keep them below the market average. How they position for competitiveness was not explained.
In Norway the remuneration of SOEs is a significant policy issue, particularly since it emerged that SOE executive pay was rising faster than their contemporaries elsewhere in the industry. Government, through the Ownership
Department, developed guidelines on remuneration that aimed at (1) inducing moderation in executive pay; (2) reduce severance packages; (3) ensure that variable pay did not exceed 50% of overall remuneration. SOEs are also required to develop a remuneration policy and submit it to the shareholder(s). In general it was aimed to make SOE remuneration much more transparent.
In Poland a draft bill on SOEs was not voted through parliament but was expected to resurface after the country’s 2011 general elections. This bill would have established Treasury as the point department for supervision and governance of SOEs. It furthermore proposed the abolishment of capped pay for
CEOs. With this capped pay policy, Treasury had to be notified when pay exceeded predetermined levels, even where the state had a less than 50% shareholding. The capping of CEO pay however meant that in some companies about 150 people earned more than the CEO.
In France the government’s ownership in companies is managed through the
Agencies des participations de l”Etat (APE). According to APE, remuneration was becoming more sensitive and the balancing of market forces with public sensitivities was an increasing challenge. The remuneration of executive staff was left in the ambit of board responsibilities but APE had representation on the board. From here they were seen to dominate in all probability dominated the debates as remuneration levels had to be approved by the Minister. An interesting approach to fixed and variable pay was introduced in stabilising the fixed component for two years (possibly placing more emphasis on two year performance cycles and the variable pay associated with that)
From these international perspectives it can be deduced that remuneration is a sensitive and troubling issue in the countries visited. The PRC was not able to undertake visits to Asia and determine some of the trends there. The OECD however reported that in most of the countries they co-operate with, the wage gap in SOEs was ever widening.
In an editorial article of the Business Day of 31 January 2012 the following excerpt appeared and which allowed for some understanding of how China approached SOE remuneration.
“The problem is that Chinese capitalism is so idiosyncratic and bound up with its history as a previously communist state that parallels with SA are hard to draw. The number and size of state-owned industries in SA is very small by comparison. The political and economic situation is vastly different. Just one example is that Wang
Jianzhou, the chairman and CEO of China Mobile, a company with 145000 employees and a turnover of about $70bn, technically earned $182000 in 2009. This is about a quarter of what Transnet CEO Brian Molefe earned last year for running a company with revenues about onetwentieth of China Mobile’s. The Chinese government’s power in the organisation and within society allows it to restrict the pay of everybody, from the CEO to ordinary workers. It’s no wonder they are such fearsome competitors internationally…..”
What are very clear from the international perspectives is that most governments are very aware of the public and political sensitivity of SOE executive remuneration. There are efforts and strategies introduced to bring some moderation into the process of rising salaries. It furthermore is clear that government or shareholder control in remuneration is quite strong and that there is a tendency to have the remuneration issues centralised under a

government department or agency.
In a report on interactions between private and public sector wages published by the
European Central Bank (ECB, 2008), insight into public sector versus private sector wages was obtained. In this report it was stated that in Greece, Ireland, Italy, Spain and Portugal – all economically troubled countries - real public sector wages have been significantly outstripping private sector wages over at least the last 20 years. Norway and Sweden – at the top of the pile in economic equality - present an opposite scenario. Private sector wages are constantly higher than public sector wages. A logical conclusion from this would be that there is a strong correlation between a too high public sector wage bill (in which we shall include SOEs) and a future of economic woes and potential bailout requirements. This issue will be addressed in section 5 in the report when South Africa’s public sector remuneration is compared with that of the private sector.

There are, as has been reported, different views from different stakeholders on how SOEs should be benchmarking themselves in terms of remuneration. As DPE explained, the guidelines issued from them have by and large been ignored by SOEs who insist that they need to be benchmarked against the private sector. As is shown in Graph 1 below, private sector benchmarking has actually led SOEs to pay higher salaries and wages at just about every level of employment (at median range).
st
Note: Patterson job grade scales were used throughout this report as indicated at X – axis above, where A1 represents most junior (unskilled) role and FU represents the highest end strategic management role.
The pay ranges that exist in SOEs and private sector companies is indicative again of how
SOEs are outliers when compared to similar roles in the private sector. In Table 4 below, the actual metrics on the position of SOE pay points to the private sector market are indicated.
At these pay levels one would expect a deliberate if not aggressive approach to performance management and achievement of set targets. Whether this is the case with SOEs is doubtful if one takes the feedback that has been coming forth from engagement with SOEs themselves as well as the customer base of SOEs.
In Table 5 the comparative ratio of the sample SOEs to the SOE median and the private sector market median is indicated per SOE. There is a range of deviation that is regarded as within the norm. However, according to 21 st Century, when a metric falls below 75 and above
125 a serious issue is indicated and some corrective steps need to be taken.
It would be appropriate to not only look at the outliers as indicated by the 25% gaps above, but consider every SOE for its particular role and contribution (plus job complexity) and to determine whether the remuneration levels are warranted. SOE salaries are a huge burden on the state and a more appropriate model could put extensive capital back in the fiscus for investment infrastructure and other developmental needs of the country. This is a point argued by Mike Schussler as part of the 21 st Century report section on wage differentials, which will be addressed in section 7.

st
st
st

Paterson
A1
A2
A3
B1
B2
B3
BU
C1
C2
C3
CU
D1
D2
D3
DU
EL
EU
FL
FU
Level
Unskilled /
Basic Skills
Operational
Skills
Advanced
Operational
Leader /
Specialist 368 623
426 038
Management /
Professional
565 284
635 862
Strategic
Execution
Strategic
Intent
SOE Median
Private Sector Comparative Ratio of SOE
38 238
Median
33 144 versus private
115
81 848
78 603
94 520
113 704
146 177
53 075
69 055
69 408
83 040
111 397
154
114
136
137
131
159 768
244 889
222 449
277 701
845 665
1 040 583
1 486 246
1 981 795
3 104 933
125 647
161 568
201 990
252 036
760 980
984 464
1 331 646
1 841 044
337 788
390 020
518 400
616 152
3 041 555
* 100 represent private sector benchmark in % terms
127
152
110
110
109
109
109
103
111
106
112
108
102
st
Company Name
Compared to Private
Median
Compared to SOE
Median
AIR TRAFFIC NAVIGATION SERVICES (ATNS)
AIRPORTS COMPANY OF SOUTH AFRICA (ACSA)
132
108
120
95
AMATOLA WATER
ARMSCOR PTY LTD
109
106
96
98
AUDITOR GENERAL OF SOUTH AFRICA (AGSA)
BANKSETA
BROADBAND INFRACO
BUSHBUCKRIDGE WATER BOARD
CENTRAL ENERGY FUND
110
97
124
110
138
CITY POWER
CROSS-BORDER ROAD TRANSPORT AGENCY
138
COUNCIL FOR SCIENTIFIC & INDUSTRIAL RESEARCH-
CSIR 108
88
DENEL DYNAMICS 107
99
89
114
93
126
121
99
79
97

Company Name
Compared to Private
Median
Compared to SOE
Median
DEVELOPMENT BANK OF SOUTH AFRICA (DBSA)
EASTERN CAPE RURAL FINANCE CORPORATION
ESKOM
106
119
131
FINANCIAL SERVICES BOARD (FSB)
FOODBEV SETA
FREE STATE TOURISM AUTHORITY
115
114
104
GAUTENG FUND PROJECT OFFICE
GAUTENG GAMBLING BOARD
129
121
GAUTENG PARTNERSHIP FUND 129
INDEPENDENT COMMUNICATIONS AUTHORITY OF
SA (ICASA) 136
INDUSTRIAL DEVELOPMENT CORPORATION (IDC)
114
ITHALA DEVELOPMENT FINANCE CORPORATION
LIMITED 81
JOHANNESBURG DEVELOPMENT AGENCY (JDA) 113
JOHANNESBURG SOCIAL HOUSING COMPANY
(JOSHCO) 77
LIMPOPO GAMBLING BOARD
MEDICAL RESEARCH COUNCIL (MRC)
113
82
97
93
117
105
104
92
118
112
118
122
106
71
103
69
104
76
MPUMALANGA TOURISM AND PARKS AGENCY
NATIONAL ARTS COUNCIL OF SOUTH AFRICA
122
NATIONAL GAMBLING BOARD
123
NATIONAL EMPOWERMENT FUND (NEF)
101
NATIONAL ENERGY REGULATOR OF SOUTH AFRICA
(NERSA) 118
82
NATIONAL RESEARCH FOUNDATION
102
NATIONAL URBAN RECONSTRUCTION AND HOUSING
AGENCY 114
NORTH WEST GAMBLING BOARD 116
NORTH WEST PARKS AND TOURISM BOARD 103
NUCLEAR ENERGY CORPORATION OF SOUTH
AFRICA (NECSA) 124
106
114
94
109
75
93
105
105
90
111

Company Name
PETRO SA
PETROLEUM AGENCY
PRASA
RAILWAY SAFETY REGULATOR
RAND WATER
ROAD TRAFFIC MANAGEMENT CORPORATION
SA CIVIL AVIATION AUTHORITY
SA EXPRESS
SA POST OFFICE
SERVICES SETA
123
115
115
121
SMALL ENTERPRISE DEVELOPMENT AGENCY (SEDA)
106
SOUTH AFRICAN BROADCASTING CORPORATION
(SABC) 119
SOUTH AFRICAN NATIONAL BLOOD SERVICE
(SANBS) 119
102
100
115
Compared to Private
Median
Compared to SOE
Median
121
125
115
111
116
96
112
102
100
110
93
86
102
97
109
104
SOUTH AFRICAN NATIONAL ROADS AGENCY LIMITED
122
SOUTH AFRICAN RESERVE BANK (SARB)
TELKOM SA LIMITED
124
109
TRANS-CALEDON TUNNEL AUTHORITY (TCTA)
TRANSNET
121
114
UMALUSI 112
* 100 represents private sector benchmark in % terms
112
113
100
112
99
101

Part of the terms of reference for the Remuneration study was to develop a classification model or taxonomy of SOEs that would serve as a guide to the determination of remuneration levels and ranges for the individual entities. 21st Century was asked to develop such a taxonomy using the data they had gathered from the sample SOEs. They used the following elements as key determinants in this taxonomy that eventually came to 10 clusters of SOEs. (p 59)

Budget / Revenue of the SOE – A clear set of rules as to the use of either Budget or
Revenue as a dimension to be used. There are clearly significant differences in size between SOEs that are Budget or Revenue focused and a matrix to determine the relativity of each dimension has been constructed. The budget of some SOEs would be an appropriate measure. If one considered the revenue of SARS, they would be the biggest corporation in the country. In other cases the revenue generated from operations would be more important than the budget. Denel would be an example of such a SOE.

Operating costs
– Indicative of the relative financial space in which the SOE operates.
SAA may have an operating cost that is significantly higher than the operating cost of a similar organisation due to the nature of the operation. A matrix to recognise this dimension has been developed that is organisation-specific but applicable across the
SOE landscape.

Number of employees – This dimension would not just be about absolute numbers but also about the type of employees employed by the SOE. An organisation employing 200 professors may well remunerate the CEO at a higher level than the remuneration for a
CEO employing 2000 manual labourers.

Structure of the organisation
– Does the organisation have relative autonomy in the direction and strategic objectives that are set or are these dimensions mandated? Within the private sector a subsidiary of a holding company has a significantly reduced autonomy than the holding company itself.

Strategic intent of the organisation - This dimension would require participative agreement. Conceptually, when all of the above factors have been taken into account, two SOE’s could turn out to be the exact same ranking, but it would be obvious to anyone in a position of National Authority that one SOE is more strategically important than the other.

Number of operations / branches
– Another element that determines complexity of the role performed. At a superficial level the Reserve Bank operates from relatively fewer locations than SASSA, however the sheer number of SASSA offices undoubtedly adds to the complexity of management.

Number of core businesses
– Is the organisation involved in one specific area of authority (e.g. ICASA or CAA), or is the organisation involved in multiple and sometimes disparate types of operation (e.g. Transnet). The complexity of running an organisation can be reliably anchored on the number of core businesses managed.

Nature of the organisation – A Regulatory Body may be less or more complicated than another Regulatory Body. One could consider the scheduling status as defined by the treasury as input to this factor. For example, a body concerned with developing regulations that are specific to the South African context may well be considered to be operating in a more complex space than a body that simply adopts international standards and ensures that these are complied with (i.e. ISO 9000). Equally, an SOE that designs, manufactures, markets and sells products (e.g. Denel) may be considered more complicated than an organisation that simply ensures compliance with a predefined set of regulations. The nature of the organisation is a sound measure to determine the level of CEO or executive employed. Diversity of appropriate experience and ability would clearly be a determinant of remuneration.


Number of countries in which the SOE operates – Although a large number of the
SOEs examined have their roles confined to South Africa, there are a proportion that operate across borders. These operate in both Southern African and in a broader international context. In the same way that a dual listed executive is remunerated at a higher level than a single listed executive, the same may be said for executives in the
SOE environment. Understanding multiple legislatures, tax regimes, company laws etc. add complexity to the role. At another level, executives exposed to international markets operate within an international remuneration space.

Qualifications and experience required for performing the role – Certain roles have legislative qualification requirements and these should be factored. However, certain roles would have a combination of qualifications and experience. An example of this would be the difference in pay between the Auditor General and the Attorney General.
The 10 clusters were derived through multiple regression models to determine the weighting of the dimensions above. The sample of SOEs were then assessed according to the taxonomy and were positioned in the different categories or clusters as follows:
st
Organisation Cluster
NATIONAL GAMBLING BOARD; INVEST NORTH WEST; JOHANNESBURG SOCIAL HOUSING COMPANY
(JOSHCO); NATIONAL FILM AND VIDEO FOUNDATION; OMBUDSMAN FOR FINANCIAL SERVICES; MEDIA
DEVELOPMENT AND DIVERSITY AGENCY (MDDA); SA LIBRARY FOR THE BLIND; NATIONAL HERITAGE
COUNCIL; AFRICA INSTITUTE OF SOUTH AFRICA; CROSS-BORDER ROAD TRANSPORT AGENCY; LIMPOPO
GAMBLING BOARD; NATIONAL ARTS COUNCIL OF SOUTH AFRICA; FREE STATE TOURISM AUTHORITY;
GOVERNMENT EMPLOYEES PENSION FUND (GEPF); RURAL HOUSING LOAN FUND; THE MARKET THEATRE
FOUNDATION
1
EDUCATION LABOUR RELATIONS COUNCIL; FOODBEV SETA; GAUTENG GAMBLING BOARD; NATIONAL URBAN
RECONSTRUCTION AND HOUSING AGENCY; NORTH WEST GAMBLING BOARD; THE INDEPENDENT
REGULATORY BOARD FOR AUDITORS; THE JOBURG THEATRE; JOHANNESBURG DEVELOPMENT AGENCY
(JDA); RAILWAY SAFETY REGULATOR; SOUTH AFRICAN NURSING COUNCIL (SANC); UMALUSI; FASSET;
GAUTENG ECONOMIC DEVELOPMENT AGENCY (GEDA); GAUTENG PARTNERSHIP FUND; NATIONAL
LOTTERIES BOARD; TECHNOLOGY INNOVATION AGENCY (TIA)
2
PORTS REGULATOR OF SA; HEALTH AND WELFARE SETA; MPUMALANGA TOURISM AND PARKS AGENCY;
NATIONAL METROLOGY INSTITUTE OF SOUTH AFRICA; ROBBEN ISLAND; LIMPOPO BUSINESS SUPPORT
AGENCY (LIBSA); BANKSETA; BUSHBUCKRIDGE WATER BOARD; ITHALA DEVELOPMENT FINANCE
CORPORATION LIMITED
3
NATIONAL ENERGY REGULATOR OF SOUTH AFRICA (NERSA); SOUTH AFRICAN WEATHER SERVICE (SAWS);
INTERNATIONAL CONVENTION CENTRE DURBAN (ICC); SA CIVIL AVIATION AUTHORITY; SASRIA LIMITED;
FINANCIAL SERVICES BOARD (FSB); SOUTH AFRICAN MARITIME SAFETY AUTHORITY (SAMSA)
4
AMATOLA WATER ; BROADBAND INFRACO; MEDICAL RESEARCH COUNCIL (MRC); TRANS-CALEDON TUNNEL
AUTHORITY (TCTA); HUMAN SCIENCES RESEARCH COUNCIL (HSRC); NATIONAL EMPOWERMENT FUND (NEF);
WATER RESEARCH COMMISSION; INDEPENDENT COMMUNICATIONS AUTHORITY OF SA (ICASA); MERSETA;
EASTERN CAPE RURAL FINANCE CORPORATION; PIKITUP; SERVICES SETA; SMALL ENTERPRISE
DEVELOPMENT AGENCY (SEDA); ARMSCOR PTY LTD; COUNCIL FOR SCIENTIFIC & INDUSTRIAL RESEARCH-
CSIR; NUCLEAR ENERGY CORPORATION OF SOUTH AFRICA (NECSA)
5
DEVELOPMENT BANK OF SOUTH AFRICA (DBSA); AIR TRAFFIC NAVIGATION SERVICES (ATNS); AIRPORTS
COMPANY OF SOUTH AFRICA (ACSA); DENEL DYNAMICS; CITY POWER; EZEMVELO KZN WILDLIFE; SA
EXPRESS; SAFCOL; UNIVERSITY OF JOHANNESBURG; AUTOMOTIVE INDUSTRY DEVELOPMENT COUNCIL
(AIDC); LAND BANK
6

Organisation Cluster
AUDITOR GENERAL OF SOUTH AFRICA (AGSA); NATIONAL RESEARCH FOUNDATION; RAND WATER; SOUTH
AFRICAN NATIONAL ROADS AGENCY LIMITED; SOUTH AFRICAN BROADCASTING CORPORATION (SABC);
CENTRAL ENERGY FUND; SA POST OFFICE
7
INDUSTRIAL DEVELOPMENT CORPORATION (IDC); SOUTH AFRICAN RESERVE BANK (SARB) 8
PETRO SA; PRASA 9
TRANSNET; ESKOM; TELKOM SA LIMITED 10
This taxonomy only covers the SOEs that formed part of the sample provided by the PRC in conjunction with its Research and Development Unit (RDU) and the HSRC. It does, however, provide a clear method and formula to determine the positioning point of SOEs relative to each other. It could serve as a valuable tool to categorise SOEs in future for the purposes of remuneration or other analyses. A web-based tool that enables all SOEs, shareholder executives and other stakeholders to determine the positioning point of a specific SOE relative to another further supports the taxonomy. This allows for clear indicators and parameters on pay points per job grade that applies to that specific SOE. To put perspective to this taxonomy the following table shows the relative pay ranges for the 10 different categories from Patterson levels A to D.

Although the dimensions that were used in this taxonomy bring about a high degree of granularity in distinguishing one SOE from another, there may be other aspects, which should also be included to assist with an even better discrimination – although the latter would need to be statistically tested. One such dimension is the Strategic Risk Factor (e.g. if
Eskom collapses) but this may well be a subset of the Strategic Intent dimension.
One of the critical areas to address further is the dimension of strategic intent. 21 st Century suggests that it cannot be dependent on them to determine the strategic intent dimension of the SOE in question. The delineation of it would have an impact on the categorization
(although they feel it may only change a category one up or down). The issue of strategic intent - and where it originates from - was extensively debated and the PRC has taken the view that the first place to look for differentiating definitions would be in the current proposed categorization model. A useful model for categorizing State Owned Entities was done by
Genesis Analytics (in BUSA, 2011) as contained in Figure 1 below. This model also appears in presentations by National Treasury.
It would be important to determine which SOEs fall under the different categories mentioned in the model and to what extent the 10 Category Taxonomy supports the current classification model. It may be that in Stewardship or Service delivery entities, as example, the range of categorized SOEs may be as wide as eight categories. This would indicate that strategic intent might have a lower influence than the combination of other key dimensions.
This may be a correct interpretation as the complexity of an organization is often determined more by size and diversity or number of divisions/business units than by the subject of its mandate. Additional research work is being undertaken on this matching process.

Part of the terms of reference related to remuneration focused on the ever-widening wage gap problem and strategies on how to reverse the trend. In a presentation delivered to the
SMOE team by 21 st Century in February 2012 various elements of the wage gap or wage differential were addressed that provided a clear picture of these impacts.
The wage differential is normally synonym with the level of inequality that exists within a chosen or defined population. This level of inequality is presented in the form of a coefficient where zero means there is no inequality (everyone earns the same) and where 1.0 means there is maximum inequality (one person earns all the income). This coefficient – called the
Gini coefficient – is also expressed in percentile format and the closer a population comes to
100 the higher the degree of inequality. The Gini coefficient may not always be the most reliable measure to assess the quality of life of the citizens of different countries. In the graphic and table below there are clear indications that in some “high inequality societies” - like South Africa - people may have a much better quality of life than those in countries with lower inequality ratings such as Zimbabwe, Nigeria and India. Quality of life includes aspects such as life expectancy, the human development index, improved water sources and overall access and crude death rate (death per 1000 population).
1 Namibia
2 Seychelles
70.7
65.8
3
4
5
13
14
South Africa 65.0
Lesotho
Botswana
63.2
63.0
Brazil
Thailand
53.9
53.6

70
71
83
94
46
52
53
62
28
40
41
42
15
25
26
27
Hong Kong
Zimbabwe
Dominican Republic
Peru
53.3
50.1
48.4
48.0
Singapore 47.8
United States 45.0
Cameroon
Iran
44.6
44.5
Nigeria
Russia
China
Turkey
Malawi
Mauritius
India
United Kingdom
43.7
42.0
41.5
40.2
39.0
39.0
36.8 #
34.0
97
101
102
106
107
111
113
120
Switzerland
Greece
France
Spain
Italy
Korea, South
Netherlands
Ireland
33.7
33.0
32.7
32.0
32.0
31.0
30.9
29.3
129
135
136
137
Germany
Luxembourg
Malta
Norway
27.0
26.0
26.0
25.0
140
*
Sweden 23.0
* Data collected over periods ranging from 1989 to 2010
# Red line indicates where SOEs in South Africa rate
According to 21 st Century the current Gini coefficient for State Owned Entities is 34.8
(denoted by red line). This is significantly lower than the rest of the country and would immediately give the observer a sense of comfort that SOEs are actively reducing the wage gap. The sustainability of this approach is questionable as the SOEs at the median level pay anywhere between a 102% and 140% of private sector salaries at all levels of employment.
This means that when executive level salaries leap forward, so too do salaries at lower level.
Eventually the salary burdens become too large for the entity or company to carry, who then need to revert to the state for financial relief.
Inequality remains an important indicator of the degree of social stability and health in different countries. In the 21 st Century presentation done to the SMOE work group, the correlation between inequality and social ills were found to be very high and almost linear, bar for a couple of outliers. In their first sample, Japan was the country with the lowest inequality with Singapore and the USA at the highest end (at least 2.5 times that of Japan).
The following correlations were pointed out quite clearly:
the higher the inequality, the lower the life expectancy
the higher the inequality, the higher the infant mortality (except in Singapore)
the higher the inequality, the higher the level of obesity

the higher inequality, the higher unemployment
the higher the inequality, the higher the percentage of teenage pregnancies and births
the higher the inequality, the higher the percentage of homicides
the higher the inequality, the higher the levels of imprisonment
the higher the inequality, the lower the number of average years of schooling
(Portugal a lower outlier and USA a higher outlier)
South Africa has an inequality rate of at least double that of Singapore. When South Africa is included in the data sets , and with the continuation of the linearity, all the issues above become exponentially worse.
According to a paper published by the OECD in 2008, income in South Africa has become increasingly concentrated in the top decile. Across the three years the richest 10% accounted for 54%, 57% and 58% of total income respectively. The share of income accruing to the richest 10 percent increased at the expense of all other income deciles. The cumulative share of income accruing to the first five deciles (lowest
50%) decreased from 8.32% in 1993 to 7.79% in 2008 (OECD, 2010).
It thus holds that the oftenmentioned theme of a “ticking time bomb” is exactly that. South
Africa appears to be in an ever-worsening state of inequality. In 2011 the Finance Minister reported the South African Gini coefficient at 68.0. If the issue is to be addressed, it needs to be done systemically. SOEs must be included in this process. As witnessed by the data shared, SOEs are making a contribution to this state of inequality – however at a significant cost to the shareholder and the taxpayer. SOEs would need to do more at executive level to contain remuneration levels. It appears that when (1) level of contribution is mapped to (2) remuneration, there are serious anomalies at executive level. Graph 4 below indicates the cumulative percentage increases afforded at different job grades and clearly points that over six years executives received visibly higher degrees of increases than other levels. A problem is visible in the percentage terms but it becomes even more so when these percentages are expressed in currency value (see an example in Graph 7).
Being instruments of state, SOEs need to lead the way in systemic change. It is only when the state sets an example, that it builds the credibility to prompt the private sector into different courses of action on matters like remuneration. If the SOE sector keeps paying above private sector benchmarks, the response from the private sector may be to ignore calls for more responsible remuneration practices.

60,00%
50,00%
40,00%
30,00%
20,00%
10,00%
A1
A2
A3
B1 B2
B3
BU
C1 C2 C3 CU
D1
D2
D3 DU
EL
EU FL
FU
0,00%
*Cumulative
It has already been determined that SOEs have a lower inequality rating as the rest of the country as measured by the Gini coefficient. What is however important to determine is where the contributing points to inequality are when it comes to SOEs? It has been determined that SOEs generally pay ahead of the market at all levels. In doing so SOEs are helping to create a situation of inequality between high earners and those who earn low wages. It is especially through high executive increases that they too are contributing to inequality. The population and inequality contribution ratio is illustrated in Graph 5.
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Note: Blue bars indicating contribution to inequality
By using the measure of entropy a clear picture emerges on where inequality exists in the pay points between different levels of work in SOEs. Entropy is a measure of fairness, which is maximized at equilibrium, in an economic system (Venkatasubramanian, 2009). In this

application it is the equilibrium of contribution to the value of the organization relative the wages for that particular population (job grade). As can be seen from Graph 5 there is, what could be termed “huge exploitation”, at the very lowest grade of employment in SOEs (A1) and “executive abundance” at the upper levels. SOEs by all indications are also employing too low numbers of unskilled workers at the very lowest level. Although labour brokers supply some of these levels of employment, the picture would in all likelihood remain skewed due to even lower wage levels ending up in the hands of the employee. What is however clear is that at the management and executive levels in SOEs the remuneration is significantly higher than what it should be as also indicated by the Entropy model in Graph 6.
What this model indicates is that at the most junior levels (A) of the organization the value contribution is commensurate with the remuneration. However, at B3 and BU the remuneration is way below what the value contribution is. Moving upwards to C, D and E levels, the remuneration is far above what the actual value contribution is. In this particular example the inequality ratio is a result of t he upper level remuneration and the “exploitation” of the operationally skilled workers.
Paying workers and executives the same % increase does not neutralize this situation. The lower level employee is much more vulnerable to inflation increases than the upper level executive. Even though trade unions are asking for equal treatment (i.e. not having the anomalies indicated in Graph 4), the fact is that in such a situation the wage gap is ever widening and not decreasing as one would want to see in the context of the inequality prevailing in South Africa. Graph 6 below illustrates this very clearly where the same percentage increase is afforded to both levels of employees over a period of time. In this graph it is shown that given the huge gap that currently exists between the lower level worker and management, similar percentage adjustments will only exacerbate the situation.
What is required to close the gap is decidedly smaller percentage increases at the senior levels in companies. Whether this will happen is however a different issue altogether as companies will continuously claim that this would put them at risk of losing their critical human capital.

Schussler (pp, 2012), in the section on wage differentiation contained in the 21 st Century report, gives a clear reminder that the highest degree of inequality that exists between two adjacent “positions”, is that between a person who is unemployed and who receives a child grant and the lowest paid worker in an SOE structure – the comparison being R 240 to R
4569 per month. In short, it means that the lowest level paid worker receives 19 times more than an unemployed person over the same time period. The highest contribution to inequality does not come from the worker to management comparison; it comes from uncontained executive remuneration on the one side against a very large unemployed and grant-dependent population – which in the case of poor service delivery is an even starker indicator of the social injustice embedded in the South African economy.
The matter may be addressed in various ways, such as:
 investing significantly in skills development and labour intensive projects (to stifle the ever increasing degree of unemployment)
 to cap state related salaries which, if brought into line with the private sector, could put an extra R 17b (in case of SOEs) and an extra R 107b (for normal government employees) back in the fiscus for development.
Schussler (pp, 2012) determined that Government salaries are 29% higher than the average of the market (including government) or 40% higher (excluding government). Graph 8 below illustrates this phenomenon. It should however be noted that these comparisons are done for total guaranteed pay only and excludes the impact of short- and long-term incentives such as bonuses and share options. What has been noticed in recent times is that SOEs have moved from lower cash and higher benefits to lower benefits and higher cash, whilst the opposite may have occurred in the Private Sector.
What is also important to note is that quantum of impact that share options have in the private sector on individuals’ remuneration levels. Approximately two to three years ago it

was reported in the business media that Sasol had created by far the highest number of share option millionaires of any company in South Africa. In general the share option impact on an individual’s remuneration package is significant. Unfortunately the variability of performance bonuses and share incentives does not allow for a proper scientific comparison. It is however important to use some discretion in reading a graph such as
Graph 8 because it only illustrates the guaranteed remuneration picture. In real cash and benefits earned, the picture may be much different, despite the other components not being guaranteed.
Schussler (pp 113, 2012) asserts “Another important fact that has come to the fore during this study is that SOEs are creating jobs for a minority of the labour force. The skill set of the unemployed is very far removed from the skill sets required at present by SOEs or general government. Without some adjustment in employed skills, it is unlikely that SOEs would be able to create the employment needed (especially at the lower skill levels), and certainly not at the current real costs of that employment. As already stated, the biggest wage gap in this study is between that of an unemployed person receiving a child grant and an SOE employee on the first general Paterson level. SOEs are therefore very far off their mandate, as th ey are presently not able to employ at the skill levels of the unemployed”.
In conclusion the crisis of inequality in South Africa keeps getting worse despite the acceptable rating that SOEs have with regard to the issue of inequality in their internal remuneration. SOEs as instruments of government, who holds to the vision of a development state, would naturally be challenged with the mandate of playing a role to reduce overall inequality. This they would need to achieve through offering more employment to the unemployed. To make this affordable SOEs would have to bring the remuneration spend in line with, at least, the private sector.
As had been indicated the high levels of unemployment contributes significantly to the everincreasing inequality metrics in South Africa. This situation cannot improve if the skills employed do not match the skills of the unemployed. Graph 9 below gives an indication of the current mismatch in the skills employed by SOEs and the skills profile of the unemployed.

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What has not been factored in (see Graph 9) is the effect of labour brokers and how this may impact the numbers at the lower end of the skills hierarchy. This graph illustrates where the major impact on reducing inequality is to be made, that is, by employing more of the unemployed. This is in line with an aggressive job creation strategy put forward by the South
African government and one where the SOEs would need to be seen to lead the way.
However this cannot be done in an unsustainable way (especially where it pertains to commercial SOEs – Schedule 2 and 3B). Something would have to be done to balance the salary burden if the strategy of employing more at the lower end is to be implemented. The unavoidable would be to bring the overall pay line back to private sector levels and to reduce excessive executive pay and ongoing increases.
A further illustration is provided in Graph 10 where a company at size 8 per the taxonomy is presented and where the “over-pay” becomes visible per level. In this particular example the executive level remuneration seems to be very close to what it should be. The issue lies more with the outlying pay at the lower levels. It shows how the problem lies not only at executive level but also where lower end pay expectations have become unmanageable.
Strategies to manage remuneration would need to cover the entire job spectrum – especially with regard to ensuring sustainability.
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From the data studied and presented concisely in this document, the following have been concluded:
Although DPE has set out guidelines in 2007 for the remuneration of SOEs, it has not been implemented consistently across all SOEs. The remainder of SOEs appear not be governed by any other guidelines other than that of DPSA for the public sector. In some cases executive authority ministries such as Water Affairs have structured remuneration policies and practices for SOEs that fall under them. The different approaches by different ministries
(eg. DWA being more hands-on; DPE being more hands-off) and within ministries indicate the lack of common standards. Examples would be National Treasury dealing differently with its Public Entities e.g. SASSA and SARS’s remuneration practices vary – SASSA’s r emuneration pay structure is aligned with public sector pay whilst SARS’s is aligned with private sector pay.
SOEs generally pay ahead of the public sector. Although various stakeholders may find this hard to believe, the statistics show that for the measure of guaranteed pay SOEs are ahead of the market in just about every job category. The only anomaly to this may be at the upper executive level where the private sector remuneration pushes ahead. This is a result of a number of factors including size, complexity, industry characteristics and other less explanatory factors. This does not yet include the cash effect of vesting share options that at the upper levels may push the private sector further ahead. This, however, is not guaranteed pay.
Compared to a sample of 140 countries including most western developed states, SOEs come out very well in terms of the income equality rating they deliver. This means that the remuneration of the CEO compared to the median of everybody else under him/her, deliver a ratio that compares very favourably to the country rating highest on equality, namely
Japan.
SOEs have a higher degree of income equality because at all levels they pay above the market. But there are a number of cases where it is especially at the lowest job levels that the entropy (drift from standard) is highest. In these cases people get paid much higher wages/salaries than what their contribution to the business of the entity demands. This situation is also reflected at the upper management levels. In effect SOE remuneration being high at all levels cannot be sustained over the longer term.
The fluctuations witnessed in SOE remuneration within and between SOEs, are significant.
There are some anomalies in how some smaller and less complex SOEs have managed to pay their executives and staff at such high rates. Some real concerns are expressed at SOE executive remuneration of, for example, Free State Tourism Authority, Road Accident Fund and National Home Builders Registration Council.

The inconsistency in SOE remuneration happens in the absence of a properly developed and adopted sizing or positioning model. Without such a standard, SOEs deal with remuneration as inconsistently as they do. By not having a properly ratified model, government is making itself significantly vulnerable against exploitation. Such a model should evaluate SOEs according to a number of dimensions and produce a sizing or positioning point for remuneration.
As in many other areas of investigation into SOEs, the issue of poor integrated oversight and performance management rears its head again in remuneration. While some departments develop their own standardization policies (albeit with fragmented implementation), there is no central authority or agency being tasked to manage the practices and parameters of remuneration in SOEs. It comes as no surprise then that the boards of SOEs and SOEs themselves define their salaries significantly away from the equality and/or market line that again raise concerns on the quality of corporate oversight that exist in the general SOE sphere.
The entropy fall-outs most commonly seen in individual SOEs are largely driven by outlying high executive remuneration (upper bands) and lower remuneration than value contributed at operator level. Even though on aggregate SOEs have a lower inequality rating than the private sector and the country as a whole, there are some areas of correction that would need to take place in search of a more equitable remuneration map.
There are a number of reasons behind the huge inconsistencies witnessed amongst SOEs in respect of remuneration, not least of which appears to be the manner in which boards are handling the matter. It is the board’s duty through its remuneration committee to ensure fair, competitive and equitable remuneration policies and practices. The nature of some of the anomalies though suggest that boards are either not competent or they are not acting with fiduciary care to the company. There are also sufficient reasons to query the accountability of boards and oversight where it pertains to the apparent misalignment between performance management and remuneration. This is evidenced by customer feedback and performance to stated strategic objectives (PRC paper on Effectiveness and Efficiency,
2012). The quality of remuneration advisors and remuneration audits must also be brought into question, as this should provide a safety net against incompetence at board level.
The inequality position in South Africa (wage gap) is getting worse and this is proven in the following. The Gini coefficient of the country has slipped from .65 to .68 in the last five years and it appears to be hard to stop in an environment of restricted economic growth and increasing unemployment. The biggest inequality gap is between the unemployed and the lowest level job in an organization or SOE, a number of 19 times the proceeds of a social grant of R240. Wage inequality is much less when measured in an organization, but the concern of government surely is towards a much wider population where South Africa’s inequality is 3 rd worst in the world (as explained by the Gini coefficient).

Based on the research and the findings contained in this report the work stream has considered a number of options for correcting or enhancing the area of SOE remuneration policies and practices. These fall within the categories of (1) a higher degree of standardization and harmonization; (2) improvement in governance and oversight of, in particular, remuneration; and (3) more focus on reversing the escalating rate of inequality in the country.
In order to eliminate the huge degree of inconsistency and self-regulation that has led to the current unsustainable environment around SOE remuneration, it is proposed that government establishes a Central Remuneration Authority (CRA) to provide clear direction and governance to the remuneration of State Owned Entities. We propose that this CRA – albeit established by the state – is allocated a strong degree of independence as well as the necessary authority to direct SOE practices and act punitively where directives are not followed. The CRA will not assume board responsibilities and will still recognize the discretion of the board to do what is in the best interest of the company. The CRA will however provide strong guidelines and parameters within which the board may apply its discretion. Any deviation from these would need to be approved by the CRA. It is further proposed that the CRA is a semi-legal institution, preferably chaired by a sitting judge and that it will consist of a full time secretariat and research unit, and funded for commissioning research projects into particular areas of benchmarking and remuneration practices.
Due to the sheer number of SOEs that would need to be addressed, it is proposed that the CRA may have different sub-divisions/secretariats, such as for commercial entities, public entities and public sphere entities.
SOE remuneration needs to be standardized to the degree where the current inconsistency and irrationality around remuneration metrics would eventually be eradicated and where more predictability will be built into the system of remuneration. The need for a properly researched and founded taxonomy or classification model is key to this process. The classification of SOEs has been reviewed as part of the PRC study, but this classification has focused more on the nature and mandate of the SOEs in question and not so much on other dimensions such as size, complexity and networks. It is proposed that the taxonomy model as developed by 21 st Century and discussed in this report be adopted as a starting point of positioning SOEs within 10 clusters or categories. A web-based tool that enables remuneration benchmarking per position per category of SOE already supports this cluster approach. It is furthermore proposed that this cluster taxonomy be further developed to ensure that additional dimensions are also considered and integrated where appropriate in the sizing or positioning of SOEs. One such dimension is the degree of beneficiation or value added provided by the SOE and a risk multiplier (for example, what happens if the SOE fails to deliver). Measurement of these additional factors would need to be developed to ensure proper discrimination or differentiation.
It is proposed that the Central Remuneration Authority (CRA) under the leadership of
National Treasury embark on an exercise, supported by selected remuneration experts, to

recalibrate the SOE remuneration landscape so as to come up with an ideal model. This model must provide a point from which to start managing the anomalies and the gaps that have formed over years of self-regulation. This recalibration does not assume immediate adjustments in remuneration packages and/or levels, but will be the start of a process to eventually bring all outliers in line with a common standard. It will enable SOEs, their boards and their executive oversight authorities to develop plans for transitioning to the new model over a set period of time. This also assumes that National Treasury in parallel with the process of recalibration conducts its own review of sustainability of SOE remuneration levels. The findings must then be presented to parliament as back up to the “reset” procedure proposed here. It is possible that such an exercise may make SOEs vulnerable to losing key skills but this would need to be mitigated by proper communication and management practices. In other cases it may well present an opportunity for resetting pay points in the shorter term.
There are clear suggestions by the remuneration specialists engaged by the PRC, that the awareness levels about remuneration points and ranges in SOEs themselves are low. Even the reaction of PRC members to the information presented suggests that there are vastly different perceptions in the market when it comes to the issue of SOE remuneration. One would assume that these misperceptions are as strong in the domain of organized labour and other levels of employment in SOEs. It is thus proposed that SOEs (with the support of the Central Remuneration Authority) undertake an extensive education and awareness project, carried to all staff, within the short to medium term. This project will have as objective to (1) educate staff as to where on the pay scales and benchmarks their positions resort relative to the broader market (2) allow for some preliminary communication as to the process of recalibration that is to be undertaken. Such a communication effort must include benefits of greater equality on a broader basis as well and the CRA would provide support in developing some of these offerings to the broader SOE employee group.
Even though SOEs are at present well positioned on the scale of wage equality, they still need to understand their developmental mandate to the broader population. SOEs remain an instrument of state. It is proposed that SOEs embark on initiatives to provide employment to the large portion of unskilled workers in the market on the basis of a social contract
(nominal salary whilst undergoing training and exposure). This should form part of the strategy to recalibrate their remuneration frameworks. To put it in perspective, the process would entail “not paying people more, but paying more people”. This strategy of absorbing more of the available labour power in South Africa will address the inequality measures at their highest point – the gap between the unemployed and the lowest level worker. It is quite possible that SOEs can be given some sort of trade-off package as part of their recalibration of remuneration. For instance, the more people taking in on a social contract basis, the longer the period allowed to bring remuneration in line with the set standard (or something akin to this). It is however vital that the social contribution does not become a trade-off for poor performance, that is, “we did not perform to mandate but we employed a lot of unemployed people”. The mandate for the SOE must remain the primary driver of all its activities as prompted in another term of reference paper from the PRC.
Much of the issues raised in this report about inconsistency and anomaly in SOE remuneration structures and practices, seem to originate from a lack of proper oversight that would entail the role of the boards. In the context of providing strategic leadership to SOEs through board roles, it may very well be that board members are not sufficiently educated and equipped to make proper decisions on remuneration practices and metrics. If there is an

expectation that the boards be allowed to apply discretion in setting remuneration points, then at the very least they should be well equipped to do so. Providing them with the necessary training, development, education and information on remuneration practices and data can do this. It is thus proposed that all SOE boards undergo a process of education in remuneration in the short term. The Central Remuneration Authority (CRA) should monitor this.
In remuneration practices benchmarking is one of the critical tools in assisting the appropriate positioning of remuneration points. It is proposed that through the guidance and monitoring of the Central Remuneration Authority (CRA), all SOEs are to conduct an annual benchmarking exercise on their remuneration framework. This should be based on a standardized approach and reporting template. This will ensure meaningful engagement around any proposed remuneration practices and adjustments and build more pro-active alignment amongst SOEs. The CRA could, for this purpose, acquire the licensing rights to on-line benchmarking tools and/or also negotiate competitive retainer fees with specialist remuneration consultants on behalf of SOEs.

The issue of remuneration of SOEs (if not all organizations) is a sensitive one, no matter where in the world one goes. It is no different in South Africa and what provides additional weight to the significance of the issue in this country is the problem of inequality. SOE remuneration is characterised by high inconsistency, significant inequality contributions from higherlevel roles and a real concern for sustainability of what appears to be “run-away” remuneration levels. This report presents the evidence for all of these positions mentioned and also includes recommendations on how to address what is clearly an unsustainable scenario.
One of the major contributions of this investigation is to add to the emerging principles as contained in the Interim Report of the PRC the concept of the establishment and implementation of appropriate common standards and procedures in organizational processes, systems and governance. Without this, SOEs will continue to be seen as a law onto themselves and will keep contributing to the perception that government has lost its grip on ensuring the instruments of state work to the betterment of the country overall.

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