Paying it forward: Sustainable strategies for fair pay

What does it mean to pay employees fairly? 

In today's evolving labour market, understanding the distinction between fair pay and a living wage is crucial for fostering equitable and sustainable employment practices.

Fair pay and a living wage are related, but not the same. Fair pay focuses on equitable remuneration for similar work, ensuring no discrimination and reflecting the value of the employee's contribution. A living wage, on the other hand, ensures that employees earn enough to meet their basic needs and live with dignity. While fair pay is about justice and equality in remuneration, a living wage is about meeting essential living standards.

Paying employees fairly is a key part of wider sustainability measures for businesses. This topic provides a tangible measurement to support the social element of ESG strategies,  covered in a number of global ESG reporting frameworks such as the Global Reporting Initiative (GRI) and the JSE Sustainability Disclosure Guidance list of metrics. 

Accordingly, businesses are curious about how fairness in compensation can be achieved and embedded into their wider reward strategy. Paying fairly is not only a social imperative, but also a strategic advantage for organisations that want to enhance their attractiveness to key talent, as well as their reputation and resilience in the market.

Furthermore, with the effective date of the South African Companies Amendment Act looming—which will mandate companies to disclose their wage gap—failing to pay fairly could have far-reaching consequences for South African companies. To provide guidance on this aspect, the following topics are covered in this blog post: 

• Global and regional fair pay developments: A snapshot based on PwC’s latest research insights.

• New wage gap disclosure and voting requirements: Summary of the new requirements for South African companies.

• Sustainable fair pay reporting strategies: Suggestions for effective reporting strategies.

The UN Global Compact (UNGC)^[1] estimates that today, over a billion working people worldwide—one third of all workers—earn less than they need to afford a decent standard of living. As such, paying a living wage is a crucial part of addressing a number of the UN Sustainable Development Goals (“SDGs”)^[2]: SDG1 (no poverty), SDG8 (decent work and economic growth), SDG5 (gender equality) and SDG10 (reduced inequalities). This, in turn, is an accelerator to contribute materially to the achievement of several other goals, as economic prosperity is just as important to the achievement of the 2030 Global Goals as environmental sustainability.

In order to further investigate the global fair compensation challenges PwC and WageIndicator surveyed 205 participant companies across 43 global territories on their positions on paying a living wage. The following results were revealed in the report, Living wage: An emerging standard:

• Paying a living wage is becoming a priority for employers 
  • 67% believe that paying a living wage is a priority for their business. 
• Employers are moving towards paying a living wage for their own workforce
  • 24% currently pay a living wage to employees globally.
  • For those who are not, 54% expect to meet this within the next five years.
• Living wage considerations are a key part of wider sustainability measures for businesses 
  • Over half (53%) include living wage considerations within the social aspect of the ESG strategy for the business.
  • Fewer than a quarter (23%) currently include the supply chain in living wage commitments.
• Living wage is being considered alongside broader aspects of workforce fairness
  • Over a fifth (22%) reported that they analyse the impact of living wages on workforce diversity. 
  • Pay fairness aspects (including living wage) are factored into executive pay—33% state that their Remuneration Committee has explicitly discussed living wage alignment. 

Furthermore, PwC’s latest Global Workforce Hopes and Fears Survey 2024 – African Perspectives canvassed 2,000 African respondents from South Africa, Kenya, Morocco and Algeria. Although a slight increase from 2023 (27%), only 29% of employees across Africa are able to pay their bills monthly, compared to 45% globally. A substantial 45% of the African workforce say that they have very little to nothing left over for savings, holidays and extras.

Of this year’s respondents, 20% comprise Gen Z (18–27 years) and 55% comprise millennials (28–43 years). This younger cohort of the workforce told us that they prioritise fair pay, fulfilment, flexibility and a collaborative working environment. 83% reported fair pay as being extremely important, especially given rising living costs and high interest rates. However, only 72% of those who rate fair pay as extremely important agree that their current job provides it, revealing a significant gap between employee expectations and actual workplace conditions.

Unlike developed countries, South Africa is struggling with unemployment, and job creation is often higher on the agenda than striving to pay a living wage. However, as corporate South Africa is waiting for the Companies Amendment Act to become effective in full, which will mandate public and state-owned companies to include wage gap ratios on an annual basis in their remuneration implementation reports, the topic is getting more traction in the boardroom.

Overview of wage gap disclosure requirements and implication of non-approval by shareholders:

In terms of section 30B of the Companies Amendment Act, all public and state-owned companies must annually prepare a remuneration report in respect of the previous financial year, to be approved by shareholders via an ordinary resolution at the AGM. The remuneration report must comprise the following sections:

1. Background statement
2. Remuneration policy
3. Implementation report inclusive of:
   • Total remuneration received by each director and prescribed officer of the company
   • Total remuneration of the highest paid employee of the company
   • Total remuneration of the lowest paid employee of the company
   • Average remuneration of all employees
   • Median remuneration of all employees
   • Pay gap between the highest paid 5% and the lowest paid 5%

(Total remuneration in this context means “all salary and benefits received including any employer contributions to benefit funds and any short- or long-term incentives including share options and incentive awards”.)

Unlike the remuneration policy which is subject to a vote every three years, unless there are material changes to the policy during the interim period which will automatically trigger a vote, the implementation report which will include wage gap disclosure, is subject to an annual vote. The sanctions for not obtaining shareholder approval (>50% support) are severe. 

At the next AGM after a failed implementation vote:

• The remuneration committee must present an explanation on the manner in which the shareholder concerns have been addressed; 
• Non-executive directors who serve on the remuneration committee must stand for re-election as members of the remuneration committee at this AGM; and

• Non-executive directors who serve on the remuneration committee must stand for re-election as members of the board i.e. the rotation is accelerated if they were not up for re-election that year already.

If there is a second failed implementation vote at the AGM:

• Non-executive directors who are members of the remuneration committee can continue to serve as non-executive directors (members of the board) if they are successfully re-elected at the AGM. 

• However, they will not be eligible to serve on the remuneration committee for the next two years.

• This rule does not apply to remuneration committee members who have served for less than 12 months during the year under review.

Companies need to consider the mandatory wage gap disclosure from multiple angles—as much as it is a legislative requirement, it is also critical to carefully consider the narrative disclosure that should accompany the wage gap disclosure to ensure appropriate information is provided to assist users' understanding of how it fits into the wider sustainability narrative.

Key steps companies should be thinking about now include:

^Sources:

^{[1] https://forwardfaster.unglobalcompact.org/living-wage#:~:text=Today%2C%20over%20a%20billion%20working,a%20decent%20standard%20of%20living}

^{[2] https://unglobalcompact.org/what-is-gc/our-work/livingwages} 

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