wage gap

Executive Pay under the microscope

What is deemed to be fair pay?

Executive pay remains one of the most discussed topics within remuneration.

The relativity of executive pay compared to other staff members is placed increasingly under the microscope as the world is faced with more evidence that wealth inequality is continually on the rise. 

In 2017, Oxfam International stated that the world’s richest 8 individuals held the same wealth as the poorest 50% of the world (3.6 billion people).

The 11th edition of the 21st Century EXECUTIVE PAY BAROMETER interrogates data taken from the Johannesburg Stock Exchange (JSE) and provides a measure of transparency as to the trends seen within JSE listed companies’ executive pay practices.

This article takes a close look at the fixed pay increases (Total Guaranteed Package) and the variable pay (short term and long term incentives) as a percentage of the Total Guaranteed Packages. The median increases of executive’s Total Guaranteed Packages (fixed pay) between March 2017 and March 2018 are detailed below.



Executive Directors within JSE listed organisations enjoyed the largest annual increases in their total guaranteed packages, followed by Chief Financial Officers. Chief Executive Officers received a median increase of 6.5%. According to the 21st Century Annual Increase report (September 2017) (https://www.21century.co.za/inflation-annual-salary-increases-and-wage-negotiation/), the median increase of general staff employees was between 6% and 7% depending on the industry that the employee works within. This means that of the three kinds of executives detailed within Table 1, only Chief Executive Officers’ received a median increase in their total guaranteed package that is below the upper limit of the general staff range. This means that the wage gap (difference between executives and general workers) continued to increase over this period except for the CEOs.


Extending the analysis to variable pay, there is a correlation between the size of the organisation and the percentage of the short term and long term incentives as a percentage of total guaranteed package. Variable pay is not guaranteed and is subject to performance conditions. As a result, there can be anomalies within this relationship as a result of personal and company performance.  The median percentage of short term incentives and realisable long-term incentives as a percentage of total guaranteed package (TGP) is detailed below.



Short term incentives by are paid out for a period of 12 months or less and therefore can be affected by a number of factors outside of individual performance such as economic performance, variations in demandand many other factors. As illustrated above, the general trend is that the short term incentive as a percentage of total guaranteed package is correlated with the job size. This is consistent with theoretical short term incentive design which sees the target percentage increase as the grade of the job increases. Anomalies are present within the CEO and Executive Director Medium Cap sample; however, these could have been caused as a result of the conditions attached to the schemes.


Long term incentives are another form of variable pay and are in place to reward performance which takes place over a period of 3 or more years (long term performance). Long term incentives are the least understood form of incentive and are often viewed in a negative light as they are almost exclusively available to executive / senior management and are based on some type of share valuation. As a result, these incentives are often accused of having a negative impact on the wage gap within organisations. Realisable long term incentives are the potential pay out that a person can expect to receive each year over the next 3-5 years – it is a theoretically calculated number.  


This analysis assumes a three year vesting period which means that this realisable value is not attributable to a single year but rather represents the potential value of the executive’s current shareholding (assumed to vest over three years). There is a correlation between the size of the organisation and the median realisable long term incentive as a percentage of total guaranteed package. This again is consistent with long term incentive scheme design principles as a larger percentage is targeted as the organisation size and job size increases.


It is important to note that ultimately, what is really important when designing an executive package is linking the pay mix to the desired outcomes of the business and ensuring that the total remuneration earned by the employee is in line with the company’s remuneration policy.

The most recent 21st Century Executive Pay Barometer indicates that the trends within executive variable pay of JSE listed is consistent with theoretical scheme design principles. However, executive pay remains a contentious subject within remuneration circles as there are two sides to the debate. Those that support the current executive pay practices believe that those executives deserve their pay levels given their skill level and the accountability that they take for the sustainable performance of their business. Those that are against current executive pay practices believe that their pay ratio compared to that of general staff is excessive and should be reined in.


This tension regarding what is deemed to be fair pay will ensure that executive pay will remain under scrutiny and that the debate will continue.

Written by:


Bryden Morton
Executive Director
B.Com (Hons) Economics
[email protected]


Chris Blair
B.Sc Chem. Eng., MBA – Leadership & Sustainability
[email protected]

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