In a recent Financial Mail magazine article, our Managing Partner and Lead Certified Sustainability Assurance Practitioner, Michael Rea highlighted a confrontation with labour broker Adcorp over the calculation of the “wage gap” between executives and staff. Adcorp, initially criticised by IRAS for having the highest “income disparity ratio” on the ISE, contested the calculation, arguing that temporary workers should be excluded from the comparison.

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“Michael Rea, the feisty and somewhat anarchic founder of sustainability consultancy Iras, tells an alarming tale of how labour broker Adcorp tried to lean on him last year.

On the surface, it seems like a salacious spat between Rea and Adcorp over how to calculate the “wage gap” between executives and staff. Dig deeper, though, and you hit a vein of bubbling anxiety in our corporate sector over how this gap is measured, and the odds of a backlash over how fast this disparity is rising. This tale stems from Iras’s report last year, which ranked Adcorp as the worst on the ISE for its “income disparity ratio”, based on Rea’s calculation that its executives had earned, on average, 595 times what its average employees earned in 2021.

After the FM reported this finding. Rea says he was called by Adcorp CFO Noel Prendergast, who “all but threatened us with legal action if we didn’t retract our statements”. Now, anyone who’s spent more than 10 minutes with the fiercely independent Rea can see how this would backfire. And it has: Rea devotes much ink in his new 200-page report, released this week, to carving up Adcorp. “When [Prendergast] called Iras to their offices last year, as if we were the abhorrent student being called to the principal’s office, we were fully prepared. They weren’t,” he writes.

Prendergast argued that Rea had used the “wrong information”: as Adcorp is a “workforce solutions” firm (it hates the term “labour broker”) it has 47,459 people on its books. But because most are “temporary” workers, it’s misleading to use this number in calculating the wage gap, he said. Adcorp CEO John Wentzel elaborates on this to the FM: “It’s true that our annual report specified 47,459 people, but many work part time, so you can’t compare this to the 1,959 full-time staff – it distorts the calculation.”

It’s a reasonable argument. But Rea says that before releasing his report last year he’d sent his findings to Adcorp’s company secretary, who ignored him, saying. effectively: “We saw your emails, but we didn’t think your research was consequential.” “Oops,” writes Rea. “Our guess is that they won’t make that mistake again. In fact, they’ve decided to make new ones.” Specifically, Adcorp has now reclassified these 44,774 “temporary” workers as “contingent employees” – a characterisation Rea rails against. “Where the hell are we, and what year is this? Why does Adcorp believe it’s OK to treat people as anything less than an actual ’employee”?” he says.

The bottom line: by excluding contingent’ employees, Adcorp has reframed this wage gap to now show that executives earn, on average, 18.6 times that of the average employees. Rea is contemptuous of this. “In some respects, I kinda like the term contingent, because as a middle-aged single man I’m no longer seeking a permanent/full-time wife’, but rather a ‘contingent wife.” And he goads Adcorp by asking whether this makes “contingents” the corporate equivalent of prostitutes.

Wentzel is spitting mad over this. “That’s completely beyond the pale,” he says. “I found it very disrespectful to compare our employees to prostitutes, when they’re just trying to feed their families.” Wentzel says “contingent workers” is a better description for part-time workers. “We don’t treat them differently; they’re not a ‘subcategory’ of employees; this just reflects the seasonality of work, like over Christmas, when retailers need more staff,” he says.

But what makes this fracas important is that it’s emblematic of the practical difficulties, and political tensions, over calculating the “wage gap”. As Rea says, this gap “tends to be an extremely useful benchmark of economic fairness“, but you also have to be nuanced in determining what is “fair” Consider this contrast. At Shoprite, the average executive earned 230 times what the average worker did – equalling their annual salary by 2pm on January 2. Yet at Investec, the average executive earned only 23 times that of an average worker. Still, in real numbers, Investec CEO Fani Titi earned R179.8m, while Shoprite CEO Pieter Engelbrecht earned R64.6m.

Tracey Davies, director of Just Share, says the purpose of disclosing this number isn’t to compare companies across industries. “Investec employs a greater number of skilled people than Shoprite. But these numbers allow us to see what’s happening, and interrogate these issues, to try to reach a fair outcome.” This debate is given added relevance as proposed amendments to the Companies Act would oblige firms to disclose the “average remuneration of all employees”, as well as the gap between the 5% highest-paid and the 5% lowest-paid staff. Already, some companies do publish that number, including Cashbuild, Anglo American Platinum, Harmony Gold, Life Healthcare, Metair, Premier Fishing, Sibanye-Stillwater, Spear Reit and Shaftesbury.

Adcorp isn’t among them, but Wentzel says: “We’ve never had a problem with disclosing that number, and would support it.” Davies says when a company isn’t paying a living wage while its CEO is paid R100m, investors should care, as it speaks to the country’s extreme inequality, which hampers economic growth.

It’s a point made by Rea in his new report, which ranks all 252 ISE-listed companies on 264 ESG indicators. Overall, Iras’s top performers are miners Sibanye-Stillwater and Kumba Iron Ore, followed by Metair, Nedbank, Amplats and Pick n Pay. The worst are the Mauritius-based investment firm Universal Partners, hospital group Advanced Health and zinc explorer Europa Metals. Rea’s research shows that for the first time, the average score across the JSE is higher than 50% – an indication of progress. This is partly due to greater public scrutiny, he says.

“New users of sustainability reporting appear to be emerging. inclusive of Julius Malema and his merry band of Economic Freedom Fighters, which is great news for those of us wanting more political pressure to weed out excessive corporate greed and social and environmental harm.

SOURCE: https://www.businesslive.co.za/fm/opinion/editors-note/2023-11-09-rob-rose-mind-the-wage-gap/