Pulling the Woolies over our eyes.
How CEO of Woolworths earned 1000 times more than his workers while losing billions.
I had been given R20 in tuck money by my parents on a civvies day in grade 3. I was supposed to get R15, but I made a deal with them. If I got at least 16 out of 20 for my spelling test, they would give me an extra R5. The deal went through but I dropped the R20 note into a drain while walking to another class. I cried because I knew I would go hungry that day (like a stereotypical African child).
Now imagine a whole CEO losing R20 billion. Shareholders were definitely in tears, however the CEO still got the fat paycheck. If anyone should go hungry, it is him but that is not the way CEO and executive compensation works. The largest factors are annual revenue, number of employees, total assets and profit. The larger of each, the larger the pay. Most of the compensation comes from incentive packages. Woolworths pegged CEO Ian Moir’s remuneration to its share price.
In 2014, he spearheaded the deal to buy Australian retailer David Jones for R21.5 billion. From 2014 to 2016, the value of the company went from R46 billion to R26.5 billion. Meanwhile, Moir earned R49 million, R54 million and R35 million in 2015, 2016 and 2017 respectively. Handsome pay for ugly results.
On Payscale, a cashier at Woolworths earns just under R5000 per month in 2021. So big boss earned 1000 times more at one stage. No wonder the people working at the till are so grumpy.
The numbers
Ian Moir is just one of many executives playing the game. CEO pay has been shooting up for half a century. According to the Economic Policy Institute, CEO compensation has grown 940% since 1978 and typical worker compensation has risen only 12% during that time.
This happened while workers became more skilled and twice as productive. As shown below, it is clear this was not always the case. Wages generally increased in line with productivity until the 1980s.
The background
This coincided with the presidency of Ronald Reagan, the father of Neo-liberalism, from 1981 to 1989 and Margaret “the Milk Snatcher “ Thatcher, Prime Minister of the United Kingdom from 1979 to 1990. Their philosophies (Reaganomics and Thatcherism) both promoted ‘free markets’, small government, privatization and anti-labor reforms. This ushered in the “greed is good” era and more of the income pie went to the executives and senior managers.
South Africa decided to set sail on the boat of democracy and reconciliation with Neo-liberal winds behind it. This only exacerbated the wealth and income inequality in the country.
The ratio between CEO and average worker pay in 2018, by country:
United States - 265
India - 229
United Kingdom - 201
South Africa - 180
Is it any surprise that we find ourselves being the most unequal nation on record with us having the 4th highest CEO-worker pay gap? I do not think so.
The solution
The application of Neo-liberal policies has prevented workers from enjoying the fruits of their labor. The following policies could stop the further enrichment of executives at the expense of workers.
Minimum wage increase
Workers have increased their productivity but their wages have lagged behind. Significant increases in the minimum wage and a reduction in exemptions and loopholes can help ensure workers get a larger share of the value they create.
Maximum wage
This might sound crazy but there are many examples of it. Sports leagues utilize salary caps, which places a limit on the amount of money that a team can spend on players' salaries. Salary caps have the effect of promoting fair play and revenue sharing. The same concept could be applied to the executive team of a company.
Tax deductible employee training
Through the purchase and utilization of capital, businesses can deduct depreciation from their earnings to reduce their tax bill. This tax deduction should extend to employee training since workers are simply human capital. This would encourage businesses to up-skill their workforce, making them more productive.
Paid internships and apprenticeships could become tax deductible too. This would reduce unemployment in general and youth unemployment in particular which is 31% and 56% respectively.
Employee majority compensation committees
Executives have been able to get away with these outrageous compensation schemes since the compensation committee is usually made up of senior managers, directors and executives. By allowing employees at a lower level to have a say in executive compensation, it could curtail exorbitant remuneration.
Finally, these policies could go a long way to improving the quality of life and job satisfaction for millions of workers. This implicit wage theft has gone on for too long. Who knows, maybe the cashiers will smile more (underneath their masks of course)?
Interesting article.