South Africa, according to reports, has the widest income gap in the world. Picture: Independent Newspapers.
By: Johan Botes, and Shane Johnson
Wage gaps based on gender, race and ethnicity are on the radar of governments across the world. Addressing the disparity has become crucial to alleviating the growing socio-economic imbalances brought about by income inequality. This is especially true for South Africa, which has, according to reports, the widest income gap in the world.
Recently introduced regulations in major regions have focused on issues such as public reporting on pay gaps and transparency requirements and often include significant financial penalties for non-compliance. In the EU, organisations will soon face significant obligations under the Pay Transparency Directive (effective from 2026), while in the US, several states have introduced pay transparency requirements.
South Africa is considered to be one of the world’s most unequal countries when it comes to income. Research by Aroop Chatterjee, Léo Czajka and Amory Gethin found that, before taxes, the share of average income going to the top 1% of earners in South Africa increased by 50% in the period 1993 to019, while the income of the poorest 50% decreased by more than 30% after inflation.
South Africa’s Gini coefficient is a good starting point from which to locate the discussion. According to Statista, the Gini coefficient was forecast to be 0.63 in 2023, the highest in the world. The coefficient measures equality on a scale between 0 and 1. A score of 0 is perfect equality and 1 is complete inequality.
Unemployment in South Africa is one of the key reasons for the inequality. In the second quarter of 2023, the unemployment rate was 32.6%. Gender is also a factor. According to the latest World Economic Forum’s Global Gender Gap Report, South African women receive between 23% and 35% less than men for the same work. Statistics SA has similar figures, noting recently that the gender wage gap alone was about 30% across the board.
South Africa’s employment equity legislation obligates designated employers (employers who employ more than 50 employees or meet a certain annual turnover threshold) to report income differentials across race and gender groups. However, this is a confidential document submitted to the Department of Employment and Labour and does not have to be made public. In addition to complying with the legal requirements, forward-thinking employers address income inequality within their businesses by analysing data on pay differentials and conducting audits of their employment policies and practices.
Legislation
Recent changes to the Companies Amendment Bill (Amendment Bill), currently before the parliamentary portfolio committee on trade, industry and competition, highlight one of the government’s attempts to address the income inequality challenges. The amendments require that certain categories of businesses disclose information on the remuneration of their directors and prescribed officers. Companies must also disclose their employees’ average remuneration as well as the incomes of the top 5% of the highest and lowest-paid employees in the company.
Shareholders must also approve the company’s remuneration policy. As part of the portfolio committee’s deliberations, it was recently decided that JSE-listed companies would not need to disclose gender pay gap ratios. The stipulation was submitted as part of the process of public comments on the amendment bill and although the Minister of Trade, Industry and Competition, Ebrahim Patel, agreed to the addition of such a clause, it meant that the bill would have to be resubmitted for public comment, lengthening the time it would take for the bill to be implemented as law.
In the meantime, many businesses are taking a proactive approach to eliminating pay discrimination at work by engaging with their employees before implementing processes such as pay disclosure, pay audits and giving employees the right to access pay data. A new ILO study, Pay transparency legislation: Implications for employers’ and workers’ organizations, studied the gender pay gap and found that “pay transparency may provide workers with the information and evidence they require to negotiate pay rates and provide them with the means to challenge potential pay discrimination. For employers, pay transparency can help to identify and address pay discrimination that might otherwise negatively affect the functioning of the enterprise and their reputation”.
Conclusion
Businesses should consider income inequality across all business processes, ensuring that addressing the gap is prioritised during recruitment, on-boarding, training and team building, performance reviews, secondment opportunities, mentoring and succession planning. The focus should be on empowering employees to have not only equal pay for work of equal value but also, for example, equitable access to work opportunities and training, the right to capital assets, as well as access to targeted programmes that focus on, for example, women’s health and well-being in the workplace.
Equality demands a commitment to transparency, collaboration and empowerment. In South Africa, Minister Patel has said that the impact of the income inequality situation has become so critical that citizens expect the government to act. We can therefore predict that further laws and regulations around pay transparency will be announced in the coming years. Most people-centric businesses are not waiting to be guided by law and have begun implementing processes that will ensure equal pay and access to opportunity for everyone in the workforce.
* Johan Botes is a partner and head of the employment practice, and Shane Johnson is a senior associate of employment, at Baker McKenzie Johannesburg.
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