Employment equity: internal equity & external parity in measuring pay

Measuring ‘external parity’ and ‘internal equity’ is an essential function of management.   Section 27 of the Employment Equity Act of 1988 creates a framework (EEA 9) obliging the management of every designated employer to state the remuneration, including all benefits, in each occupational level of the business, from top to bottom, to ensure there are  proportionate income differentials in the business.

“THE ultimate worth of any job is the organisation’s ability to pay for it.   No policy, rule or regulation can change this reality and directors who agree to pay increases regardless of the risks to an organisation should be called to account”.

Daan Groeneveldt’s article in Business day today Employment equity: Proper pay-gap analysis the key to workplace harmony is an important contribution to the debate on the so-called ‘wage-gap’ and concern about ‘executive pay’.

Eskom is taken as an example:

“To illustrate the effect of measuring internal equity: last year, the salary of the CEO of Eskom was increased to R4,96m.

This increase drew much criticism from the Congress of South African Trade Unions but the fuss did not amount to much more than the usual emotional outburst.

However, had the unions used this information as a benchmark to calculate the proportional entry pay level (according to the current EEA9 reporting framework), they would have been able to set their starting position for an entry-level job at R109602 — assuming that the R4,96m was the total cost (including bonuses) of the job of CEO.   This would certainly have focused the attention of management, as a starting pay level of R109602 would have been way above the initial demand of the workers, and clearly it is also wrong.

But this pay level is not a thumb suck; it is based on information in the public domain regarding the cost of the job of the CEO and an established human resource measurement process that incorporates the logic and requirements of section 27 of the Employment Equity Act.

The Eskom example shows a measured pay gap in which the highest-paid employee earns 45,26 times more than the lowest-paid.   Meanwhile, research by PricewaterhouseCoopers shows that, in some cases, pay gaps are in the order of 250-300 times.

As the normal pay gap between a CEO and an entry-level worker is about 90, the Eskom illustration raises some questions”.

The article concludes by stating that there are international standards to measure or determine internally equitable pay differentials and suggests that the accuracy of the current framework (EEA 9) needs to be questioned.

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