Dramatically reducing CEO and executive pay in the face of an ever increasing salary gap with entry-level workers would be less effective than company interventions to enhance employees’ financial well-being and make their money go further, a PwC report suggests, reports moneyweb.co.za.

In its report on trends in executive director remuneration, PwC found that the CEOs of South African-listed companies earn on average x150 more than entry-level workers, with larger company CEOs earning x300 more. To combat this, PwC suggests that senior management pay should be treated with restraint; increases should be modest; focus must be placed on the link between pay and performance, and extremes of pay from inappropriate bonus and share plans avoided.

However, the professional services firm warns: “[There is] limited room for dramatic decreases in local CEO pay without the risk of losing leadership talent to developed countries.”

In countries, such as the US and UK, the ratio of CEO pay to average company pay is significantly higher than South Africa’s x73, according to research from fund manager Mergence. The US and UK weigh in at x164 and x93 respectively while better performers are Norway (x30), Australia (x55), and India (x32).

Loane Sharpe, labour economist at recruitment firm Adcorp, said that the 24% average yearly returns delivered by South African companies on shareholder funds was highest out of 134 countries in the world: “The key driver of corporate performance on that staggering scale is the incentives that exist for executives to deliver that performance. A trend towards greater regulation of the remuneration of executives will, by implication, cap corporate performance and therefore economic performance in general.”

PwC argues that dramatically increasing worker pay without a parallel increase in productivity does not make good economic sense. It said employers should instead address certain socio-economic factors that detract from workers’ quality of life. For example, use their buying power to procure essential goods and services needed by employees; such as food, housing, transport and education, to improve the quality of their lives at cheaper prices.

“The costs that large organisations are able to negotiate on behalf of their employees are dramatically lower than those offered to individuals,” PwC stated, maintaining that companies should also more thoroughly investigate expenditure requirements of entry-level employees to ensure they are, in fact, paying them a ‘living wage’.