Remuneration practices have far reaching consequences

Employees’ personal finances for the most part, depend on their salaries. These salaries allow them to procure goods and services which stimulate the economy and ultimately form the life blood of the economy. These salaries, however, cannot simply be raised indefinitely in a bid to stimulate the economy (through increased demand), as the cost associated with these increased salaries will cause the cost of goods and services to rise (inflation). As a result, individuals would still only be able to purchase the same basket of goods as they did before, despite the increased salaries.

Employee remuneration is more often than not, the largest percentage of a company’s total expenditure. As a result, firms are highly concerned with their pay practices as they impact on their financial bottom line.

The pay practices of public (municipalities and State-owned enterprises (SoE)) and private sector firms differ significantly, particularly at the lower levels. According to 21st Century’ssalary database, Table 1 shows the pay practices of the public and private sector at each occupational level.

Executives have been left out of the analysis as the remuneration structure of private sector executives is heavily influenced by long-term incentives. The compa ratio of the public entities is expressed as a percentage of the private sector salaries e.g. at the A band the SoE salary is 192{89c704b6ff0aad18fdb44062a7ff3571399ce09f8d0f4dcf416dba855b1923ba} of the private sector salary and the municipal salaries are 231{89c704b6ff0aad18fdb44062a7ff3571399ce09f8d0f4dcf416dba855b1923ba} of the private sector salaries.

The median pay by grade at each grade has been calculated for each sector and has been expressed as a percentage of the private sector’s median total guaranteed package. The lowest occupational level (A Band) has the largest diversion in pay practices between the public and private sector.

At first glance, it may appear that the SoEs and municipalities pay these employees too much, but it must be borne in mind that the private sector’s low-pay level at this occupational level plays a significant role as well. The data would suggest that whereas the public sector seeks to pay low-level employees a liveable wage, the private sector which is profit seeking, ties pay to productivity more closely. A large contributor to this difference is that across all occupational levels, public sector employees receive larger benefits as a percentage of their basic salary (cash component of total guaranteed package).

The relatively high levels of pay enjoyed by public sector employees at the lower levels, results in there being significantly less inequality within the public sector compared with the private sector.

The Gini Coefficient and the 10 – 10 ratio are measures of income inequality. The Gini Coefficient ranges between zero and one, with zero representing absolute equality and one representing absolute inequality. The 10 – 10 ratio expresses the sum of the salaries of the highest paid 10{89c704b6ff0aad18fdb44062a7ff3571399ce09f8d0f4dcf416dba855b1923ba} of employees as a ratio of the sum of the salaries earned by the lowest-earning 10{89c704b6ff0aad18fdb44062a7ff3571399ce09f8d0f4dcf416dba855b1923ba} of employees. The larger this ratio, the more inequality exists. According to 21stCentury’s salary database, Table 2 summarises these measures within each sector (A, B, C and D band staff only).

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