Lessons from the platinum strike: the poison of inequality
- Gilad Isaacs
- 01 Jul 2014 11:27 (South Africa)
In a report Demanding the Impossible? Platinum Profits and Wage Demands in Context (see: the abridged version, the full version, or summary) published earlier this month with Andrew Bowman, we charted the profitability of the platinum sector and the distribution of rewards over the last fourteen years.
It was clear was that on average the platinum companies had done remarkably well over the last 14 years (in particular during a boom period between 2000 and 2008), that their shareholders had raked it in, and that labour had a very thin slice of the pie.
Between 2000 and 2008 operating profits of Amplats, Implats and Lonmin were more than double the average of the 40 biggest companies on the Johannesburg Stock Exchange and between 2000 and 2013 considerably higher than average. The “return on investment” (another measure of how well a company is doing) was at times 10 to 20 times higher than what is considered, by experts, a more than fair return for South African mining houses.
Workers reaped few of the benefits. An analysis of “value added” (which can be thought of as the monetary value left after production costs) shows in the boom years labour on the platinum belt got only 29% compared to 51% in South Africa as a whole. For the whole period, in the three companies, labour’s share was 38%.
If labour got a smaller share in the platinum sector to the economy-wide average, then the platinum sector was contributing towards increasing inequality in the economy above the already high levels that prevail.
Inequality is measured by the Gini Coefficient, a standardised global measure of inequality ranging from 0 to 1, with 0 the most equal and 1 being the most unequal. South Africa’s Gini Coefficient of 0.699 makes us one of the most unequal countries on the planet.
Such stark disparities are clear on the platinum belt.
In 2013 the CEO of Amplats, Chris Griffith, earned R17.5 million. The average total package of the 35,000 A and B level employees (the lowest wage bands) at Amplats is approximately R137,500 (R11,500 per month).
This means that in 2013 Griffith earned 127 times more than those workers, and 185 times more than the very lowest paid. This excludes the R16 million worth of shares Griffith holds.
According to a PriceWaterhouseCooper (PwC) report for JSE listed companies the average CEO earns 54 times as much as the lowest-paid workers in those companies.
But there are other dimensions to inequality. Of particular relevance is the difference in overall wealth, not just wage income. The Gini Coefficient for financial wealth – the holding of financial assets like company shares – is 0.951; this is truly remarkable.
The reason this is important is that shareholders and executives get rich not only from their salaries but from the financial assets they own.
During the platinum boom, shareholders took home dividends well in excess of the economy-wide average. Between 2000 and 2013 Amplats and Implats shareholders received R48 billion more than the economy-wide average; for Lonmin it was over R6 billion. Startlingly, in the case of Implats more was distributed to shareholders than was given to the entire workforce during the 2000-2008 period: approximately R48 billion to shareholders and R43 billion (in 2013 prices) to workers. The situation is similar at Amplats, where labour received approximately R91 billion, about the same amount distributed to shareholders, with Lonmin at R25 billion to shareholders and R34 billion to labour.
Dividends become almost a sideshow when one looks at the share price which has been enjoying as much as a twelve-fold rise – if you bought an Implats share for R100 in 2000 you could sell it for R1,200 in 2008 – again far in excess of the JSE Top 40.
There has been an increasing trend to tie executive pay and bonuses to the company’s share price, which provides a perverse incentive for executives to prioritise short-term “shareholder value maximisation” over long-term investment and wages. One way this is promoted is by giving executives shares in the company.
In South Africa as a whole, the percentage of the total guaranteed package of executive directors paid in the form of company equity (company shares) rose from 3% in 2004 to 23% in 2011.
At Amplats a Bonus Share Plan was introduced in 2004, which together with a Long Term Incentive Plan, aims to more closely align the interests of shareholders and executives. Through these schemes, executives receive a combination of cash bonuses and company shares in addition to their normal wages and benefits.
As of December 2013, ten current and past executives held shares worth R136 million that can be sold at a later date. R16 million of this belonged to Griffith.
If inequality is greatest when it comes to financial wealth, then the platinum sector is a leading example of this, where workers got a thin slice and executives and shareholders made enormous gains.
The mineworkers who downed their tools wouldn’t have known these statistics but the level of inequality on the platinum belt and workers’ anger over this has been widely reported. This anger fuelled their militancy during the strike.
The gains from the strike are significant, with average percentage increases, over the three years, on basic wages of more than 15%, and on the total package of almost 11% (see here for an analysis of the wage offers, demands and settlement). It has also emboldened workers; a strike that ended with a crushing defeat would have been devastating for labour militancy countrywide.
This said, the outcome has not altered the fundamentals of the sector, and will unfortunately not resolve the stubborn problem of inequality. If Griffith’s salary at Amplats increases in line with inflation, at the end of the wage agreement period he will still be earning 155 times more than the lowest paid workers - and previous increases in executive pay suggest it may rise at a far higher rate.
The platinum strike has served as a microcosm of South African inequality: thousands of poor black workers, high returns for shareholders, the owners of capital, and lavish rewards for a small corporate elite. DM
- The Gini Coefficient data can be found in detail here.
Gilad Isaacs (@GiladIsaacs) is an independent economist and researcher.