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The philosophy behind obscene CEO remuneration sharpens the spear of economic inequality

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Cedric de Beer is a self-employed consultant with a lifelong engagement with social and economic justice in South Africa and on the African continent.

The argument used by the likes of Neal Froneman to defend their enormous remuneration is precisely the philosophy that has brought us to the greatest level of inequality across the globe in more than a century.

Neal Froneman’s explanation of his R300-million remuneration in the previous financial year is more interesting for what it tells us about the economic system in which such an argument makes sense, than for what it tells us about the man himself.

Read in Daily Maverick: “Sibanye CEO Froneman explains R300m remuneration package 

First, he makes the point that “my salary is only a very small portion of that (R300-million) and, in fact, it was something like R28-million”.  While this is true (the salary is less than 10% of total remuneration), it is also bizarre. To describe an annual salary of R28-million as a “very small” anything in the context of a dispute over R150 per month per worker, is as stark a reminder of the inequalities baked into the South African economy as one might ask for. 

If we assume entry-level salaries among mine workers at R10,000 per month, that means the CEO remuneration is 233 times that of the lowest-paid mine worker in a year with no bonus – and I doubt whether there have been any such years. This year, it just happens to be about 2,500 times greater.

Froneman justifies this on the basis that it’s not the company that is paying him, but the shareholders – as if this money somehow settles on him like manna from shareholder heaven. It is, of course, profits generated by the company that result in increases in the value of shares that result in the payment to Froneman – and one important cost to company that determines those profits is wages paid to workers. So there really is a direct relationship between workers’ wages and the CEO’s bonus.

Froneman’s arguments are completely embedded in the economic paradigm nurtured by Milton Friedman and unleashed on the world in the 1980s: that the purpose of business is generating maximum profits for shareholders and that the executives who achieve these goals should be handsomely (or beautifully?) rewarded. This neoliberal philosophy suggests that when this happens, the benefits will trickle down and all boats will rise. So does Froneman: “If we think we are going to reduce inequality by reducing executive remuneration, then we are all making a very big mistake. We actually have to reduce inequality by lifting up the bottom end of the business. And we can only do that by being prosperous.”

This is precisely the philosophy that has brought us to the greatest level of inequality across the globe in more than a century. It has left middle- and working-class Americans worse off than they were in the 1970s and brought unimaginable wealth to the very few – who, of course, sing the praises of this system and tell us it is best for everyone.

Elsewhere, I have seen Froneman plead a kind of helplessness – suggesting that his pay is set by a remuneration committee and determined by the market – as if they are all helpless playthings of the “hidden hand”.

The truth, of course, is that if the shareholders are willing to fund Froneman’s share options and those of his fellow executives which yielded total bonuses of a little more than R676-million in 2021, then they could, in a different world, decide to do something different with this value that they are willing to sacrifice – profit shares with workers, or various forms of employee shareholdings yielding short-term benefits in the form of dividends for workers and building generational wealth as a contribution to reducing inequality in broader South African society.

This is hardly a radical proposition. KKR private equity in the US has granted $500-million in shares to employees in eight industrial holdings over the past few years. They recently sold C.H.I Overhead Doors, with most employees getting upward of $175,000 from the sale. See here. Peter Stavros, the KKR partner who has led these initiatives, insists that the companies do better, their employees are more engaged, and health and safety in and out of work improves, along with the employees’ general wellbeing. Stavros has launched a non-profit organisation called Ownership Works, and seeded it with millions of dollars of his own money, to “build a movement” for employee ownership.

It would make a pleasant change to see business leaders in South Africa committing to creative ventures aimed at genuine inclusion, rather than engaging in a tactless and tone-deaf defence of the discredited trickle-down theory. BM/DM

 

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All Comments 4

  • Great article, Cedric and nicely maneuvered away from a personal attack on Froneman and more a critique of the sick system.
    It’s a load of BS that we would see a CEO drain. SA exports a significant number into international arenae and is reflective of skills worked hard at attaining. Looking for R300m, go offshore!!

  • It would make a pleasant change to see labour leaders in South Africa committing to creative ventures aimed at genuine productivity, rather than engaging in a tactless and tone-deaf defence of the discredited trotskyite theory.

  • This is the first sound comment I am reading on this critical topic. The CEO “earning” 2500 times more than the lowest paid mine worker is insane. In addition, Froneman is contradicting his own statement “We actually have to reduce inequality by lifting up the bottom end of the business,” by denying the increase the unions are aiming for. To me, it appears that at times hypocrisy is more prevalent than common sense among some top executives.

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