Salarygate: Throw away Animal Farm syndrome

CABINET’S move to cap salaries for chief executives officers (CEOs) and top managers of parastatals, public enterprises and local authorities at an interim maximum total pay package of US$6 000 per month following public outrage triggered by media revelations that some bosses were earning “obscene” salaries may have appeased an angry public, but has raised questions of legality and unintended consequences.

Owen Gagare

The move has also raised the issue of the need for a comprehensive framework to govern the remuneration of public office bearers and mangers of state-owned enterprises as they do in other countries.

It is mostly accepted it was morally wrong for managers of parastatals to rake in huge salaries at a time public entities were mired in serious debt resulting in their failure to pay workers and meet their service delivery mandates, while also heavily draining on the fiscus as the economy remains stuck in the doldrums.

A pay schedule released by government last week shows former chief executive of the Premier Service Medical Aid Society (Psmas) Cuthbert Dube was earning US$535 000 per month, comprising US$230 000 as basic salary and US$305 499 in benefits. This was despite the fact Psmas had a US$38 million debt to various service providers, while it also owed the Zimbabwe Revenue Authority about US$40 million in tax arrears.

Other struggling parastatals and local authorities, among them the insolvent state-owned Zimbabwe Broadcasting Holdings, were also paying their managers huge salaries, while in some cases struggling or failing to pay workers for months.

Most parastatals have become perennial loss-makers although Finance minister Patrick Chinamasa said they used to contribute 40% to Zimbabwe’s Gross Domestic Product, hence the huge public outcry over exorbitant salaries.

While Chinamasa’s moves were welcome, they also raised serious issues which analysts said must be addressed. These include the one-size-fits-all approach, labour issues and the need for a holistic and not piecemeal approach to deal with the issue.

Analysts say putting a cap of US$6 000 for all parastatals, public enterprises and local authorities did not make sense given different sizes of the organisations, budgets, responsibilities and skill requirements. They said the fixing of the salary at that level may be enough in some cases, but also counterproductive where experience and skills at a higher level are needed.

Although labour experts agreed there was a need to rationalise salaries in public entities, they said government’s approach, however, appears to be in clear contravention of the Labour Act and the constitution.

Labour expert Rogers Matsikidze said although the salaries of parastatal bosses were not justified, government’s action could be counter-productive.

“For government to wake up and say there is a salary cap of US$6 000 is worrying. The salaries being earned were provided for in terms of employment contracts negotiated between employee, management, local government or parastatal boards,” Matsikidze said.

“If you want to review the salaries, you have to go through the same structure that gave the salary and come to a consensus with the affected party. If there is no consensus, then you can buy them out of their contracts or agree to part ways through retrenchment or other ways.

“There is need for corrective action to be taken, but it’s another thing to say this is wrong and another thing to correct. The directive borders on arbitrariness and not rule of law. If a judge, for example, sees a man killing someone, and that man is brought before him for trial, does he says ‘there is no need for a trial because I saw you killing’?”

Matsikidze said government could also go to court and argue that a certain salary is contrary to public policy if no agreement is reached on mutual reduction or mutual termination.

“The point is: although certain salaries cannot be justified, government still has to do things the right way. Let’s follow the laws which we have put in place,” he said.

Zimbabwe Congress of Trade Unions secretary-general Japhet Moyo said his organisation was puzzled as to how government had arrived at the blanket US$6 000 cap, although it agreed some of the salaries were totally irrational.

“The challenge we have is that we have collective bargaining agreements in some sectors,” said Moyo.

“Some middle managers were earning up to US$5 000 as a result of collective bargaining agreements and it looks like they will be affected by the directive. The question is whether the affected people are going to accept that or not, but it looks like the government might be treading on a legal minefield.”

It is instructive that, announcing the new remuneration policy, Chinamasa admitted the cabinet committee tasked with dealing with parastatal salaries was still carrying out investigations.

He said the overhaul of parastatal perks would only be completed after the Auditor and Comptroller-General has audited all state enterprises by examining books dating back to the start of dollarisation in February 2009, which is likely to take a long time.

A bruising fight appears to be on the cards as some local authorities, among them Harare City Council, have already indicated they would ignore the government’s directive saying the order was against the country’s labour laws. They insist they would not act impulsively as they stand guided by the country’s constitution and labour laws.

An analyst who preferred anonymity said the Zimbabwe government must look into what other countries have already done to deal with the issue comprehensively.

China and Norway, for instance, have already tackled the issue. The southwestern Chinese metropolis of Chongqing, for example, came up with regulations to limit salaries of executives at companies it controlled to 10 times that of ordinary employees. The Norwegian government a few years ago came up with new regulations and guidelines on remuneration for managers of state-owned entities. In Singapore, there are guidelines on how politicians, including ministers, are remunerated.

This was all done to avoid what some analysts call the “Animal Farm syndrome”.

Closer home, South Africa has been battling with the issue in recent years. In South Africa, concerns regarding excessive remuneration packages of CEOs have come on top of longstanding community grievances about the widening gap between the remuneration of executives and other employees, as well as some large termination payments with perceived lack of justification.

Public opinion polling over the years consistently showed that most respondents believe executives were overpaid.

But South Africa tried to deal with issue straightaway when the new post-apartheid constitution came in.

With the promulgation of its new constitution in 1996, (Act 108 of 1996), Section 219 thereof prescribed that an Act of Parliament should establish a framework for determining the salaries, allowances and benefits, or upper limits thereof, as the case may be, of certain public office bearer positions.

As a consequence, the Independent Commission for the Remuneration of Public Office Bearers Act, 1997 (Act 92 of 1997), established a commission to make recommendations concerning the salaries, allowances and benefits of defined office bearers.

The first chairperson appointed in terms of this Act was Justice JH Steyn, who served as from August 21 1998 to April 30 2000, and was succeeded by Justice RJ Goldstone. Justice Goldstone served until March 31 2004, and was succeeded by Deputy Chief Justice DE Moseneke from April 1 2004 until March 31 2009. Deputy Chief Justice Moseneke was succeeded by the current chairperson Judge LW Seriti.

South African Finance minister Pravin Gordhan is on record criticising the “unacceptable” rate at which South African chief executives, including those of state-owned enterprises, awarded huge salaries to themselves, saying this practice was a “recipe for future disaster”.

The fat salaries created a dangerous culture and deepened the divide between rich and poor, he said.

Speaking in the South African parliament in Cape Town, Gordhan said the remuneration committees and boards of directors had to be “kicked out” of their current mindset and new parameters established because “extreme earnings disparities cause offence not just when they are associated with profiteering or financial malfeasance, but also when the reward for honest work seems disproportionate or weakly aligned with incentives”.

South Africa’s Public Enterprises minister Malusi Gigaba has also said his country needs a “genuine discussion” about preposterous pay scales enjoyed by top management.

Analysts say Zimbabwe also needs the same debate to ensure there is a body to provide independent assessment and recommendations on the remuneration and conditions of service for public office bearers, including CEOs of state enterprises.

The body is important, analysts say, as it would promote a democratic, open and transparent process through which public office bearers are remunerated to avoid the current situation where public enterprises — already run down through extended period of mismanagement and corruption — are milked dry by greedy executives and managers who do not even provide meaningful services to the public and economic benefits to the country.