Is a CEO really worth R28 million per year?

The latest annual reports from MTN and Vodacom show that MTN CEO Sifiso Dabengwa earned R28 million last year, while Vodacom CEO Shameel Joosub earned R21 million.

These high salaries sparked debates regarding income inequality, and why these CEOs earn so much more than their employees.

There are also initiatives to try to introduce a maximum wage. In Switzerland, for example, there was a referendum on capping executive pay at 12 times what the lowest-paid worker earns.

While the Swiss voted against a maximum wage, it showed that there is concern about high executive salaries.

However, there are good reasons for high CEO salaries. Capping executive salaries can limit a country’s competitiveness, reduce tax revenues, and drive top execs to look for jobs elsewhere.

The value that a great CEO brings to a company is also enormous. Look at Steve Jobs – he took Apple from near bankruptcy in the mid-nineties to the world’s most valuable company.

South Africa’s Whitey Basson is another example. He turned Checkers around from a massive loss-making company to a profitable entity, and in the process saved 16,500 jobs.

Basson also grew the company to become the largest food retailer in Africa, comprising of 1,649 stores in 15 countries – employing just under 130,000 people.

Basson’s 2011 pay package of R627.6 million is therefore not even close to the value which he brought to the company.

As Shoprite chairman Christo Wiese said: “If I could find another Whitey Basson, I would happily pay him a billion. A guy with his talent is terribly rare. And the performance is there”.

Apart from the value to a company, there is an even bigger reason to pay a CEO well – what happens if they join a competitor.

A great CEO knows their industry well, and can easily grow a company and make it more competitive. The impact on its competitors can be massive.

Just look at what former Vodacom CEO Alan Knott-Craig did when he took over as Cell C CEO. He significantly dropped voice prices, and Vodacom and MTN were forced to follow.

Knott-Craig also played a big part in dropping mobile termination rates to their current levels, which is costing Vodacom and MTN billions in profit.

In hindsight it would have been a bargain for Vodacom and MTN to pay Knott-Craig tens of millions to stay retired, even if it was just to delay the inevitable change in the mobile market.

In short, great CEOs are worth every cent they earn. They grow companies, they create jobs, they create wealth, and they contribute massively to taxes through higher company profits.

Just like our top athletes like Chad le Clos, Kevin Anderson, Duane Vermeulen, and Bryan Habana, we should celebrate our top CEOs who create world-class companies.

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Is a CEO really worth R28 million per year?