Western Cape Business News

Send  Share  RSS  Twitter  28 Feb 2012

SALARIES: Private Can't Compete With Public Sector


Recent Western Cape Business News

The continually escalating remuneration packages of senior employees in many government agencies and state-owned enterprises is diminishing the private sector’s appetite for appointing executives with government sector experience, according to a leading executive head-hunter.

We have noticed a hesitance on the part of private sector to consider senior appointments from the government and parastatal sectors, as the salaries of many executives are inflated way beyond the market average. Few companies in the private sector are able to match government packages, let alone offer a little more to entice someone to come on-board,” says Madge Gibson, partner at Cape Town-based Jack Hammer Executive Head-hunters.

Until about the mid-2000s, private sector salaries outstripped their public sector counterparts, making the private sector a more attractive option for senior managers.

But this has changed over the last few years. And although there are strict salary bands for positions in many government structures, this is not applicable across the board.

To put this into perspective, Gibson says that certain senior public sector jobs pay a premium of more than 35% over the same position in the private sector.

Someone earning a third more than his equal in the private sector - that is, about R3 million as opposed to R1.8 million or R2 million per year - has resulted in several government agency and SOE execs being priced out of the (private sector) market. And this salary discrepancy comes into play even before government-related perks are taken into consideration.”

According to the latest statistics, government’s wage bill currently encompasses 40% of all money paid to government by the taxpayer, which is evident in the large salary packages, golden handshakes and excessive extras that regularly make the news.

Gibson says that while the private sector generally runs a tight ship in order to manage costs and make a profit, which in terms of employment translates to the application of strict salary bands, the same economic restraint does not seem to be happening in all taxpayer-funded entities.

Initially, when the balance between private and public sector salaries started to shift, it was explained that the increase in public sector salaries was necessary to make working in the public sector more competitive and attractive. But this has been pushed to the extreme when you look at the large earning discrepancies between the two. Yes the public sector probably has to pay a little more to draw top talent to them, but once this imbalance starts affecting market competitiveness and has wider implications for the economy as a whole – someone has to put the handbrake on.


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