Can we afford our state owned companies’ CEO’s?

The R30 million Brian Molefe pay-out scandal has littered the front pages of news publications in recent months. That in addition to the reports of financial failure at South African Airways (SAA), has made a strong case for the evident mismanagement of South African state owned entities (SOE). Yet, their CEO’s are still earning in the region of six figures. Can our economy afford it?

According to Econometrix CEO, Mike Schussler the answer is not clear cut.

“I cannot say if we can afford a specific CEO salary but CEO’s do receive a high level of pay for a reason. They generally do not last long and they generally have much more responsibility. Some CEO’s are overpaid and some are underpaid. A CEO’s salary is not a welfare check, it is a reward for people who must make critical decisions. The difference between lower paid employees and CEO’s is another matter altogether in my mind. We need to make sure we get the best people for a job and not political appointments,” added Schussler.

But with government’s recent plans to sell their Telkom shares in order to raise R10 billion to bail SAA out yet again, the question begs of whether or not we can continue in this vein.

Schussler said, “No we cannot. SAA is in deep trouble and it is unclear if they will be able to survive even if South Africa bails them out again. The cash burn rate is about R700 million per month. Even if halved to say R350 million per month it will be two and half years and another bailout will be needed. We need to get SAA off government books and get them to behave like any other airline. They need less staff and far fewer free flights to politicians and members of the SAA family.”

He further added that one CEO can make a difference but it is not going to work with just one CEO for long. He needs support for retrenchments and the board needs to support that too. They need to stop flying “political” routes and they need to get more professionals in state owned operations.

When asked on the suggested way forward, Schussler stated: “Professional appointments need to be made first at board and management level and a clearly defined business strategy needs to be implemented that is not to be confused with a development strategy or welfare.”

“SOE’s are companies first and need to serve South Africa in that way. Eskom at least needs to be broken up into a few generating companies and a distribution company. Then we need to be able to buy power from whom ever is cheapest at that hour. So independent producers can come in.” –who said this?

He believes that Transnet needs to be split into Rail and Harbours. Harbours need clear pricing guidelines and monitoring as they are a monopoly, and do cost SA in terms of import prices and export volumes. Further, ACSA (what does this stand for?) needs to lower prices and not increase the value of their assets every year to charge more money.

“All SOE’s need to be made more business-like, and professional appointments rather than political appointments need to be made. We have 700 SOE’s. Some need to be sold or made departments of the state again. We should not allow monopolies as far as possible,” he suggested.

The bottom line according to him is the need to make SOE’s more viable or they will end up hurting the tax payer.