University of Cape Town Proportionate Income Differentials: A Long Walk to Social Justice A case study on the Entgeltrahmenabkommen (ERA) Baden- Wuerttemberg, a general agreement on payTown grades, that seeks to achieve pay equity in this region of the German metal and elec- trical industry and a critical evaluation of how this model can Cape assist in the implementation of section 27 of the Employment of Equity Act (EEA) of South Africa. by University Dr. Ruediger Helm (HLMHEI002) LLM Thesis Submitted on: 13 March 2017 Supervisor: Prof. Dr. Debbie Collier Second assessor: Prof. Dr. Manfred Weiss The copyright of this thesis vests in the author. No quotation from it or information derived from it is to be published without full acknowledgement of the source. The thesis is to be used for private study or non- commercial research purposes only. Published by the University of Cape Town (UCT) in terms of the non-exclusive license granted to UCT by the author. University of Cape Town Proportionate Income Differentials, p 2 of 186 Plagiarism Declaration 1. I know that plagiarism is wrong. Plagiarism is to use another’s work and pretend that it is one’s own. 2. I have used the footnoting convention for citation and referencing. Each contribu- tion to, and quotation in, this opinion from the work(s) of other people has been at- tributed, and has been cited and referenced. 3. This opinion is my own work. 4. I have not allowed, and will not allow, anyone to copy my work with the intention of passing it off as his or her own work. Signature ______________________________ Proportionate Income Differentials, p 3 of 186 Abstract ...................................................................................................................................... 6 1. Introduction ............................................................................................................................ 8 1.1. Presentation of the problem ........................................................................................... 11 1.2. Research question .......................................................................................................... 22 1.3. Methodology .................................................................................................................. 25 1.4. Structure of the thesis .................................................................................................... 26 1.5. Conclusion ..................................................................................................................... 27 2. Income inequality in South Africa: a legislative history and the global context ................. 29 2.1. The genesis of income inequality .................................................................................. 29 2.2. Legal measures underpinning racial discrimination ...................................................... 32 2.3 Views and attitudes as a source of a pay gap .................................................................. 42 2.4. South Africa in global context ....................................................................................... 45 3. Analysis of the current legal framework in South Africa .................................................... 55 3.1. Legal methodologies to address inequality .................................................................... 55 3.2. Section 27 of the EEA ................................................................................................... 58 3.3 Proportionality ................................................................................................................ 61 3.4 When are vertical income differentials proportionate? ................................................... 67 3.5 The potential of section 27 EEA ..................................................................................... 68 3.6 The Louw Case: The need for criteria for Job evaluation. ............................................. 71 3.7 The EP Code, the HR Code and the Regulations. .......................................................... 73 3.8 The link to ERA .............................................................................................................. 77 4. The ERA Agreement its context and development .............................................................. 78 4.1 The genesis of the ERA Agreement ............................................................................... 78 4.1.1 The key-demands ..................................................................................................... 79 4.1.2 The perception of management and works councils ................................................ 81 4.2 The collective labour law profile in the German private sector ..................................... 83 4.2.1 The Constitution or German Basic Law (GG) ......................................................... 84 4.2.2. The Works Constitution Act (BetrVG) ................................................................... 85 4.2.3 The Co-Determination Act (MitbG) ......................................................................... 86 4.3 Collective bargaining in ERA in the German metal and electrical industries ................ 87 4.3.1 Decentralized regional bargaining structure ............................................................. 87 4.3.2 Types of German employer organisations ................................................................ 87 4.3.2.1 Solely service providers ........................................................................................ 88 4.3.2.2 Collective bargaining orientated service provider ................................................. 89 4.3.2.3 The proactive framers ............................................................................................ 90 4.3.4 The role of decentralisation for the success of ERA ................................................ 91 4.3.5 Scientific research .................................................................................................... 92 Proportionate Income Differentials, p 4 of 186 4.3.6 Well-embedded in their environment ....................................................................... 92 4.4. The ERA Agreement in Baden-Wuerttemberg – its norms and benchmarks for wage finding ......................................................................................................................... 93 4.4.1 The term general agreement on pay grades .............................................................. 94 4.4.2 The principle of cost neutrality of ERA ................................................................... 95 4.4.2.1 no nominal income losses for the employees ........................................................ 95 4.4.2.2 Cost neutrality security .......................................................................................... 97 4.4.3 The core elements of ERA in Baden-Wuerttemberg ................................................ 98 4.4.3.1 Three elements of pay ......................................................................................... 99 4.4.3.2 The basic pay – 17 pay categories ....................................................................... 100 4.4.3.3 The conflict resolution mechanism ..................................................................... 107 4.4.3.4 Performance-related pay ...................................................................................... 108 4.4.3.5 Allowance for stresses and ambient influences ................................................... 110 4.4.3.6 Role and number of pay category examples ....................................................... 111 4.4.3.7 Conflict on the performance related pay ............................................................. 112 4.4.3.8 Conflict on cost neutrality ................................................................................... 113 4.4.4 The implementation of ERA .................................................................................. 116 4.4.4.1 The role of the organisations ............................................................................... 116 4.4.4.2 The structure and process of the transformation ................................................. 118 4.4.5 The implementation in the establishments ............................................................. 121 4.4.5.1 The time frame .................................................................................................... 121 4.4.5.2 The steps of implementation ............................................................................... 122 4.4.5.3 A typology of the different implementation models at the establishment level ................................................................................................................................. 125 (a) The one-sided implementation ................................................................................... 125 (b) The integrated norms oriented implementation of the ERA ...................................... 126 (c) The integrated modifying adoption of the ERA ........................................................ 126 (d) The distributive-pay, regulation-modifying adoption of ERA .................................. 127 4.4.6 The outcome of ERA - a stabilization of collective agreements? .......................... 128 4.5 The implementation of ERA from the gender pay gap perspective ............................. 130 4.5.1 What the figures on the gender