The litany of serious governance failures laid bare in the published elements of the Zondo Report is a wake-up for South Africa, and remuneration issues are at the heart of the problem—and it’s solution, argues Dr Mark Bussin, Executive Committee Member of the South African Reward Association (SARA).
“In many instances, inappropriate remuneration is the coalface of corruption and incompetence in our state-owned enterprises (SOEs) because, after all, it boils down to money,” he says. “If we sort out remuneration, we are half way to putting our SOEs back on the path for growth, with tremendous knock-on benefits for the economy as a whole.” A major contributor to the problem comes from the way in which Ministers often appoint CEOs directly. Best practice as recommended in King IV’s Supplement on SOEs advises that Ministers only appoint CEOs from a shortlist compiled by the board. Bypassing the board reduces it—and its committees, including the remuneration committee—to a mere rubber stamp. A CEO that is appointed directly by the Minister is in a position to instruct the remuneration committee to approve unjustified and excessive pay hikes and bonuses as has been done in numerous SOEs. Another key issue that emerges from the Zondo Reports is the negative impact of cadre deployment. With political connections counting more than competence or ethics in many of these deployments, many remuneration-committee members are incompetent even if they are not actively corrupt. This means they cannot properly interrogate remuneration benchmark studies and ask the right kind of searching questions. “In fact, these incompetent but politically connected individuals can easily be led to a foregone conclusion,” he says. Dr Bussin believes that too many board members rely on their emoluments from a single board, inclining them to adopting a passive role when it comes to controversial issues, such as the perennially vexed question of executive pay. To preserve their independence, non-executive directors should not be allowed to earn more than 20% of their income from one company, he says. “The real culprit here is cadre deployment which simply loads overheads onto companies for scant benefit. One way to attack this problem would be simply to do away with individual SOE remuneration committees, and institute a central one under the auspices of National Treasury,” he says. A similar approach was evident in President Ramaphosa’s 2022 State of the Nation, which indicated that moves were afoot to implement a centralised shareholder model for SOEs to improve governance. Many commentators pointed out that in essence the plan suggests that the only way to bring the sector under control is to impose governance from above. A centralised remuneration committee would immediately eliminate the need for hundreds of expensive board posts—a quick win for cash-strapped SOEs. “More important still, this approach would re-establish the link between remuneration and executive performance and value delivered to the company. It would also make being a deployed cadre much less attractive to incompetent and corrupt individuals,” Dr Bussin concludes. “Centralising remuneration could be accomplished easily and the payoffs would be large and immediate.” ENDS MEDIA CONTACT: Rosa-Mari Le Roux, rosa-mari@atthatpoint.co.za, 060 995 6277, www.atthatpoint.co.za For more information on SARA please visit: Website: www.sara.co.za Twitter: @SA_reward LinkedIn: South African Reward Association Facebook: SARA – South African Reward Association
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Moving from remuneration to employee experience
"In today's competitive job market, organisations that wish to attract, retain and motivate the best employees, need to incorporate employee experience management into traditional remuneration," says Muhammed Goolab, Senior Reward Specialist and exco member at the South African Reward Association (SARA). A new perspective While traditional remuneration packages will continue to be the foundation for attracting critical talent, modern job seekers are looking for more than money and standard benefits. In addition, they want purpose, support and fulfilment in their work. This has been particularly important for millennials who value flexibility, life experiences and freedom to act. They are also a generation with strong social awareness and the image that organisations project both internally and externally is especially important to them. This trend requires that employers change the way they think about rewards. Instead of hiring against what talent their business operations need to keep running, they should start focusing on the people who drive those processes forward. "If you take care of your people, they will take care of your company," says Goolab. What is employee experience management? Employee experience management (EXM) is about creating a good first and lasting impression from the time a prospective hire reads your job ad, during the recruitment process, throughout their onboarding and journey with your company, and right up to the day they leave. That's because, these days, even your farewell process is open to scrutiny on social media, where word of poor employment practises gets around quickly. EXM is not only concerned with employee wellbeing and workplace comforts but embraces a holistic, multifaceted approach to overall employee satisfaction, forming a more complete total reward offering. This can include employees identifying positively with your brand, recognition of their achievements, whether or not you use the latest technologies and your level of innovation, your societal values, the company's leadership, work-life balance and flexible working arrangements, skills development and career progression, and more. "In a post pandemic world, it will be important for employee experiences to translate well and cohesively outside of the physical office and into work-from-home and other flexible arrangements," says Goolab. Why EXM? EXM is part of the larger experience management (XM) function within modern companies, which includes employee experience, customer experience, product experience and brand experience. In bigger organisations, XM is led by the Chief Experience Officer (CXO). Research shows that employees who enjoy good experiences at work contribute positively to a better customer experience, resulting in increased revenues and an improved financial position for their employers. So while EXM is a concerted effort to better attract, retain and motivate skilled employees, it holds proven strategic benefits for companies that implement it. Rather than a rigid checklist of to-dos, EXM is a dynamic management function akin to internal marketing or PR, aimed at convincing staff they chose the right employer. At the same time, it must develop real experiences that workers truly value, so frequent employee engagement is a must. "Employers can no longer simply outbid each other because the currency of a new generation of employees is values they can relate to and respect for their needs as human beings," says Goolab. EXM and reward professionals Whether an organisation has an EXM function or not, its reward professionals will inevitably be involved in or responsible for employee experience development. "Reward practitioners are ideally positioned to help employers craft a strong employee value proposition that expresses worker expectations as well-defined and meaningful experiences," says Goolab. Enterprises that adopt this new approach to reward will have a competitive advantage over employers who continue to focus on redundant ideas about what employees really want from their jobs. ENDS MEDIA CONTACT: Rosa-Mari, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za For more information on SARA please visit: Website: www.sara.co.za Twitter: @SA_reward LinkedIn: South African Reward Association Facebook: SARA – South African Reward Association At the recently held 2021 Reward Awards ceremony hosted by the South African Reward Association (SARA), Openserve won the Reward Project of the Year award while ABSA won the Remuneration Report award for the second consecutive year.
Morag Phillips won the prestigious President’s Award. The annual rewards celebrate the companies and professionals who design total reward solutions that attract, retain, motivate, and engage employees in a way that makes a difference to their organisations. Reward Project Award The 2021 SARA Reward Project award recognised the team from Openserve for their Heroes Employee Recognition Project. The project recognises employees that go beyond the call of duty in providing excellent service to Openserve customers. The process is employee-driven and administered via the Openserve Heroes portal, where individual employees are nominated weekly. Due to the basic setup of the portal, no management intervention is required, and there is little to no overhead in administering the system. Weekly and monthly winners receive a personal call from an Openserve Exco member congratulating them on their Hero status. The annual process culminates in a virtual breakfast with the Exco and the monthly Hero winners. In the first cycle, the CEO announced a surprise gift of a weekend away with partners for all the monthly winners. There has been a healthy adoption rate among employees and key indirect business performance metrics all show pleasing improvements. The other placed nominees of the 2021 SARA Reward Project of the Year award were Mr Price Group in second place for their Flexible Retirement Benefits implementation project, and Bridgestone South Africa for their Total Cost to Company migration project. Remuneration Report Award The winner of the 2021 SARA Remuneration Report of the Year award is ABSA. Goldfields received 2nd Place and Anglo American Platinum Limited received 3rd place for their submissions. This award recognises organisations for the alignment of their remuneration reporting and disclosure, against the key principles of the King IVTM governance guidelines which exemplify fair, responsible and transparent policy and practice. Submissions were evaluated by a panel of independent and expert judges across all spheres of stakeholders. President’s Award A special President's Award that honours outstanding achievement in the field of total reward was awarded to Morag Phillips from 21st Century. Morag has served the South Africa Reward Association over an extended period. She continues to contribute to the value that the association creates for its members by chairing the Thought Leadership Committee, and previously the Conference committee and also makes herself available as a Mentor on the Mentorship programme. She has written many articles and spoken at numerous conferences on HR and Reward matters and is viewed as an industry specialist and leader in her field. Morag is an integral part of the leadership team that ensures SARA continuously innovates value adding services to members. Morag’s inner strength, inputs, and research have enabled the SARA Exco to optimise the diversity of its members. The association is honoured to acknowledge Morag’s invaluable contribution to the profession, our community, country, and continent at large. ENDS MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za For more information on SARA please visit: Website: www.sara.co.za Twitter: @SA_reward LinkedIn: South African Reward Association Facebook: SARA – South African Reward Association Since the pandemic began, Work-From-Home (WFH) has been lauded as the new working model for many occupations.
Now, with vaccination efforts ramping up, some employers are eager to get their staff back to the office. “Organisations need to plan and execute that migration sensibly and with sensitivity to keep productivity high,” says Muhammed Goolab, Exco member at the South African Reward Association (SARA). He offers the following advice on key considerations they should be aware of. Unique business needs Unique driving forces may require employees to resume their duties on premises. Certain types of teams are simply more productive working together than remotely. Some management structures and styles are not easily adapted for digital collaboration, or managers perceive a loss of control under a WFH model. It can also be more difficult to onboard new employees or impart essential skills to junior staff at a distance. Remote employees themselves could feel disconnected from the organisation and isolated from their peers. A lack of personal connection can weigh heavily on their mental health, well-being and productivity. “This is especially concerning when the customer experience is impacted by demotivated frontline staff,” says Goolab. Hybrid working models Although circumstances may require a return to work, employers will likely favour a hybrid model. A mix of on-site and WFH employees can increase productivity and offer flexibility that promotes employees’ overall well-being. While remote workers enjoy lower work-related expenses, like travel, employers can also scale back on office space, equipment, canteen and other costs. “Conversely, tensions need to be managed as on-premises workers may perceive their remote counterparts as less productive but receiving better benefits, and therefore unfairly remunerated,” warns Goolab. Culture shock For some employees, long-term WFH has become an entrenched work culture in their daily lives and a sudden return to the workplace could prove disruptive. Others are only too happy to get back to a professional environment free from distractions. “Employers can leverage these contrasting attitudes to map out a planned and gradual return that welcomes affected workers back a few days more each week or month to ease their transition to full-time attendance,” says Goolab. WFH as a reward Before getting all hands back on deck, organisations should review WFH as a benefit that can attract and retain in-demand talent. Employees with sought-after qualifications and skills, and who value greater flexibility, will be drawn to employers that afford them more freedom, trusting them to manage their workload responsibly. “Employers can also attract talent from a much wider and more diverse talent pool than they could if requiring staff to be at the workplace,” says Goolab. ENDS MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za For more information on SARA please visit: Website: www.sara.co.za Twitter: @SA_reward LinkedIn: South African Reward Association Facebook: SARA – South African Reward Association The Draft Companies Amendment Bill (the Bill), 2021, has been published by the Minister of Trade, Industry and Competition for public comment.
“One objective of the Bill is to make it easier to do business in South Africa, but its onerous remuneration disclosure requirements could turn foreign companies away,” says Laurence Grubb, Master Reward Specialist and executive committee member at the South African Reward Association (SARA). While the Association endorses fair remuneration practices, especially at the executive level, Grubb questions the timing and rationale of the proposed amendments. What is fair? The reasoning behind the proposed changes to the Bill is that they will help tackle the perceived injustice of excessive pay that has contributed to the country’s inequality. Yet, the Bill offers no indication of what is meant by “excessive”, and the use of the word in the introduction is emotive and creates the impression that this is a widespread common problem. Excessive is not defined, is a subjective term and therefore it is difficult to know what excessive pay is and who is paid excessively. Shareholder empowerment The one positive aspect of the Bill is that rather than using laws to cap executive pay, it advocates increased disclosure and the response of shareholders. Public companies and SOEs will be compelled to publish details of the gap between the top 5 percent highest-paid and bottom 5 percent lowest-paid employees. This is contrary to previous proposals to use the Palma ratio, i.e. the top 10 percent versus the bottom 40 percent, which is statistically considered to be a more reliable measure. These figures will be exposed to shareholders when they vote for or against the executive remuneration policy and implementation report at the organisation’s AGM. Without a 50 percent approval on these votes, proposed to be ordinary and binding resolutions, neither can be implemented. Moreover, if the policy is not approved and cannot be implemented, this means a delay until approval is obtained from the shareholders. Who is to be held to account if an excellent CEO leaves because the share scheme was not approved and hence no shares can be awarded? The implications for a ‘no’ vote on the implementation report are even more onerous. The entire remuneration committee (Remco) must step down. Does this mean from the Remco or the Board? The shareholders do not vote on the Remco appointments. Rather, the Board appoints the Remco members. Nothing is said about what must happen next. Does the company continue until the next AGM without a Remco? Can the removed members be re-elected? Must the Board appoint a new Remco from its remaining members? What happens if the Chair of the Board is a member of the Remco – when the Remo steps down it not only leaves the Board without a Chairman but also leaves other Committees without members which may cause problems in terms of being quorate. The implications for shareholders may scare them from voting against either resolution because of the consequences. Either way, it makes for uncertain, dangerous, high risk resolutions which may make companies wary of proposing changes and certainly cannot be seen as investor friendly. Consequences The effect of these and other disclosure requirements set forth in the Bill may dissuade foreign companies from investing or remaining on our shores and cause local businesses to seek alternative measures. “The government needs to realise that companies are not compelled to do business in South Africa,” warns Grubb. Rather, they may choose to relocate their head offices abroad where their executives are not affected by the new legislation. They may also reduce or outsource their lowest-earning staff to shrink the pay gap. Worse, they could simply seek out more favourable regions where it really is easier to do business and bypass South Africa altogether. “The real tragedy is that the greatest inequality is the gap between the country’s employed and unemployed, so we need to focus on improved education and job creation instead of witch-hunting that will ultimately harm the economy,” concludes Grubb. ENDS MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za For more information on SARA please visit: Website: www.sara.co.za Twitter: @SA_reward LinkedIn: South African Reward Association Facebook: SARA – South African Reward Association The underlying causes and current barriers of the gender pay gap are often misunderstood, says Dr Mark Bussin, Master Reward Specialist and Executive Committee Member of the South African Reward Association (SARA). With Women’s Day coming up, it is appropriate to point out that the gender pay gap in South Africa has been between 15 – 18% for many years and while South African legislation and company policies have been put in place to address the issue, the statistics aren’t changing speedily enough. “Section 6 of South Africa’s Employment Equity Act was implemented several years ago and it stipulates that companies may not discriminate in terms of remuneration; they are legally obliged to offer equal pay for work of equal value. In America and Canada, similar legislation has been around since the 1960s, but the gender pay gap in these countries still exists. Legislation isn’t solving the problem and this isn’t a uniquely South African problem,” says Bussin. Many companies have openly stated their commitment to gender pay equality and regularly review whether they are paying equally for equal work, but this isn’t having an effect on the gender pay gap either. Legislation isn’t Bridging the Gender Pay Pap “The only thing that has changed is a heightened awareness of gender pay discrimination. Company remuneration policies and legislation has been around for years, and it isn’t bridging the gender pay gap. A major underlying cause is the power of prejudice,” says Bussin. Bussin says that many prejudices exist about women in the workplace. Companies have down-sized, right-sized and are leaner than ever before, but leading recruiters and HR professionals tend to be even more wary about hiring or promoting a female candidate. Maternity leave, time spent away from work to care for children, or the possibility of a new mom deciding to not return to the workforce after childbirth, are still scenarios that are ingrained in the minds of people in power positions. This has given rise to a new term I call the “mommy gap”. Women may never catch up to men once they have had a child – the gap stays with them in perpetuity. “Unfair assumptions and scenarios such as these still count against women. Whether recruiters, HR managers and directors are open about their prejudices or not, these prejudices still exist in the back of their minds,” says Bussin. Questioning and Negotiation Adding to the challenge is that women are less likely to question the salaries that they are offered and less likely to negotiate better pay. “Recruiters and HR managers may subconsciously assume that they can pay a woman less because she might have a partner that helps support her and her household. Women, in turn, are part of the problem because they trust that the remuneration that they are being offered is fair, when they should actually be researching market related salaries as well as the company’s pay scale, and be advocating for fairer pay,” says Bussin. Bussin says that company directors should be concerned about the gender pay gap for a number of reasons. Not only can discriminatory pay be damaging to their brand, but it can negatively impact their businesses in a number of ways. “If a case about gender pay discrimination makes its way to court, the CCMA or the media, it could be very damaging to your brand. Not only do employees want to work for a company that remunerates fairly and sustainably, but it’s also good governance. It’s simply the right thing to do,” concludes Bussin. ENDS MEDIA CONTACT: Idele Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on SARA please visit: Website: www.sara.co.za Twitter: @SA_reward LinkedIn: South African Reward Association Facebook: SARA – South African Reward Association “The Fourth Industrial Revolution is about the acceleration of innovation and the velocity of disruption, and these two factors are creating disruption and along with this, new opportunities for business,” says Nicol Mullins, Chartered Reward Specialist and Executive Committee Member at the South African Reward Association (SARA). He observes that Covid-19 has served as a catalyst for the adoption of Fourth Industrial Revolution (4IR) technologies, along with forcing the development of new business models or the adaptation of existing ones. This trend is also redefining the approach employers take to remuneration and reward. A New Perspective on Reward “4IR certainly presents risks, but risks are also opportunities for workers to upskill and position themselves to gain the most from this new era,” says Mullins. This is especially true of the massive global move towards the virtual workplace, with many employees now working exclusively from home and connecting with their organisations, teams and managers digitally. Most organisations have pivoted rapidly to this new normal while others have not been as quick to transition. Either way, businesses are reviewing their strategic outlook based on a new set of challenges they face and resources now available to them due to the automation of repetitive, routine processes. “Reward strategies must likewise be adapted to complement this new paradigm and align with reimagined business strategies to contribute the highest value to their achievement,” says Mullins. Expanded Talent Possibilities An important effect of digitalisation is that talent sourcing and recruitment in a virtual world is not restricted by national borders. Or to humans. Instead, 4IR is blurring the boundaries between the physical, digital and biological, allowing organisations to draw from a worldwide pool of talent and specialisation. Resources no longer need to be situated locally but can contribute to corporate outcomes from anywhere on the planet. Because of this, reward strategies are shifting from an internal-only focus to include external parties as well. While companies have long followed a build, borrow or buy approach to talent planning and acquisition, borrowing is coming to the fore. “Organisations can more readily direct work to underutilised personnel without being constrained by departmental or divisional boundaries, resulting in greater efficiency and productivity,” says Mullins. Similarly, freelancers can be more seamlessly integrated into business processes to tackle activities that require professional attention, but not so frequently as to justify permanent staff. Better Reward Strategies As they embrace virtual workspaces, a more fluid talent mix and flexible work assignments, organisations must also determine how rewards should be structured for both internal and external staff requirements. For short term assignments, freelancers may be considered vendors who bill clients for their work and manage their own benefits and work-life balance. For long term contractors, especially those offering scarce or critical skills, a viable reward policy should be investigated. Employers may also consider hiring out specialist staff to other organisations, earning extra income when their workload is low. Embracing a sharing economy. How to design and implement remuneration and reward programmes appropriate to these dynamics falls squarely within the purview of the reward specialist. “Now is the ideal time for organisations to engage closely with their reward practitioners, whether inhouse or outsourced, and involve them more deeply in workforce planning and strategy,” says Mullins. ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on SARA please visit: Website: www.sara.co.za Twitter: @SA_reward LinkedIn: South African Reward Association Facebook: SARA – South African Reward Association The Covid-19 pandemic has brought about the most flexible period in terms of employment and remuneration practices ever experienced. Companies reacted swiftly to the impact of the pandemic on the workplace and their ability to pay and retain staff. This has never happened in the past, says Yolanda Sedlmaier, Chartered Reward Specialist and executive committee member of the South African Reward Association (SARA). Companies who were already struggling pre-pandemic, paid lower incentive bonuses to their executive and pay increases across board ranged between 0% and 5%. Moral approach However, Covid-19 brought about a far greater moral approach to executive pay and incentives. For many companies, bonus payments for past performance (pre-Covid-19) were put on hold, delayed, cut or reallocated from May last year. “Many companies opted to reallocate some of the money into a company fund to assist staff who ran out of leave and were not able to return to work because of the hard lockdown during the initial stages of the pandemic.” Sedlmaier says the same happened in terms of leave. Companies requested employees who had a lot of leave to sacrifice it in order to allocate it to people who ran out of leave during the hard lockdown. Some companies actually benefited financially due to the pandemic, such as telecommunication and pharmaceutical companies. The demand for computers, data and airtime soared as people shifted from the company office to the home office. Several tech companies were in the position to continue paying their staff as usual, including bonuses. “However, several were circumspective in terms of paying bonuses or giving increases, as they felt a moral obligation not to do so while thousands of people were losing their jobs,” says Sedlmaier. “We are seeing more of that this year. Companies who were still paying bonuses in March last year were more circumspect this year. Covid-19 has certainly impacted on the morality of paying large bonuses in difficult times,” she notes. Retention measures Company executives were “expected” to take pay cuts for a period of at least three months last year, and in some cases the period was extended. Other companies offered all staff a three-month unpaid sabbatical or offered them reduced pay for reduced output. Many companies are quite wary about the possible impact of the third wave. Some have started increasing the number of people working on-site again, but with the third wave they experienced an increase in Covid-19 cases and are re-evaluating these arrangements further. Although there has been a slight pick-up in economic activity recently, the third wave is affecting everyone. “There is a possibility for more job losses,” says Sedlmaier. Future trends
ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on SARA please visit: Website: www.sara.co.za Twitter: @SA_reward LinkedIn: South African Reward Association Facebook: SARA – South African Reward Association Authored by: Dr Mark Bussin and Laurence Grubb, Executive Committee Members of the South African Reward Association (SARA) While there is a need for greater transparency around executive pay, attempts to regulate the remuneration of corporate leaders will do more harm to the economy than good. It has become accepted as unquestioned fact that CEOs and their executive teams the world over enjoy exorbitant, unregulated remuneration at the expense of lower paid workers. However, reality suggests this is not a pervasive phenomenon and more work must be done to determine the best course of action. Defining excessive pay The first imperative is the need to develop a reasonable language for describing the problem as well as agreed upon metrics to measure its extent. What is meant by excessive? Who exactly is being paid excessively? All executives or a minority who take advantage of their position? One concept is that if, over time, the difference between executive income in an organisation and that of its lowest paid worker increases, excess has occurred. A popular formula for determining this state is the Palma Ratio, which compares the income of the top ten percent highest paid to the bottom 40 percent lowest paid employees. With globalisation, the complexity of doing business is increasing exponentially and the sizes of companies are growing, placing enormous pressure on CEOs and their executive teams. It is only right that they be fairly compensated for their extended responsibilities. In contrast, performance requirements for lowest level workers remain fairly constant while the percentage increase in their pay has been higher than the rest of the staff in a company. Is it not then rational to assume that the difference in earnings between these two levels of responsibility may consequently widen? This is not to deny that there is opportunity for excess and that there are those who will make good use of it. However, sufficient mechanisms already exist to deter this behaviour. The remuneration committee Locally, JSE-listed companies are required to appoint a remuneration committee, comprising only non-executive directors and chaired by an independent non-executive director, that regulates executive pay through a remuneration policy and implementation report. Further, shareholders may cast a non-binding vote either for or against the remuneration policy and implementation report at an organisation’s annual general meeting. While this vote cannot force a company’s management to abandon unsupported executive rewards, we’ve observed that remuneration committees take this indicator seriously and factor the result into their decision making. In addition, shareholders do have a decisive vote on who is appointed as non-executives and what their fees should be. This creates sufficient tension to balance the concerns of the executive team, the remuneration committee and the shareholders themselves. It has been suggested that shareholders should have a binding vote on the remuneration of executives but this is not recommended. Such leverage could allow more powerful shareholders to effectively capture control of the company to their own ends. Their alternative goals need not be insidious to distract the executive team from its obligations to the company and related stakeholders. In a free market, executives must maintain autonomy to make critical decisions that can propel their organisations ahead of competitors. If the shareholders can change the remuneration policy and / or implementation through their votes, then who becomes accountable for the performance of the company? Transparency There is no doubt, though, that transparency on executive remuneration would go a long way to allaying public concerns. Proposed changes to the Companies Act could eventually require a declaration by companies on the income of their executives against the income of their lowest paid workers. Unfortunately, this continues to focus on the size of the pay gap which, as already noted, could result from other factors. The best approach is to link pay back to performance, and remuneration reporting should follow this trend. If the public knows how many jobs were created, what market share was won, or which performance milestones were achieved by a management team, their reward packages become easier to justify. Losing executive talent Most South African executives are in fact paid fairly, in proportion to their achievement of agreed on performance milestones. If lawmakers were to become overly prescriptive of executive pay, they may face losing the very talent that can help reboot the economy. Internationally, South Africans are known as hard, dedicated workers and business leaders are regularly targeted by international executive head-hunters. Faced with restricted earning potential locally, they may easily be tempted to seek their rewards elsewhere. The real pay gap is between the employed and unemployed. It might pay the government to focus more on job creation than limiting the job creators. Because that is what a good executive does. They grow businesses, hire employees, engage suppliers and create an economic effect that ripples all the way down to small businesses and the unemployed. This is more often the reason they earn so well. Authored by: Dr Mark Bussin (Master Reward Specialist) and Yolanda Sedlmaier (Chartered Reward Specialist), Executive Committee Members of the South African Reward Association (SARA)
Before COVID-19 hit the world, the approach to reward was well defined. Organisations paid their employees a fixed basic salary, plus a set of additional benefits that effectively sweetened the pot. The fixed portion served to ensure workers received an equitable market-related income. The variable portion, on the other hand, extended into performance related rewards such as sales commissions and annual bonuses. Variable pay itself is categorised into two components. Short-term incentives (STIs) are attached to annual performance. Long-term incentives (LTIs), like company shares, are often contingent on employees meeting negotiated performance criteria. At the same time, employers were embracing experiential rewards, like wellness programmes, workplace comfort, flexitime, outstanding performance recognition and other non-financial benefits. The pandemic has turned this model on its head, forcing employers to consider different ways to attract, retain and motivate talented workers, and this without the resources previously at their disposal due to the wide ranging economic impact of the pandemic. How fixed pay has changed There have been no permanent changes in fixed pay policy itself. However, with so many staff being retrenched and businesses closing down, employees are more willing to accept the pay cuts their employers are forced to implement. It is obviously better to have less income than no income at all. What has changed is that employers are offering more options. These could include flexible working hours, paid or unpaid sabbaticals, or reduced hours for reduced pay. Something we are seeing, however, is a global trend towards lower variable pay in exchange for a small increase in monthly fixed pay. This is to provide the security employees need in the short term, although its adoption is not as prevalent in South African boardrooms, although we expect it will be in the near future. How variable pay has changed Variable pay is generally accepted to be that part of the reward package more readily tweaked to motivate employees and encourage better performance from them. Now, with almost all employers struggling to save jobs and keep their doors open, they face limited options. Most have managed to retain basic benefits, like medical aid and retirement funding. What has been more affected is incentives, such as sales commissions, overtime, annual bonuses, and even executive performance bonuses. With the global business slowdown, workers are unable to reach previously achievable targets, so employers aren’t earning the profits needed to reward them. To date, most organisations have been unable to innovate their reward programmes. They’ve been too busy trying to cut costs and negotiating with employees to choose between retrenchments or pay cuts. Unsurprisingly, workers generally opted for a lower salary over the uncertainty that they might be the ones left without a job. Productivity In spite of these dramatic events, many companies report an increase in productivity. This is due to flexible working arrangements allowing employees to save time and money not travelling to the office. It’s also an indicator that employees who are allowed to schedule their own time will do so responsibly. They can start working immediately and will often put in additional hours to make up for time spent on personal tasks. These might include caring for children, home schooling and homecare duties, or transporting them to school and back. Stay-at-home employees also insist they are working longer and harder than ever before. The effect of vaccination on rewards As vaccinations start rolling out in South Africa, we don’t expect this to have a direct or immediate effect on rewards. However, the more South Africans are vaccinated as a society, the quicker employees can return to work full time, and the sooner secondary effects will be realised, like the return of tourists to our shores. As this happens, we can expect a gradual economic recovery that should have a positive effect on employee reward packages. Two main trends In terms of their workforce, employers are focusing on two main concerns. The first is a complete review of their HR policies in relation to dealing effectively with and setting pay for workers who are not located on premises. These new policies are no longer founded on inputs and time spent at the place of business. Instead, they consider the outputs, outcomes and impact of these workers, and how to prepare managers to lead them remotely. The second is that we’re witnessing a major shift towards protecting employees’ mental health and well-being, and assisting them with professional loneliness. As the pandemic drags on, this will doubtless become a key element of every organisation’s reward strategy. ENDS MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za For more information on SARA please visit: Website: www.sara.co.za Twitter: @SA_reward LinkedIn: South African Reward Association Facebook: SARA – South African Reward Association |
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