The promulgation of the Companies Amendment Act 16 of 2024 (the Act) introduces, among others, sections 30A and 30B to the Companies Act 71 of 2008. The Act was published in the Government Gazette on 30 July 2024, but a promulgation date is still awaited.

“Some of the amendments are understandable, but there are a few which are not clearly drafted and others where the implications could pose risks to remuneration governance and ultimately the performance of companies,” says Laurence Grubb, Exco Member at the South African Reward Association (SARA).

While media outlets to date have focussed on and praised a few of the amendments, a raft of similar comments on specific amendments which are very concerning to the implementers thereof, were ignored - companies need to be aware of these as they will require important changes to remuneration policies and practices as well as the reporting on remuneration in the Annual Integrated Report.

“In an ideal world, decisions and disclosures are to be based on principle versus being forced by law, so all stakeholders have a say in reaching an ideal outcome, not just shareholders.  We do, however, not live in an ideal world.” says Nicol Mullins, President of SARA.

The sections in summary
S30A provides for shareholders, by ordinary resolution (50% +1), to approve or reject a company’s proposed remuneration policy or any amendments every three years unless there is a “material” change that warrants shareholder approval within the 3 years.

“This means that unless shareholders in future approve material changes to the remuneration policy, these cannot be implemented. Although we believe that shareholder consultation is necessary and should be in place, we are concerned with the fact that the inability to make required changes to the policy, could restrict the ability of the remuneration committee to introduce changes which are appropriate in a certain set of circumstances or context,” says Mullins.

S30B provides for shareholders, again by ordinary resolution, to approve or reject a company’s remuneration report. However, as the remuneration report (which includes the Chairman’s background statement, policy and implementation report) will now be voted on every year, it means that if the remuneration report fails by virtue of dissatisfaction with decisions that were taken by the Committee and were disclosed in the implementation report; our view is however that the emphasis in the remuneration report should be on the implementation report and that the policy will only be deemed as a background document as shareholders have a separate opportunity to cast a vote on the policy.

If the vote on the policy fails, then the fall back is to the last approved policy which may be the same one which was approved in the most recent AGM. The implementation report presents what was implemented in the prior year, in respect of the year under review. The outcomes of the Committee’s decisions which are disclosed in the implementation report, cannot be undone even if the remuneration report fails to receive adequate support in the ordinary resolution.

If the remuneration report is not approved at the first AGM after the implementation date of the Act, then the committee needs to engage with shareholders and present feedback on how these concerns were addressed in the remuneration report tabled for an ordinary resolution, at the next AGM and they must be re-elected onto the Remuneration Committee. However, if the remuneration report in the second consecutive year does not pass the ordinary resolution, then the incumbent non-executive members of the remuneration committee, who served a full 12 months during the report’s financial year must step down from the committee and may not serve on the committee again for the next two years. They may however remain on the board if they have been re-elected in terms of the board’s rotation schedule under the MoI. The execution of this requirement needs regulations to the Act, which are awaited. However, in the meantime, boards need to consider how they will go about structuring their remuneration committees to be prepared for situations where they are faced with two consecutive failed votes on the remuneration report.

The Board will then need to appoint a new remuneration committee from the remaining independent non-executive directors.

Pay gap reporting
Section 30B also requires that companies report the pay gap between the top five percent of their earners and the bottom five percent, which is different from the Labour Relations Act 1995 (LRA) requirements.

The South African media has positioned this amendment as a sure way to lower the country’s terrible Gini coefficient. However, the Gini coefficient factors in unemployment and by halving unemployment our Gini coefficient drops to the average of the Global figure.

“Reporting the pay gap won’t improve the Gini coefficient; that can only be achieved by reducing unemployment,” says Grubb.
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Employee definition
The Act draws the definition of “employee” from the Labour Relations Act, which includes amongst others, learners and part-time workers without determining that the earnings of these part time employees be annualised. In addition, albeit that learners and graduate trainees are considered employees, they typically don’t receive a salary but a stipend whilst they learn and develop which improve their ability for future full-time employment and commensurate earnings. This ratio will increase a company’s real pay gap, for which it may be chastised by its shareholders. A more informative reporting framework needs to be adopted to factor out data points which will lead to spurious results which are not a true reflection of the remuneration practices implemented.
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Remuneration committee integrity and continuity
Deposed committee members take with them vital institutional knowledge, organisational insights, scarce technical knowledge, and years of experience. Independent directors of this calibre are rare.

“There is no B-Team standing by to take over, so their loss may impact remuneration governance within an organisation and threatens its continuity while new directors are being sourced,” says Grubb. Boards may need to have more independent non-executive directors to provide for such a situation, making Boards more expensive.

Shareholder pressure
Increased shareholder engagement with companies on remuneration policies and practices offers companies a valuable opportunity to refine their approaches. The Act is designed to enhance transparency and requires greater company disclosure. However, the success of its implementation depends on collaborative stakeholder engagement, ongoing dialogue, and creating a shared understanding of the remuneration report. While critique can highlight areas for improvement, it is through collective participative effort and cooperation that the Act's objectives can be realised, fostering transparency and trust in the process.

ENDS

MEDIA CONTACT: Idele Prinsloo, [email protected], 082 573 9219, www.atthatpoint.co.za 
 
For more information on SARA please visit:
Website: www.sara.co.za 
X: @SA_reward
LinkedIn: South African Reward Association
Facebook: SARA – South African Reward Association

"Cuspers" excel at connecting multiple generations within the workforce. But what exactly is a cusper, and why should organisations pay attention to them? A cusper is someone born at the intersection of two generations, embodying a blend of traits from both. These individuals act as a generational bridge, often referred to as "generational glue" or a "micro-generation," linking one generation to the next. Understanding the generational makeup of your team is crucial, says Deon Smit, Master Reward Specialist and Executive Committee Member at the South African Reward Association (SARA). The major generation groupings can be defined along the following date ranges:

• Before 1945: Traditionalists or Silent Generation
• 1946 – 1964: Baby Boomers
• 1965 – 1979: Generation X
• 1980 – 1995: Millennials or Generation Y
• 1996 – 2016: Generation Z, iGen or Centennial

So, what is a cusper, and what is their purpose?

• An unbalanced generational mix in an organisation could have an impact on certain key employee metrics like turnover, engagement and employee satisfaction. It also creates diversity to have a healthy mix.
• The question is: Does your organisation have enough employees who are considered generational glue or cuspers to connect the major generational groupings in your organisation?
• These cuspers will be this vital generational glue as they link the generation groupings.
• The main purpose of generational glue would be to link the different generation groupings to a common purpose, culture and jargon language. This will also facilitate cross-collaboration, improving teamwork and positively impacting team dynamics.
• These micro-generations or cuspers are roughly defined according to the following date ranges with their unique cluster names:
o 1943 – 1948: Troomers, Shhh-oomers, or Swing generation
o 1962 – 1967: Baby X’s, Boomerex or Tweeners
o 1977 – 1983: Xennials
o 1993 – 1998: MinionZ, Zillennials, Zenials or Snapchat Generation

So, why is generational glue or cuspers then so important for the organisation?

• Having a balanced generation mix could ensure higher employee engagement levels in your organisation as you have the important generation glue that interlink them.
• Higher engagement levels in your organisation could, in turn, lead to higher productivity levels.
• Higher productivity levels will positively impact the organisation’s bottom line.
• Cuspers or micro-generations will also positively impact an organisation’s culture and lead to more team cohesiveness and a greater sense of belonging for all employees.
• Too much of one generation grouping without the right amount of generation glue could make it difficult to create a unified workplace.
• A mix of generations create diversity – not just of age, but of thinking, ideas and perspective.
• Cuspers or micro-generations will ensure better communication between generations, creating a better understanding of each other.
• The absence of cuspers could also lead to increased employee turnover and dissatisfaction in the workplace.

What does rewarding these cuspers or micro-generations look like?

Cuspers are proof that a one-size-fits-all approach around reward solutions does not work and why flexibility in benefits, working methods, and pay structures is important. It is key to accommodate these employees who do not feel they fit in a specific generational construct. Allowing a great range of choices will empower all employees to customise their employee remuneration journey to meet their needs and wants.

Smit further says that generations in the workplace will always be fluid as one generation ends and a new generation starts their careers. Having the right balance can have a long-term positive effect on employees and the organisation. So, it is worth looking more closely at the generational demographics of your organisation and making generational glue work for you.

Deon Smit is a Master Reward Specialist and SARA Executive Member. He is the Group Remuneration Manager at Pepkor.
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ENDS

MEDIA CONTACT: Idele Prinsloo, idele@atthatpoint.co.za, 082 573 9219, www.atthatpoint.co.za 
For more information on SARA please visit:
Website: www.sara.co.za 
X: @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, [email protected], 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

Inflation is typically used as the basis for calculating annual salary increases. But inflation is a poor guide for working out how to reward employees to ensure competitiveness when compared to the market, says Nicol Mullins, Exco member of the South African Reward Association (SARA) and Principal Consultant at Mercer South Africa.  

Instead of inflation, he argues, employers need to take various other factors into account when calculating salary increases. If not, they can end up disadvantaging both employee and employer as well as, potentially, shareholders.

“Using consumer price inflation (CPI) as a basis for calculating salary increases just does not make sense,” Mr Mullins says. “Inflation figures vary from one source to another and are far from perfect. Even if they were reliable, there is no logical reason why they should affect an individual’s salary. It makes much better business sense to use a scientific, evidence-based methodology for calculating salary increases that is based on what a particular role commands in the marketplace.”

Inflation-based increases are not sustainable
The fundamental point to understand is that a salary is paid to compensate an individual for doing a job. Therefore, a salary is actually dictated by the supply and demand of that particular skill, not what the inflation was for that year or the following.

Even if one insisted on using CPI as a basis for this calculation, one should logically only apply it to that portion of the salary that is used to buy goods and services that are inflation-linked.

Mr Mullins says that a valid argument could be made that employers should be protecting the purchasing power of employees, especially those at the lowest level. But this argument is somewhat negated by the fact that when such workers are employed, they are offered as low a wage as possible.

“One of the most harmful effects of using inflation as a way to calculate salary increases is that it has the effect of steadily making an individual less and less affordable to a company as the supply and demand of the skills in the market are not linked to inflation. In turn, this means either that the company has to pay more than it needs to in remuneration, or the employee becomes too expensive” he says. “Neither of these outcomes is desirable. Rather, we want to determine what is externally competitive while ensuring internal equity.”

Increases should consider across-the-board relevance
Mr Mullins advises that the salary discussion should fall into two distinct sections: how all the salaries across the company should be increased, resulting in an overall salary increase budget; and then what increases should be granted on an individual basis to align those employees to their optimal placement within the company pay ranges where there is currently misalignment to the pay policy.

The across-the-board salary increases budget should be related to supply and demand of the particular role, whereas the merit increases are based on individual alignment to ensure that salaries are aligned with the internal pay policy.

For calculating salary increases, Mr Mullins advises following a logical methodology that looks at what the fair, market-related recompense would be, and what the overall budget for increases actually is.

The process begins by determining what the market rate of pay for each role, grade or function is. As part of this process, the company’s own pay structure/scale or bands should be compared with market data. This step is known as the range-adjustment factor.

The above adjustment should be made after taking into consideration the market-adjustment factor which in essence is the predicted movement of the market from when the data was collected to when the increases are going to take effect.  Guidance on this should be provided by the company lead/lag policy.

The company must then decide how it will adjust its salary bands to align with the market. The company needs to determine the range adjustment factor; how much budget it will assign towards adjusting to the market rate.

Increases should consider individual employees
Obviously, companies want to pay at the market rate. The next step must be to look at those employees who are being paid below the current company guidelines. Some of them will be new hires or inexperienced, but others will need to be adjusted upwards. A separate budget needs to be determined for this exercise – this is known as the equity-adjustment factor.

The next step is to determine a promotion budget. Companies can make an assumption based on historical data that, for example, 2 percent of their employees will be promoted and receive 15 percent salary increases. By following this approach an organisation outlines their promotional increase factor.

At a practical level, Mr Mullins advises that companies should consider adding unspent HR budget from the previous year to the budget for current year salary increases – this is known as recovery.

The final step would be to consider merit increases.  This is the process of aligning employee compa-ratios to their internal grading structure after the range adjustments have been taken into consideration.

“Such an approach has the advantage of being based on market realities and is thus sustainable. And because it is scientific and evidence-based, it can be shown to be fair, with a positive impact on employee morale and engagement,” Mr Mullins concludes.

“Just giving everybody a blanket increase each year based on inflation sets unrealistic expectations; this method forces employees and employers to confront the reality that the market dictates business profitability, and thus job security.”

ENDS

MEDIA CONTACT: Juanita Vorster, 079 523 8374, [email protected], 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