“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
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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 Whether or not executives earn too much and, if so, how to address executive remuneration practices, are two questions that continue to nag at global society.
“The pressure is even greater in South Africa, where inequality, poverty and unemployment are more pronounced,” says Martin Hopkins, Master Reward Specialist and past president of the South African Reward Association (SARA). The King IV Report on Corporate GovernanceTM recommends several approaches to governing executive reward. One is to give investors a greater say through remuneration voting. But what is it and what material effect does such a vote offer? What remuneration voting means King IV calls for executive remuneration in each company to be disclosed to investors through a remuneration report that has three parts: a background statement, an overview of the remuneration policy, and an implementation report. Further, shareholders are given the opportunity to pass a separate non-binding advisory vote on the policy and the implementation report. If 25% or more of the voting rights exercised by shareholders are against the remuneration policy or the implementation report, or both, the remuneration policy should specify the measures committed to by the board to respond to this voting outcome. These measures should include investor engagement and addressing objections and concerns, although King IV does not specify what format they should take or how they should be implemented. King IV is not enforceable by law; it is simply presented as a framework for good corporate governance. However, its influence is “given teeth” when its recommendations are adopted by regulators with the power to enforce them. This is true of the Johannesburg Stock Exchange (JSE) Listing Requirements, which makes certain of its practices mandatory for publicly traded companies. So, within the JSE's purview, remuneration voting is compulsory, not optional. Even so, a non-binding advisory vote by shareholders has no legal effect on the adoption of the remuneration policy or the implementation report. It simply allows the organisation's management and remuneration committee to gauge sentiment towards their provisions. That said, the vote serves as a powerful barometer of the company’s governance quality and of investor confidence. Should shareholders have more power? The effect of giving shareholders more say in how much executives earn is widely debated. They have a strong economic interest in good governance as well as a moral obligation towards equitable pay. At the same time, giving investors too much power may unduly affect the ability of the Board to govern and management to operate the company effectively. Investor activism can be a powerful force for good, but ultimately the directors need to balance the needs of many stakeholders and make balanced decisions that are overly influenced by any single voice. Measures to provide for increased shareholder power are currently being debated by various interest groups, with measures such as a binding vote on the remuneration policy and/or the implementation report and the so-called “two strike” rule being considered. The binding vote means that the directors must adhere to the provisions of the approved policy and may not apply their discretion to vary the policy terms without shareholder approval. The “two-strike” rule would mean that in the case of two successive votes of more than 25% against the remuneration policy or implementation report the members of the Remuneration Committee would have to step down from the committee for at least two years, and be replaced by other members of the Board. There is diverse practice on remuneration voting in developed and developing countries, with a binding vote on the remuneration policy at a 50% threshold in place in the UK, which is viewed as being reasonably effective, and non-binding voting practices in the US and Canada. Australia has adopted the “two-strike rule” with limited success. Reward perspective Hopkins notes that while there is a great deal of emotion regarding executive pay it's also important to recognise that it is not at all clear that executive pay can be dramatically reduced without damage to the ability of business to generate shareholder value and create jobs. Market forces mean that any one company within a country can’t dramatically reduce executive pay without immediate loss of skills and leadership. If regulations in a country systemically reduce all executive pay then mobile highly skilled executives may well move to other countries which have no such regulations. Many companies aspire to pay their executives in line with their contribution to business profitability and reward them against agreed performance milestones. King IV was developed to reign in excessive remuneration practices, not prevent companies from fairly rewarding employees for their contribution and performance. “Organisations should also look at the other end of the pay fairness equation, with increasing focus on the pay gap and how this should be measured and addressed”, says Hopkins. Together with caution in respect of executive pay, measures to increase the pay of the lowest paid staff, whilst remaining economically competitive is another important reward factor to consider. “This is a complex issue”, concludes Hopkins. Business leadership cannot disregard calls from many quarters to address these issues, but must also seek to balance the views of multiple stakeholders with the pressing need for economic growth and job creation. 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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