HomeBusiness DigestManaging remuneration in an inflationary environment

Managing remuneration in an inflationary environment

By Daniel Muchemwa



BUSINESSES operating in Zimbabwe continue to face serious challenges given the high inflation, lack of foreign currency, price controls and the genera

lly poor economic environment.


Despite concerted efforts by the Reserve Bank of Zimbabwe to bring the inflation levels down, the country is still operating in a challenging economic environment and the situation is not likely to improve in the near future as the price control regime is likely to further reduce prospects of foreign direct investment inflows. There is little tangible evidence to suggest that Zimbabwe is about to re-engage the international community and obtain balance of payments support from multi-lateral financial institutions and other development partners.


The shortage of basic commodities including fuel and foreign currency has made the country an unattractive employment destination. Instead the country has been losing skilled personnel to the region and beyond. Local businesses have found it very difficult to retain premium skills and the harsh economic environment is making it difficult for skilled people to focus on their jobs.


Human resources are an important asset for any company as they cannot be imitated nor replicated. Each organisation has to take advantage of the uniqueness of its human resources to attain competitive advantage. The primary challenge that companies in Zimbabwe face is how to pay their employees competitively. The focus on competitive remuneration goes beyond the local market as companies are increasingly competing for skills within the region and beyond. South Africa has particularly been a significant importer of Zimbabwean talent.Companies operating in Zimbabwe have had to adapt and have adopted some measures in order to retain key employees and continue to be profitable. The remuneration challenges that business is facing includes the ability to:


l Retain the value of earnings and the purchasing power of the cash earnings for their employees;


l Ensure that employees can pay for transport, afford a decent lunch and meet their rental demands;


l Provide young professionals with the ability to buy own houses, drive decent cars and send their children to decent schools; and


l Provide good career prospects for up and coming managers.


In response to these challenges, business has considered various responses including but not limited to regular salary reviews and allowances, and the provision of food packs. Organisations with free funds, on the authority of the Reserve Bank, have introduced dollarised remuneration.


Salary reviews


The demand for more frequent review of remuneration has risen significantly in the past year as companies strive to keep pace with competition. More than 60% of companies on our remuneration database are now reviewing their salaries at least once every month. Local salary reviews are influenced by three key factors; the market levels, inflation and National Employment Council negotiations.


Remuneration for most local companies is a result of these three factors listed above. International remuneration trends have seen more and more companies factoring company and individual performance in employee remuneration. Most companies in Zimbabwe especially those that belong to an international network have some form of performance management system in place. However, a lot still has to be done to make these systems more robust.


Companies operating in the country despite being competitive on the local market continue to lose premium skills to the region. The weakness of the Zimbabwean currency has meant that other countries within the region and beyond can easily attract key skills due to the relative strength of their currencies. The human capital and leadership department of PricewaterhouseCoopers has in the recent past been requested by leading companies to conduct remuneration surveys that are inclusive of leading organisations within the Sadc region. Despite having the facts around them, local companies are finding it hard to compete on the regional scale because of two main reasons. Firstly the remuneration offered by economies outside Zimbabwe is generally higher and secondly, companies in the region outside Zimbabwe are operating in stable economies where basic goods and services are readily available.


Allowances


The constant increases in urban transport and rentals have meant that employers have had revise the transport and housing allowances on a more regular basis. One solution that has been very useful is to offer employees a transport allowance that is benchmarked to an agreed route. Routes that are commonly used for determining the allowance are City–Chitungwiza and City–Mabvuku. As the transport costs on these routes increase then employees are entitled to a review of their transport allowance. The same benchmarking process can also be utilised for accommodation where employers can track the rentals for an agreed area which are then used as a basis for reviewing the housing allowance.


In instances where these allowances are negotiated at NEC level, the employer normally pays the agreed amounts. Some employers adjust the allowances as and when necessary if the NEC negotiations are overdue. Some companies, instead of offering a transport allowance, actually provide transport to their employees using the most efficient routes that allow the company to transport most of their employees to work. Compensation is then worked out for employees that fall outside the routes used by the company bus. This method has the key advantage of guaranteeing that employees will be at the work place on time and that minimal disruptions are caused by the erratic public transport network.


Groceries


The high inflationary environment has seen a lot of goods being out of reach for most employees especially at the lower levels. Companies have taken note of this and some are now purchasing some basic items for their staff for distribution every month or every quarter.


Distribution of such commodities on a monthly basis results in more administrative costs and other companies now prefer quarterly groceries to cushion employees from the high inflation. The idea is not to do a full monthly grocery for the employees but to provide a few basic goods in bulk.


This is not an easy benefit to administer and in order to limit the burden; a company could choose six basic items which the company would provide in bulk on a quarterly basis.


For companies that operate outsourced lunch catering services, they tend to use these caterers to develop the appropriate food packs and manage the distribution process. It is important that the employees appreciate that this would not be a full grocery but alleviation on the costs of the six key commodities which the employee can be asked to choose.


Some of these strategies may not be available to organisations in future given the provisions of Statutory Instrument 159A of 2007.


Muchemwa is the director, human capital and leadership, PricewaterhouseCoopers.


Disclaimer: This publication contains information intended for guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgement. Neither PricewaterhouseCoopers can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication.

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