New pay model overdue

We have discussed in this column that the remuneration structures in our labour market are very paternalistic in nature.

Column by Sam Hlabati

Organisations try to keep talent through shouldering financial obligations on behalf of their employees. The extended scope of these benefits gets bigger as employees get higher into the organisational ranks.

In a recent discussion, a close associate quipped that the ever-growing scope of benefits in our market will get to the extent of organisations paying for the executive employees’ domestic helper’s father’s cousin’s funeral costs. I believe that is stretching the fact a bit, but who knows, some organisations may be getting closer to that situation.

These look-after-my-brother benefits, though they were always a part of the Zimbabwe remuneration structure, got out of hand during the period of our economic crisis. As discussed previously, companies increased what I would call “life-comfort” benefits to serve as retention tools for the much-needed talent.

The endemic systemic problem with the status-quo of the numerous benefits is the very difficulty that the situation poses for benchmarking efforts. It is impossible to compare these benefits in a real time perspective; making the comparisons as at a particular point in time between different organisation difficult. Consider trying to compare the actual remuneration value of a vehicle benefit between two organisations.

Let us assume a situation where there exists congruency facts. We can assume two organisations have a company vehicle scheme for managerial employees that is similar to the extent there is similarity in terms of the make, model, and year of manufacture of the vehicles. Let us assume a further similarity is that the company-purchased vehicle is handed over to the employee’s full ownership with zero residual value.

However, should the period that is required before the vehicle ownership is given to the employee differ between the two organisations, then the value of the benefit would differ between the organisations at a given time even for vehicles purchased on the same day.

The financially-wise and learned colleagues would certainly concur.
The problem of incomparability is not just a hassle for organisations that are seeking to get a view of the market benchmarks through salary surveys service providers.

A number of survey reports that are being circulated in our local market are circumventing the complex problem of incomparability by fleecing most of these benefits from the actual survey. The tendency has been to concentrate on remuneration elements, which have an easily ascribable cash value, such as basic pay, and benefits with standard flat amounts across a particular employee group in an organisation.

For complex benefits such as vehicles, these salary surveys scratch the surface by considering minimal disclosure that may just indicate the presence of the benefit or just the maximum purchase price.

Nevertheless, organisations need to access comprehensive realtime information, such as remuneration packages that are comparable to their own employees’ roles.

Such information is not readily available in the market as most of the salary surveys are static; thus, they are done as at a particular date and are not updated until the next survey is conducted and manual computations are concluded. Consumers of such static surveys and entities that avail them to the market may present that data-ageing argument; thus applying a change factor to the old data to estimate the present values.

Estimation has its problems of the inclination towards “guestimation” (guess and estimation fused), which is compounded by the incomparable nature of benefits across organisations.

A comprehensive realtime survey, preferably one that is web-based and is regularly updated by the service provider, would be better value for money.

In a previous instalment, I lamented the unsustainable nature of the paternalistic employee benefits that characterise the remuneration package structuring in our market. Some organisations have embarked on ambitious projects of implementing a total cost to employer (TCOE) remuneration model.

TCOE is a pay model that entails stating any employee’s remuneration in terms of all financial costs that are associated with the basic salary and all benefits; thus adding up the total costs of benefits such as medical aid, pension, and group-life assurance — incorporating the employer and employee contributions.

As much as the conversion to TCOE has its hurdles, if an organisation bites the bullet, it can implement this aggregated pay structuring. However, the success of the TCOE will be at the risk of the labour market and economy dynamics.

The economy does not yet have adequate structures that would support this.

Though credit provisioning by financial institutions is regaining momentum after almost a decade of non-existence, the availability of affordable funding is still out of reach of a sizeable number of remunerated employees.

It would be suicidal to compound costs for benefits such as company-purchased cars into the guaranteed cash-based package. The employee would have the cash benefit but no access to the vehicle; the same would apply to the other paternalistic benefits.

One of the key strategies to retain talent is to reward employees in a way that they perceive as fair. The perspective of fairness of reward for an employee is driven by comparison of one’s own package with that of others within the organisation and the offerings in other organisations.

The average employee would have to compare between an organisation’s TCOE offering and the basic salary plus benefits. Offered by the competitor employer.

In an unstable economic environment, employees would want stability, which entails a basic-plus-benefits package, all else being equal, just to hedge against economic volatility.

Our labour market requires a remuneration model that moves rewards to a more sustainable level. The excessive benefits in our prevalent basic-plus-benefits dispensation is not financially sustainable in the long-term as the cost of remuneration is driven by third party service providers who are at liberty to change their own prices and terms. On the other hand, the state of our economy is not adequately conducive for a total cost of employment approach.

Hlabati specialises in human capital business strategies advisory services. E-mail: samhlabati@gmail.com or join the discussions on the Zimbabwe Business Leaders group on Linked-In.

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