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Challenges with salary reviews

By Memory Nguwi

THE call for salary reviews is being heard across all sectors of the economy. The primary reason being cited is that the cost of living has gone up, and the Zimbabwean dollar has depreciated against the major anchor currency, the United States dollar. It is evident from what people see in shops that the cost of living has gone up.

The dilemma for employers is always affordability and sustainability. If you adjust the salaries upwards, will you be able to afford to pay the salaries now and in the future?

The truth is that not all employers would be able to adjust salaries to the levels employees would want without bankrupting the business.

It is important to note that not all employers are in the same situation. Others will be able to pay at levels employees would want, and they can afford it. The problem is with those employers who cannot genuinely afford to adjust salaries for various reasons.

For those in the private sector, I see employers with pricing power sustain such adjustments. Their pricing power would allow them to push the cost of any adjustment to the consumer without affecting the demand for the goods and services they offer.

Without pricing power, taking in a considerable salary adjustment could spell disaster for the organisation. However, the majority of private sector employers may not be able to do this.

For those employers who can afford and sustain the adjustments, it is only fair that you help your employees with the cost of living adjustment.

Here are three things you may want to look at as you address your employees’ cost of living issues. Here I highlight things to do and things not to do.

If you can afford a cost of living adjustment, by all means, go ahead and give it. There are two approaches that we have seen on the market with regards to the cost of living adjustment:

Once off cost of living payment : Other employers give a once-off payment as a cost of living adjustment. Usually, such payment is offered covering a few months. This approach provides temporary relief to an employer without committing to an extended fixed amount which the employer may not afford.  Take this approach if you plan to adjust the salaries to match the cost of living permanently. If you have no permanent plan, the employees will come back probably more vicious, especially if the cost of living keeps going up.

Cost living allowance: Other employers are opting for a cost of living allowance separate from basic salary.  The advantage of this approach is that it does not increase your other expenses related to the basic salary, such as a pension, leave liability and overtime.  The downside to this approach is that eventually, employers will incorporate the amount into the basic salary as employees start raising issues related to low pension contributions, overtime and other related payments.

Non-monetary incentives: I am not sure why people call these non-monetary incentives because they all cost the employer money. Even where you are giving your staff loans, it will cost the employer money unless funded by the bank. Employers with deep pockets can fund loans from their resources, but the best approach is to have long tenure loans financed by banks. They are better suited to manage the risks often associated with lending money.  Grocery hampers : I am still surprised why an employer would want to offer grocery hampers to employees. Unless you are getting this grocery at significantly discounted amounts, there is no advantage to the employer.  There are so many disadvantages to adopting this approach. It means the employer will have to hire someone specifically to handle the grocery distribution for employees. This could be at the accountant or assistant accountant and add the human resources office to it. Give the employee their money and what they will do with their money is their problem.

Company vehicles: Those employers on the total cost to the company covering company vehicles are probably facing some challenges. Very few employers will be able to align the vehicle allowance to the market conditions (running cost of the car). The problem is that the employee will get Zimbabwean dollars under this scheme when we know that all vehicles in Zimbabwe are sold in foreign currency. Reverting to fully expensed company vehicles is a big challenge as well. I do not see any company purchasing, for example, 100 vehicles for employees given the foreign currency challenges and the cash required to do so.  Pegging salaries in US$: The approach to pegging salaries in US$ and pay at the interbank rate is fine. For those who have chosen to peg US$ salaries to the black market, with the way the rate is moving, you may end up in a situation where salaries are no longer affordable. Those who may have chosen to peg salaries in US$ and then pay at the alternative market may find this to be suicidal.

US$ salaries: Those who earn enough foreign currency to pay their staff in hard currency have no issues as we look at the market. We have seen most employees flocking to such organisations when opportunities arise.

The government can make life easy for employees and employers if we get to a situation where the currency is stable. In such an environment, collective bargaining negotiations are often concluded without incidences.

  • Nguwi is an occupational phsychologist, data scientist, speaker, & managing consultant at Industrial Psychology Consultants (Pvt) Ltd, a management and human resources consulting firm. — https://www.thehumancapitalhub.com  email: mnguwi@ipcconsultants.com.

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