The competition for talent has become increasingly fierce in South Africa and the rest of the world as organisations seek to innovate and continue to compete in these everchanging times. The pace of technological innovation continues to increase and so the need for skilled, diverse, productive employees has become increasingly important. As South Africa’s workplace becomes increasingly diverse, it is important to ensure that equality amongst employees in all respects is pursued.
The concept of fair remuneration has instigated considerable debate in the workplace as to what constitutes defensible rationale for any variances when determining the levels of pay of employees and what is also generally considered an acceptable ‘differentiation’.
Which factors determine the differentiations?
King IV (2016) states that remuneration that is, or is seen to be, unfair, excessive, or irresponsible can result in a decline in stakeholder confidence, which could threaten the sustainability of the organisation. Where such perceptions are present, the sustainability of the organisation could be jeopardised.
We can further quote the South African Labour Law, more specifically the Employment Equity Act [No. 55] that has also prescribed that no individual should be treated unfairly on the basis of race, gender, age, language and sexual orientation.
Factors that could possibly justify differentiation in pay could be linked (and not limited) to:
- Length of service/tenure;
- Seniority/Level in organisational structure;
- Qualifications, ability, competence or potential above the minimum acceptable levels
- Temporary employment to gain experience and training;
- Scarcity of the skill;
- Market related value for the job;
- Any other factor that is not deemed unfairly discriminatory.
Internal Equity vs External Equity
When interpreting fair remuneration, it is important to consider the concepts of both internal and external equity. Issues related to these two forms of equity should be dealt with explicitly within an organisation’s remuneration policy as this policy will guide what the organisation deems to be acceptable in pursuing its strategic objectives.
Internal benchmarking is about equity within the organisation. The pay curve should represent an exponential progression from the lowest grade to the highest occupational; levels i.e. the slope of the pay curve should reflect a gradual incline, as the nature of the work performed by the occupational levels increases in complexity. The range of pay within each grade / job in an organisation should be monitored closely to ensure fair treatment of staff. Internal equity considerations can pose significant threats to the success of the organisation as employees are considered to be the engine of the organisation that is continually driving the organisation towards its objectives.
In contrast, external benchmarking is about ensuring that the organisation is able to attract and retain employees and it is able to establish if the company is executing its remuneration strategy effectively (such paying in a manner consistent with its targeted percentile). External benchmarking provides an indication of how competitive an organisation’s pay is relative to other organisations but does not necessarily address whether the market is paying a living wage.
An important consideration when benchmarking will be identifying the industry / market in which the organisation may lose and or attract its key resources, particularly for scarce, often industry specific, jobs. In the case of more generic, portable jobs a broader view should be taken into account as the number of employers who can attract your staff increases. Some factors which should be considered when doing external benchmarking are; size, geographical location, stage of business life cycle and revenue to name a few.
Importance of benchmarking
According to the figures taken from companies listed on the JSE, the following are the percentiles for the employee costs as a percentage of total cost of sales:
It is evident that the employee costs make up a considerable percentage of the expenses within an organisation and this substantiates why an organisation should continually keep track of the cost associated with to attracting and retaining the most suitable candidates. The success of any organisation is contingent on happy, productive, diverse employees and organisations that recognize the impact that these employees have on their overall performance should continually review their reward offering to ensure that they remain competitive.
Remuneration is one of the many ways to ensure that your employees remain happy and satisfied within your organisation. All elements of the employee value proposition must be continually reviewed and updated to ensure that it keeps up with its employee’s needs. Employees should be aware of the organisations remuneration policy to ensure that they buy into it and are motivated to be productive.
The rise of the “New World of Work” and the fourth industrial revolution has made it more important than ever to ensure that the right mix of employees are attracted and retained to realise the organisation’s objectives in these everchanging times.