Staff retention, salaries and inflation

Wednesday, 28 January, 2009 - 11:49

NPOs need to ensure that due diligence is applied to the management of their human resources. Averile Ryder looks into this in light of the countries political and economic instability.

To quote Anton Ferreira in the Business Times on Sunday 11 January 2009: “Why are we still re-arranging the deck chairs on the Titanic, and not see that there is a big iceberg! We have and are still losing the educated, skilled and experienced people who can really make a difference to our country!”

Local recruitment agencies report an increase of 50 percent and a growing exodus of skilled South Africans to developed countries. Europe, the United Kingdom and the United States, are simply not producing enough kids any more. For the next 25 years at least, for every two people retiring there is only one person in the pipeline to take their place. It is also the “baby boomers” who will be retiring. The Generation Xs’ and Ys’ who will be replacing them are not prepared to give their heart and soul and life to their careers or the “organisation”. For every “baby boomer” retiring we are going to need three young workers to take their place and globally we only have one!

The global financial crisis has reduced the demand for talent but only temporarily. However, the market is predicted to go crazy in about 18 month’s time. The developed world is hungry for talent. A percentage of South Africa’s population is well educated, skilled and feels unrespected, unappreciated and constrained. It is these people that are going to be attracted to the developed world where they will be offered respect and the ability to advance.

Non-profit organisations (NPOs) will not be immune to these developments. Their contribution to the stability and growth of South and Southern Africa make it essential that they respond. So, what can they do to retain skilled staff and weather the financial storm? Here are some suggestions:

  • Measure external equity
  • Retention of employees
  • Be transparent and be in a position to defend any stakeholder scrutiny
  • Implement Specialist Career Ladders
  • Link Pay to Performance
  • More Flexibility in pay and work practices

Measuring external equity

NPOs must determine the basis for establishing annual increases. In the past approximately 65 of organisations used the CPI or CPIX to establish annual salary increases and 35% utilised one or more of the following: affordability; market movements and trends; scarcity of skills; individual employee performance or negotiation.

The current remuneration environment is affected by the following factors:

  • Rising inflation costs and increased cost of living
  • Pressure from unions for double digit increases
  • A shrinking pool of skills / a fierce struggle for talent
  • The economic downturn and its impact organisational performance and rewards, i.e. affordability vs. demand for higher salary increases, decrease in and lower performance incentive bonuses, retention of top performers and scarcity of skills in tough times.

Period

Average CPI Movements

CPI Percentage Range for Period

January to December 2006

4.7

3.3 to 5.8

January to December 2007

7.1

6.0 to 9.0

January to November 2008

11.7

9.3 to 13.7

January to December 2009

9.0

7.2 to 11.8

January to December 2010

8.1

7.4 to 8.6

South African CPI movements (Source: STATS South Africa)

From the above table it is clear that there has been a substantial increase in the CPI, particularly during the period January to August 2008, due to the global economic crisis. While this is a grim situation for employees, organisations are feeling the pinch too!

So, what should employers do? Make cost-of-living adjustments to salaries? Provide loans for employees who are in default? The answers are surprisingly simple as the objective of a total rewards programme or strategy is to do what is necessary to attract, motivate and retain the talent needed to achieve desired organisation or business results.

NPOs should therefore award salary increases because they must offer competitive salaries in order to be an attractive employer. They must drive employee performance through intrinsic and extrinsic rewards. The same is true of other rewards such as benefits, work-life balance, flexible work practices and training and development programmes. It is about attracting, motivating and retaining and managing productive human capital. The key is finding the right mix of total rewards programmes to accomplish this in an ever changing marketplace where employee needs are diverse and often driven by external pressures.

Implementing programme in response to short-term problems like increases in CPI or unaffordable bond repayments tomorrow may provide temporary relief to support, in some instances, lifestyle choices, but it does not necessarily help the employer sustain its human capital and can create long-term challenges such as entitlement mentalities amongst employees. The same annual fixed annual percentage increase amount to all employees regardless of their performance, year on year also creates assumptions of entitlement. Finding a good balance between total rewards programmes, salaries and benefits will be more practical and ultimately will position the organisation as an “employer-of-choice”.

July 2008 NPO Salary Survey reports overall average increases

While the average CPI movement for the period 1 January to November 2008 was 11.7 percent the July 2008 NPO Salary Survey participant organisations overall average increase during the period 1 August 2007 to 31 July 2008 was:

  • Independent NGOs’ and state funded organisations 8,3 percent
  • International organisations 9,1 percent
  • All organisations average 8,7 percent

The projected overall increase in the percentage of salaries by participant NPO organizations for the period August 2008 to 31 July 2009 is as follows:

  • Independent NGOs and state funded organisations 9,60 percent or 0,80 percent per month
  • International organisations 10,97 percent or 0,91 percent per month
  • All organisations’ average 10,28 percent or 0,86 percent per month

NPOs should concentrate on paying market related remuneration levels and adjust their remuneration strategy and future annual salary reviews so that they can be in relation to the internal, external and people equity measurement.

A simple definition for the market for any job category is “where you lose your labour to or attract your labour from”. NPOs therefore need to ensure that they obtain market related remuneration levels for their various job categories from the correct market that they are losing or attracting their employees from. Certain employee categories like finance, administration, human resources and information and communications technology job categories can work in any industry as the principles that they apply will be the same. Organisations therefore need to ensure that they pay these job categories market related remuneration levels which reflect all profit and non profit markets.

Retention of employees

Remuneration is only 25 percent of the ‘stay’ decision. The other 75 percent of reasons why people leave organisations include:

  • The direct relationship between an employee and his / her immediate superior. People don’t leave organisations they leave bosses!
  • Work / life balance
  • Lack of training and development opportunities

Organisations need to critically analyse their exit interviews and find out why people are leaving.

Transparency

Organisations need to be in a position to defend how they have arrived at individual employee or individual job category remuneration levels. Striking a balance between good corporate governance and being too transparent is essential. Employees also need to understand their organisation’s remuneration policy or strategy. It is my experience that the more employees know about remuneration the more accepting they are of the organisation’s pay policies and procedures.

Implement specialist job families or career paths

Employees with specialist skills should not have to get into line management in order to advance in the organisation. Organisations need to have separate career paths for the various job families in their organisations to ensure that it becomes possible for employees who have specialist skills to be promoted to the upper echelons of the organisation and be involved in guiding and shaping the organisation.

Linking pay to performance and creating a culture of performance

NPOs need to have targets that are cascaded down to divisional executives, heads or senior managers. Organisational targets should also become the CEO or Executive Director’s targets. The cascading of targets should continue until all employees in the organisation have targets that support the overall targets. Organisation and individual employee targets should be measured in terms of standards which are based on time in addition to qualitative, quantitative and cost measurement criteria.

A portion of employee remuneration should be variable (ie not guaranteed) and based on combination of organisational, divisional and individual employee as well as mentoring and developing other employee targets. Annual remuneration reviews or increases should also be based on whether the individual employee is new to the position; their role is emerging or is fully established in the position concerned and / or is contributing towards guiding and / or shaping the organisation.

More flexibility

Recent surveys have indicated than more than three quarters of the respondents in a sample would rather have more flexibility in their working hours and remuneration packages than a pay increase. This can be introduced successfully in organisations by converting to the “total cost to company” concept and where the different generations and individual employees can choose to work less hours or condense their hours as well as how much of their remuneration packages is allocated to the various benefits and allowances made available by the organisation.

In conclusion, NPOs need to ensure that due diligence is applied to the management of their human resources. The political and economic stability and peace in South Africa is more dependent on our human resource skills than any other political factor. Don’t delay – take action now!

Averile Ryder is the founder of Averile Ryder Reward Specialists that conducted the 2008 NPO Salary Survey. Go to www. averileryder.co.za for more information or contact her at averileryder@mweb.co.za

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