IT governance is critical for reducing risk

The banking sector plays a crucial role in the economic functioning of any country, acting as an intermediary for funds between deposited funds and activities that support enterprise and drive economic growth.

As the core business of banking relies on technology, effective corporate governance is critical to the proper functioning of the banking sector and the economy as a whole. The majority of banking processes are heavily dependent on technology, and if not effectively governed, business continuity and availability of services is put at risk. The repercussions of such issues could transmit across the entire banking sector and the local economy. IT governance is therefore critical in reducing risk, ensuring availability, and maintaining economic stability.

The benefits of IT governance

IT governance is essential for many reasons, chiefly managing risk across areas including business continuity, availability of services, information security, integrity of information and effective capacity planning. Without the right measures in place, banks could lose customers, leak confidential information, and have a reputational disaster on their hands. IT governance is also a compliance requirement, both internally with the policies of many banks, as well as externally regarding legislation such as Basel III and the Financial Intelligence Centre Act (FICA). Aside from the risk of ineffective IT governance, however, it also offers a number of benefits and can potentially add significant value for banking organisations.

One of the most significant benefits of IT governance is that it helps to align IT and business strategy, ensuring that IT delivers solutions that will benefit the bank as a business and support strategic imperatives. In addition, it enables more effective management of IT investment, ensuring that only those ventures that will add real value are pursued. IT governance supports more efficient and effective IT services, which in turn ensures a more efficient organisation as a whole. It also enables banking organisations to become more forward-looking in terms of technology planning, delivering a managed approach that ensures banks can take advantage of emerging technologies in a structured way that manages the risk.

Further to this, more strategic IT planning enables banks to gain a longer-term view of their IT investment to become more proactive in meeting customer and banking needs. Other benefits include an enhanced corporate image and more efficient business processes, as they run on IT services. Risk is only one side of the picture when it comes to IT governance.

The role of Service Management

IT governance in banking is guided using the COBIT 5 framework, which specifies a number of information related processes that need to be put into place. This includes application development, monitoring, IT strategy and others, as well as IT service management. It is essential, while tackling IT governance, to also ensure that customer-facing processes are optimised and that customers are provided with the solutions and IT services they require.

Without IT Service Management (ITSM), IT governance is not possible. However, while attempting to address the need for ITSM, many banking organisations have embarked on initiatives to “implement ITIL”. The challenge here is that ITIL is not a solution, but a framework, like COBIT, that is used to improve processes. ITIL helps organisations to achieve effective ITSM. ITIL can, however, be adopted as a best practice framework to change the bank’s way of working, which will bring it more in line with ITSM and continual service improvement.

Process improvement, driven by frameworks like COBIT and ITIL, is the first step in adopting a service-oriented approach to IT. However, it cannot be successful if the culture of the organisation does not support it. ITSM is not simply a set of processes that are designed, but is driven by culture and attitude within the enterprise. As a result, it needs to be driven from an executive level as a business imperative, with a sense of ownership and accountability. Buy-in from the top level is critical to ensure processes support the business and can be implemented in such a way as to drive value.

The right tools for the job

Solutions are available to support the deployment of ITSM within an organisation, and there are several characteristics that such tools should incorporate:

• Simple, cost effective and relatively easy to implement;
• Adaptable to changing circumstances and processes;
• Supports the integration of processes;
• Out of the box ITIL functionality and process support;
• The ability to customise processes when necessary;
• Essential reporting including standardised reports and support for custom report development to ensure on-going relevance;
• Instant access to knowledge items, customer equipment, services and contract details;
• Automatic selection of the best support specialist or team;
• Automatic communications and notifications during service requests; and
• Automatic prioritisation, business impact and SLA management.

In addition to these criteria, ITSM tools also need to support a variety of related frameworks and standards, including ITIL, ISO/IEC 20000, ISO/IEC 27001, SOX, COBIT and others.

IT governance is essential for the banking sector for both managing IT related risk versus the reward one hopes to obtain. ITSM supports IT governance by providing frameworks and tools for the development of continual service improvement. This in turn it delivers additional benefits. These benefits include: improved customer satisfaction; better internal and external communication; and improved management of SLAs, OLAs and other contracts. It also ensures better control of IT assets, improved resource and cost management, and increased confidence in service delivery capability. Furthermore, ITSM is essential for both IT and corporate governance, as it provides the mechanisms necessary to demonstrate compliance with both internal and external standards as well as legislative requirements.

Edward Carbutt is the Executive Director and Delton Sylvester is an IT Governance Consultant at Marval Africa.

Prevention is better than cure

PwC’s 2016 edition of the Global Economic Crime Survey revealed that almost half the incidents of serious economic crimes are perpetrated by internal parties, a cause for serious concern and attention.
Internal parties are trusted to perform their jobs with integrity, but, as shown in the PwC survey, this is not always the case. Most commonly, fraud is perpetuated by top and senior managers, finance employees, IT staff, sales and purchasing and payroll employees. And this is a global phenomenon, not just unique to South Africa.

However, in South Africa, law enforcement is not adequately resourced and trained to investigate and prosecute economic crimes, according to 70 per cent of South African respondents to the Economic Crime Survey.

When a great number of economic crimes are taking place internally and the relevant law enforcement actors are not fully equipped to help, companies are left to deal with the fraudulent actions of their employees on their own. Companies may view addressing fraud internally as a costly and time consuming affair that brings with it heightened reputational risk, which nobody wants.

Based on these factors, there is a dire need to focus on prevention, rather than cure. There are many ways that fraud and internal incidences of economic crime can be minimised. One of them, and possibly the most significant, is through thorough background screening of employees and potential employees.

A great deal of emphasis must be placed on the recruitment process. When looking to add on any candidate for any position, no matter the company, it is imperative to ensure that criteria are designed to assess their integrity in addition to their ability to do the job.

Companies are advised to run a background screening check on all candidates. With the right software, you will be able to verify their identity, credit information, criminal records and qualifications. Automated solutions allow users to do all this and a lot more, allowing you determine if potential hires are capable of fraud.

Additionally, the following tips is offered:

• Avoid complacency – never assume your company has a low risk of fraudulent activity as it can happen to any business, regardless of size;
• Study the economic landscape, its effects on the average person and how it can lead to the manifestation of economic crime;
• Ensure internal and external audits are thoroughly conducted;
• Ensure all roles and responsibilities are correctly aligned with current risks;
• Maintain a strong ethical culture within the workplace on all levels; and
• Conduct ongoing employee assessments.

Rudi Kruger is the general manager at LexisNexis Governance, Risk & Compliance division.

Is length of service reason to pay different salaries to employees performing the same functions?

Pioneer Foods (Pty) Ltd v Workers Against Regression (WAR) & others

Issue

Whether length of service is a justifiable reason for paying employees performing the same functions differently.

Court’s decision

In Pioneer Foods (Pty) Ltd v Workers Against Regression (WAR) & others (Case no: C 687/15, 19 April 2016), the Labour Court considered the interpretation of section 6(4) of the Employment Equity Act 55 of 1998, as well as the newly enacted section 10(8).

This matter arose as an appeal against an arbitration award in which the Commissioner upheld a claim of unfair discrimination brought by the First Respondent, Workers Against Regression (“WAR”). At the CCMA, the Commissioner held that the fact that Pioneer Foods (the Applicant) paid, for an initial period of two years, their newly appointed employees 80% of the rate paid to their longer serving employees who performed the same work, amounted to unfair discrimination.

In evaluating WAR’s claim the Court noted that in order to establish ‘pay discrimination’ it is necessary for a complainant to show that:

1. The work performed by the complainant is equal or of equal value to that of a more highly remunerated comparator; and
2. Such difference in pay is based on a prohibited ground of discrimination.

On appeal the first hurdle was establishing the ground on which the alleged discrimination was based. WAR had not based its claim on any of the listed grounds and therefore the Court accepted that the claim was based on an unlisted or arbitrary ground (as a result the onus was on WAR to prove such claim). However, at the CCMA, WAR conceded to the Commissioner that they did not know on which unlisted arbitrary ground they relied. It was only in their heads of argument in Court that WAR alleged, for the first time, that the grounds upon which they based their discrimination claim was the fact that newly appointed employees were being paid less merely because they had started working later than their long-serving colleagues.

The Court held that “nothing in the EEA precludes an employer from adopting and applying a rule in terms of which newly appointed employees start at a rate lower than existing, long-serving employees.” The Court held further that the Code of Good Practice on Equal Pay / Remuneration for Work of Equal Value (“Code”) expressly recognises seniority or length of service as a consideration that could justify differentiation in remuneration, as do the regulations to the EEA.

As a result, the Court held that in order for ‘mere differentiation’ to amount to discrimination the reason for the differentiation must be irrational. In the instance where one relies on an ‘arbitrary ground’ one must be able to show, objectively, that the arbitrary ground is ‘based on attributes and characteristics which have the potential to impair the fundamental human dignity of persons as human beings or to affect them in a comparably serious manner’. If one were to adopt a wider interpretation of the term ‘arbitrary ground’ arising out of the amendment to the EEA then one must show that the differentiation was capricious or for no good reason (i.e, irrational). Even if discrimination, however, is found to be present it must nonetheless be found that such discrimination is also ‘unfair’.

On the facts the Court found that there was in fact a rational connection between the difference in remuneration and the length of service, i.e. to reward long service and loyalty of existing employees. Therefore the differentiation was not arbitrary and, as a result was not discriminatory. However, the Court went further and noted that even if the differentiation were found to be arbitrary, and discriminatory, it was in any event not unfair.

Importance of this case

This case advances the view that differentiation in remuneration of people performing the same work on the basis of length of service does not if itself amount to arbitrary or unfair discrimination. The Code of Good Practice specifically refers to the practice of distinguishing between employees’ length of service when determining appropriate remuneration.

Andre Van Heerden is a Senior Associate & Jacques van Wyk is the Director at Werksmans Attorneys.

Choose a retirement savings destination

The 2016 Sanlam BENCHMARK Survey revealed that 50% of standalone retirement funds and one in three umbrella funds have not chosen a ‘destination’ for their members’ retirement journeys.
This is equivalent to getting into a motor vehicle with no idea of where you are going, members simply end up where they end up.

Having a ‘destination’ in the form of a minimum income objective upon retirement is non-negotiable as it empowered decision makers at retirement funds to develop and implement appropriate strategies.

To cut through the industry jargon the ‘road trip’ analogy is used for the retirement journey. A motor vehicle will transport a passenger from a departure point to a destination whereas a retirement fund is the vehicle that ‘carries’ a member from ‘day one’ to ‘retirement day’. In order to actively get members working towards their retirement saving goals, the destination needs to communicated from Day one of the retirement planning journey

Unfortunately choosing a destination does not guarantee a trouble-free journey, nor does it guarantee arriving ‘alive’. The survey found that only 75% of trustees at standalone funds and fewer than 40% at umbrella funds believed that their default portfolios would enable their members to achieve their income objectives. The consequences are unnerving given that 80% of a typical fund’s members are invested in the default option.

There is another problem with sub-par performances from default portfolios due to the income objectives of funds being calculated as a percentage of Pensionable Earnings (PEAR) rather than a percentage of total earnings.

Given that the average PEAR across the 2016 Survey was 80% the retiree who achieves a net replacement ratio of 75% will only benefit from 60% (75% of 80%) of their final gross salary in the first year of retirement. We have enough data to support that members are actively reducing their PEAR values in order to maximise take home pay at the potentially unrecognised expense of retirement funding. The use of PEAR as a means to structure employee benefits was outdated and should be revisited.

The industry will have to address shortcomings with regards to default portfolios and contributions flexibility too. We will have to consider combinations of default portfolios to enable a greater variety of retirement savers to set and achieve minimum targeted incomes at retirement.

As many as three quarters of fund members do not avail of the flexibility in employee fund contributions. Members have the opportunity to make a material difference to the quality of their lives in retirement by increasing contributions to the maximum. Doing so could result in a 56% increase in standalone fund values (66% for umbrella funds); assuming 10% annual return over 20 years). It is also rare for individuals to take up the opportunity to make annual voluntary contributions. The option to do so is enabled on 87% of funds, but requires active choice on the part of the member to implement.

Poor preservation practices remain an impediment to retirement savings success, yet one in 10 standalone funds and one in 20 umbrella funds do nothing to encourage their members to preserve. It is widely known that the lack of preservation is the key criteria for the inability of individual members to accumulate enough retirement capital.

Pensioners advise: ‘start planning earlier’

Pensioners that participated in the survey had two ‘pearls of wisdom’ for young savers. The core group advised them to start saving early, but the real gem came from the affluent pensioners who advised them to start planning earlier.

This speaks to the value of proper financial planning and advice and the impact that it can have over the long term on the member’s ability to create wealth and a better quality of life in retirement.

Proper financial advice acts as a navigation tool that can take a member from their starting point, turn by turn, to a better retirement outcome and continue to do so through retirement itself. Despite this three quarters of fund members only receive advice 10 years prior to retirement day.

Retirement fund members need a well-structured default portfolio, sensible intervention in the form of appropriate advice from ‘day one’ of their retirement journey, modern member communications and exemplary member services if they hope to reach their retirement destination intact.

We have identified the components that need to change in order to achieve better retirement outcomes, but retirement fund administrators and product suppliers cannot achieve success on their own. Successful retirement is about planning the journey together so that we can collectively drive towards a better future.

Viresh Maharaj is the Chief Actuary at Sanlam Employee Benefits.

Rethinking performance management

Performance management is evolving. The time has come to end an era of disappointing appraisal systems and revolutionise a process that needs to drive business value and personal growth.
Performance management is not obsolete, but the way organisations are managing business performance has begun to evolve. Labelling employees according to numbers and bell curves proves to be obsolete and no longer beneficial to business. The assumption that performance is one-dimensional and evenly distributed is misplaced and breeds a culture of mistrust and fear, which in turn deters collaboration. It places a false ceiling on performance, which leads to a lack of motivation.

Managers need to own performance decisions and reward outcomes. Line managers often lack the commitment and skills to conduct meaningful performance conversations. They are usually in the best position to judge, but rarely empowered to own the performance of team members. Empowering line managers and employees to own and manage business performance and associated rewards drives value and improves engagement.

Notably, research shows that strengths-based, real-time, regular, forward-looking conversations produce effective performance outcomes. The essence of good performance management is about translating strategic priorities into day-to-day performance, focusing on people’s strengths and how they can better serve the business, and operating a process that empowers management layers to drive performance instead of forcing the management of it.

The performance management process can also be enhanced by setting personal goals in real-time rather than setting annual objectives that are quickly forgotten and rarely referred to. The dynamics of the business world have changed and strategic business goals set up at the beginning of the year rarely last a full 12 month stretch. This is because market forces often compel organisations to re-align their business imperatives. Yet individual employee goals are hardly ever re-aligned. Goals need to be personal and based on meaningful timeframes to successfully engage and motivate, yet still aligned to overall business objectives.

Instead of focusing on the past, real-time performance snapshots collected on a regular basis should be used to build on future strengths. Extensive research conducted by Deloitte has resulted in a solution that is based on three principles: fuel, see and recognise performance.

Firstly, performance must be driven and improved in the right way through continuous feedback and a focus on strengths. Secondly, it must be understood properly at an individual level through reliable data, and thirdly, reward and recognition outcomes must be aligned to accurately recognise and further drive performance.

At the heart of these principles is manager/employee capability and trust. Managers and employees must own and believe in the system for it to become a truly self-perpetuating process of performance improvement.

Tumelo Seaketso is a Partner at Deloitte.

Didn’t get the job?

Many job seekers derail their chances of getting their dream job because they are ill-prepared. Failing to plan is planning to fail and this maxim holds true before, during and after the interview process.
A recent survey conducted by employer rating platform, JobBuzz.in, which found that over 50% of job hunters interviewed by recruiters are unprepared and botch even the simplest of questions.

Below is a list of the most common mistakes made by job seekers and an explaination of how to avoid them.

Before the interview

One of the biggest mistakes often occur before an interview even takes place. Nothing screams unprofessional more than a badly presented Curriculum Vitae (CV). Candidates should constantly review their CV, and ensure that it is up-to-date.

While doing so, familiarise yourself with all the details and dates listed and think about how you’ll respond to potentially difficult questions like ‘why did you leave your last job?’ or ‘what is your biggest weakness?’.

I cannot stress the importance of preparedness enough, advising that job seekers research the potential employer and the industry it operates in. Use the company’s website and social media platforms to gather as much information as possible.

During the interview

The biggest mistake a job seeker can make is to arrive late for an interview.

Not only is it inconsiderate, but – because you were running late and therefore stressed – you’ll no doubt arrive flustered and uncomposed which is a ‘no-no’ for an interview.

Another mistake is to bad mouth a previous employer, doing so is unprofessional and unnecessary. Instead of telling an interviewer that you left your previous job because your manager was a narcissist, say that it was not a good cultural fit or that you didn’t agree with his or her management style.

Another thing to avoid in an interview is yes or no answers. This is your one chance to sell yourself and it’s hard to get to know someone if they are being vague. That said, there’s a fine-line between over-selling yourself and not saying enough – always chose authenticity over arrogance.

After the interview

Almost every interview concludes with the interviewer asking if you have any questions.

Always have a list of at least five intelligent questions prepared. It shows that you’ve done your research and that you are interested in the position. It also allows you to connect with the interviewer on a more personal level.

Suggested list to ask your interviewer during an interview:

1. What do you enjoy most about working at this company?
2. Why did the person who previous held this position leave?
3. What is the key to success in this role?
4. How do you measure success in this organisation?
5. How do you describe this company’s culture?

Kay Vittee is the CEO and Lyrichia van Zyl is a top recruiter at Quest Staffing Solutions.

Using technology to support employee reward and incentive systems

Technology plays a vital role in the evolution of employee reward and incentive programmes, ensuring that the processes are supported and systems seamlessly managed so as to effectively deliver on the employee value proposition (EVP).
Technology is the enabler of almost all innovative processes and business models and must not be defined narrowly as an ingredient or component, but rather as a tool which can reveal what is possible and support what is already in play.

Reward strategy must be approached holistically. It is essential that technology be integrated into the reward value chain and be seen as an enabler. It cannot drive strategy, but it plays a powerful role in the implementation of strategy.

Understanding the role of technology

The way in which a business uses technology to support and integrate its delivery of “reward products” to employees can play a critical role in the organisation being seen as an employer of choicer. Organisations can harness technology’s omnipresence to integrate reward solutions into all layers of the business. This will then allow for richer employee engagement and support the delivery of reward and remuneration solutions by aligning them more closely with the people – especially those that grew up with technology and overarching strategic goals of the organisation.

In the value chain, reward is assessed along specific lines to ensure it supports business strategy. It has to take many factors into consideration which include: the skills required, the reward needed to attract these skills, the payment structures, the non-financial rewards which have to be blended into the overall package and the steps which both employee and organisation have to take in order to ensure these are done correctly and within specific parameters.

Technology: a valuable solution

Not only does technology help to streamline processes and enhance reward management structures, it enables us to quantify and package the reward value proposition in such a way that it is simple to understand and appealing to the end user. Employees can see how they contribute to overall organisational success, get a clearer picture of how their rewards are structured and see how much the company is investing in them from a total reward perspective.

There is a growing shift towards the Total Reward Statement which consolidates all the data held within the technology systems and uses this to support and improve reward management throughout the business. It is a visual representation of the total reward investment in each employee and is a step up from the traditional payslip which mainly focuses on the financial breakdown of the salary package of the employee. This educates, sensitises and create an appreciation for the total reward value proposition enjoyed by employees and contributes to improved engagement and retention of employees.

Peet Kruger is the Exco member at South African Reward Association (SARA).

Your Cart