Nivashni Naguran

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2017 Reward trend expectations

The laws of supply and demand impact what we pay for everything. But when it comes to remuneration there are additional, subtle factors at play — things like cost of living, the economy, political (in)stability and our society and culture.

Remuneration trends change so rapidly it can be hard to keep up, but if you don’t, you run the risk of losing your competitive edge. Unfortunately remuneration trends are strongly linked to the economy, which in turn is currently being adversely affected by politics.

Set out below are some remuneration trends to consider in 2017.

The approach to merit increases will change

Organisations are seeking ways to change merit increase programmes to increase meaning and impact. Reason: The job market is no longer soft. In order to remain competitive and attract top talent, organisations feel the need to do more than align salary raises with the rate of inflation.

Cash bonuses will increase

Related to the first trend, more people will receive cash bonuses, such as referral bonuses, sign-on bonuses, spot bonuses, and retention bonuses — often more than once per year. Reason: Studies show that bonus programmes positively impact employee engagement, performance, and satisfaction.

Top performers will continue to receive larger salary increases than average performers

Highest performers in 2016 received an average salary increase of 6% this year, while the lowest performers received increases of less than 1%. This approach will hold steady in 2017. Reason: Organisations are still trying to find ways to keep top talent in a tightening labour market.

The hiring of “boomerang” employees will continue to rise

According to a study done by Kronos and Workplace Trends, 76% of managers are more likely to hire former employees than they were five years ago. Reason: Hiring boomerang employees minimizes the cost of the hiring and onboarding process. In addition, they can have a more immediate impact because they are already familiar with the organisation.

Companies will address the gender pay gap

But there will be no easy answers. As the national discussion on equal pay continues to take root, companies will struggle with how to identify and respond to pay inequalities. Reason: Correcting issues will cost money and could be seen as an admission of “guilt” — neither of which is a desired outcome for companies trying to do the right thing.

Millenial remuneration will undergo philosophy changes

Organisations will continue to experiment with pay, benefits, perks, time off, and true values in an effort to effectively reward millenials, but will eventually come to the conclusion that there is no one-size-fits-all solution. Reason: Different types of organisations attract and retain different types of millenials.

Structurally high unemployment/underemployment

This risk has been identified by IRMSA as one of the most important risks South Africa faces today for many years in a row. The trend of structurally high unemployment/underemployment will continue for the foreseeable future, especially whilst the South African school education system is in tatters. Mitigating this risk will require new and bold leadership who can show serious thought leadership and commitment to our education system – including resolving the fees must fall campaign, which by the way, I support. I disagree with the methods adopted and uncivilised behaviour, but the cause is noble. Funding it may be as simple as fixing all the political cadre deployment leading to fruitless and wasteful expenditure – and that money would fund every student (even those from families earning more than R600 000) for the next 10 years. At last the minister of basic education wants accountability – viva!

In the meantime, HR needs to consider diverting CSI spend in this direction, increase the training and development spend and consider educating “beyond their gates”.

Simplification

We need to take simplification seriously in 2017. Starting with policies in plain English, processes that ordinary folk can understand and visible application benefits. Disclosure of top executive remuneration will be simplified in 2017, so that everyone can see what they earn. My strongest suggestion is to put in a good few paragraphs explaining what they did to earn their money.

Performance management – reboot

We have now all benchmarked this to death and alas – there is no rabbit in the hat! We will not be throwing it all out lock stock and barrel, but we will be making positive amendments along these lines: 1. From twice a year to more frequent conversations 2. From the paper chase to a meaningful interaction 3. From a stick only to lots of carrot 4. From backward looking to forward looking.

Cost control

With shocking economic growth, stealing at a grand scale and more job cuts coming – managing costs effectively might be the most important trend of all. HR and Reward executives can definitely earn their seat at the boardroom table this year by coming up with innovative cost saving plans that do not lose jobs. You will get the CEO’s attention. The senior leaders and highest earning public office bearers accepted a zero percent pay increase for the coming year. Business and SOE leaders will take note of this and exercise prudence when making pay decisions. This trend will also put pressure on increasing governance. Salary surveys need to be reputable, audited and comparator selection for benchmarking purposes needs to be realistic and with organisations of similar size and complexity,

The challenges for 2017 are as big if not bigger than 2016 due to very strong economic headwinds and political instability. They need to be tackled with political will, CEO commitment and HR/Reward executive guts. The Reward profession will be tested to the limits and need to be innovative and impactful. We need to tackle 2017 with all the business acumen we can muster. I wish you good luck and hope that 2018 will bring some better fortune amidst exceptional political leadership.

Dr Mark Bussin is the Executive Committee Member, South African Reward Association and Chairperson: 21st Century.

Are draft B-BEE thresholds unclear as to what constitutes a B-BBEE transaction?

January 2017, the Department of Trade and Industry published, for public comment, a notice containing draft thresholds for major B-BBEE transactions.

In order to understand the draft thresholds and their implications, one has to consider them in context of the B-BBEE Act and the B-BBEE Regulations. The Act and the regulations are already law. The draft thresholds are not.

The draft thresholds are problematic in a number of respects, including that they compound an existing cause for concern – it is not clear in some instances as to what constitutes a B-BBEE transaction and when such transactions should be registered.

The draft thresholds purport to give meaning to what constitutes a major B-BBEE transaction, which is required to be registered in terms of the Act. The legislature clearly intended that the obligation to register an empowerment transaction, and the legal consequences which are to flow therefrom, should only apply to significant empowerment transactions.  To qualify, a transaction must satisfy two elements: it must be a “B-BBEE transaction” and it must be “major”. Unfortunately the Act, the regulations and the draft thresholds give rise to a number of unintended consequences.

A new layer of regulation applicable exclusively to those involved in acquisition transactions with empowered persons and entities has been created. The notice and the regulations are predicated on the notion that every transaction in which an empowered person or entity acquires some degree of ownership is intended to be an empowerment transaction. The possibility that empowered persons and entities may from time to time engage or wish to engage in acquisition transactions that have no empowerment motivation appears to have escaped the DTI.

The definition of “a major B-BBEE transaction” in the B-BBEE regulations refers to transactions that must be registered in terms of the Act, namely transactions above a threshold determined by the Minister. The notice in turn refers to “all major B-BBEE ownership transactions, as per code 100 of the Codes of Good Practice” which “equals or exceeds R100 million, calculated by either combining the annual turnover of both entities or their assets value.”

Code 100 also does not define what constitutes a B-BBEE transaction. Rather, it prescribes the general principles for measuring the ownership element of B-BBEE. In addition, the notice omits to prescribe for which period the turnover, and at what date the asset value, is to be determined, and how turnover and asset value is to be calculated.

The notice also does not take into account transactions in which multiple parties are involved – which is more often than not the case in empowerment transactions. Unfortunately, it will be difficult to determine what constitutes a B-BBEE transaction, and whether it should be registered.

The obligation to register a qualifying transaction rests on each party to the transaction, and not only the empowerment investor/s or the target. As a result, funding banks, escrow agents and other parties connected to the transaction may be caught by this obligation. This in inappropriate, particularly given the difficulty in determining what constitutes a qualifying transaction. In such circumstances, the obligation to register should rest solely on the empowerment investor concerned.

The R100 million combined turnover or asset threshold is also low in today’s terms. Not only that, the threshold matrix is such that it omits to give consideration to the nature and value of the transaction or the acquirer. So for example, a black South African of modest wealth who acquires a small parcel of shares in a JSE top 40 listed company as part of his retirement planning will find himself subject to the Act and the regulations and, consequently, have to register his acquisition with the Commission. An alternative would be to adopt an approach which sets a value threshold for the acquirer and a percentage ownership threshold for the proposed transaction itself. This would have the effect of excluding “corner store” transactions and small investments in large companies, which must have been the original intention behind the regime.

The notice has retrospective effect in that it proposes that qualifying transactions concluded on or after the date of proclamation of the Act, namely 24 October 2014, but before publication of the final thresholds will have to be registered within 30 days of the date of publication of a final notice. This no doubt will leave many scrambling when the final thresholds come into force.

The draft thresholds need to be revised to deal with the unintended consequences and issues raised.

Andrew Cadman is a Director at PwC Legal.

Mbali Tshabalala

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Grant Carpenter

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Why there’s a strong uptick in top level BEE appointments after four year lull

Transformation of the top leadership teams in South African companies appears to be back on the agenda, with BEE appointments up by 10% from the year before.

After very static placement statistics between 2012 and 2015, there has been a notable upward trend in 2016.

There are two primary reasons for this significant increase in BEE appointments to senior positions.

Firstly, ongoing external procurement pressure is starting to make an impact. More and more companies are recognising that without transforming their executive and senior management ranks, they are being penalised where it counts, and are missing out on opportunities from big corporates and government institutions.

Secondly, there has also been a consistent and substantial increase in the talent pool of black executives, beyond just the expected corporate services roles such as HR, Marketing, Legal & Compliance or Corporate Affairs. So now, when a company has a vacancy at executive or senior management level in a core leadership role with full business, people and P&L accountability, and places a non-negotiable priority on appointing a black candidate, there is a greater likelihood of a successful outcome.

This is due to both the passage of time which has organically seen the rise of highly qualified black professionals with the requisite track records and experience, as well as ongoing pressure for companies to transform.

On the flip side, there has been a substantial reduction in the number of white male executive appointments, which were down to 29% from 55% the year before.

This could be in part as a result of the fact that clients primarily approach search firms with a mandate when they have a very challenging role to fill, and highly sought-after, top black professionals fall into this category.

That means search mandates will be weighted quite heavily on BEE appointments and securing leaders who have the requisite qualifications, experience and track records, while at the same time being a good fit for the specific role and company.

It has taken longer than expected to finally start seeing transformation numbers materialising at senior management and executive levels.

It will be interesting to see if this trajectory continues, or whether 2016 was just an outlier.

Last year’s placement statistics also tell another story, however, with gender diversity numbers going nowhere fast.

Sadly, the gender diversity numbers have not shifted much at all.

The typical ratios at executive levels are approximately 30:70 female to male – and this is almost exactly what we saw again last year with the appointment of female executives clocking in at 32% of the total top level placements. This is only a marginal increase from previous years.

If we see the trend continue on an upwards trajectory at the end of 2017, even if it is just a nominal increase, it could bode well for continued and sustained gender transformation in years to come. But at the moment there is nothing to suggest that there is a serious drive by boards to strategically appoint female leaders to key positions.

Debbie Goodman-Bhyat is the CEO of Jack Hammer.

Are better insights critical for the insurance industry?

In a highly competitive market driven by challenging economic conditions, insurance companies must more effectively analyse data.

This is critical if they are to improve the customer value proposition.

A consequence of this competitiveness is what is termed the underwriting cycle. When business is profitable, more insurers enter the market and premium rates reduce as they compete for market share. Eventually, premiums become too low to be profitable and insurers leave the market or reduce their involvement in various classes of business.

It is therefore important for an insurer to determine its position in the cycle. Not only will this enable the decision-makers to identify turning points but also adapt corporate strategies accordingly.

A short-term solution would be for the insurer to focus on its profit centre to cross-subsidise its losses in other areas. But to accomplish this, the organisation needs to have a holistic view of its business. There is simply no substitute for having good information and being able to leverage off that for sound analysis.

As part of this analysis, the distribution channel of an insurer plays a significant contributing role to the success (or failure) of a product. If the product or service is to reach the correct customer segment, the insurer must understand how the two components (product and channel) interact.

Having access to this information will reduce obscurity and allow for corrective actions to be taken. By having sight of this in as real-time a way as possible, the insurer can determine which products are successful and which ones need to be removed.

As with any industry, insurers are constantly competing with one another to launch innovative products that meet the needs to the increasingly segmented and complex demands of customers. With such a broad selection of products available, it becomes even more important to identify the ones that are profitable and relevant.

If the South African market has shown us anything then it is that customers respond to improved service. By streamlining administration, the issuing of policies, and reducing the time spent on a claims process, the insurer will be able to get more satisfied customers. In a data-driven environment, all of this can be monitored by embedding management processes into operations.

Additionally, measures such as service level agreements (which can be measured against targets) will also enable the insurer to become adaptive enough to respond to change.

It is clear that there needs to be a focus on improved data management in insurance. Those organisations unable to leverage their data assets will be at a significant disadvantage to competitors who will have greater insight into customers, products, performance, and underwriting risks.

Kelly Preston is the Data Analytics Manager at SilverBridge.

Why smart cities are safer cities

As technology evolves at exponential pace, and increasing numbers of individuals live in urban areas, the concept of Smart Cities is gaining momentum.

Smart Cities rely on massive volumes of data being gathered by sensor-based technology and fed into intelligent networks. If developed cohesively, these networks can integrate with one another, sharing data and forming a ‘super-network’ that pulls in every aspect of a Smart City – from energy management and smart grids, to public transport, traffic management, healthcare, information services, ubiquitous connectivity, intelligent buildings, and refuse and sanitation, to name just a few aspects.

But another, lesser-known benefit of Smart Cities is the ability to reduce crime. This is achieved in several ways:

Surveillance

Though this sparks lively debates around where the lines of personal privacy should be drawn, there’s no doubt that surveillance footage from networks of IP-connected cameras are very useful to authorities when tracking down suspects

With metro police authorities operating in a fully-connected way, they become more efficient and can ‘cover more ground’ in the fight against crime. For instance, incident reports can be completed at the scene of a crime, via simple forms on a mobile app. This can be combined with surveillance and historical data, served from Cloud platforms and interpreted by sophisticated analytics tools, empowering police with sharper insights when solving crimes.

Rapid response

Using camera and sensor technology, emergency medical and police response teams can receive automatic alerts to road accidents and other incidents. When just a few seconds can sometimes mark the difference between life and death, having ambulances dispatched more quickly has a huge impact. Another example is having smart cameras installed at Automated Teller Machines (ATMs). These smart cameras can incorporate smart analytics and be programmed to detect motion as well as behaviour that is deemed either suspicious or alarming. A person with a weapon could be identified with smart analytics and alert sent in real-time through to the control room, initiating a fast response.

Improved lighting

Criminals often take advantage of poorly-lit environments. But imagine if, for instance, a Smart City system included connectivity to street lights, so that when a bulb breaks, the relevant department gets an immediate alert and repair crews can attend to the problem. This same principle is applied to any public lighting, cameras, or other sensors.

Healthy environments

In the emerging world, sanitation in urban and peri-urban areas is a huge problem. With more efficient, technology-enabled refuse removal and disposal services, citizens benefit from a cleaner and more hygienic living environment – helping to reduce the spread of disease.

Disaster management

With enhanced communication capabilities, authorities can alert citizens to impending disasters or issues, such as flooding, hailstorms or tornadoes. Emergency relief can be more effectively distributed to affected areas. With stories of drownings in flash floods not uncommon in some South African cities during rainy seasons, this could have life-saving effects.

Two-way citizen engagement

Perhaps the most important safety initiative for Smart City planners is to build the tools in which citizens can report crimes anonymously, with geolocation and camera evidence that mobile apps enable. This extends the authorities’ ‘eyes and ears’ and helps to create a culture where people hold each other accountable for upholding the law and ensuring the safety of others.

While every city is different, South African cities across the country could certainly benefit from improved citizen safety. In other global case studies, introducing new technology-driven solutions have been slashed crime levels by up to 30% in some cities. As municipalities and political parties look for ways to garner greater public support, Smart Cities may provide them with the results they’re looking for. Every individual, in fact, would benefit from the enhanced public safety made possible by new technology.

Gavin Holme is the Business Head and Rudraksh Bhawalkar is the Practice Manager of Analytics at Wipro Limited Africa.

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