via Zim wage structure unsustainable – The Zimbabwe Independent April 8, 2016
A NUMBER of Zimbabwean companies are struggling to carry the heavy load that is brought by their current wage bills.
By Memory Nguwi
Questions have been raised before that the wage structure in the country is not sustainable. The government has learnt it the hard way and I am sure there are many companies in a similar situation; their wage bills are too high that they cannot consistently pay employees on time. Why are we in this situation?
The first problem with our wage system is that it is 99,9% fixed, meaning whether an employee performs or not, they still get paid. Whether people come to work or not, you still have to pay. Whether you are producing something or nothing, you still have to pay. How can that be sustainable? Other countries have moved towards a wage system that is 60% guaranteed and 40% variable. We need to correct this now and the government must show the way. A few private organisations have already started doing this.
The second problem is that salaries in this country are grade-based. You need to get into a higher grade in order to earn more. This has forced every employee to focus on getting into higher grades. The assumption with grading systems is that the higher you go the more value you add to the business. This is not always the case. You might have noticed that there are people in the same grade who are not performing the same but are earning exactly the same salary. Progressive companies have built pay structures with wider ranges so that they can accommodate the different levels of performance by employees in the same grade.
The third problem is that we pay people on the basis of what they want in order to maintain a certain life style. Regardless of the size of the organisation, most organisations give their CEOs top of the range luxury vehicles over and above the basic salary and benefits.
In some instances you get companies replacing the same vehicles after three to four years at a huge expense to the company. Why would a company incur costs of over a million dollars to buy vehicles for executives when the company needs slightly over a million to recapitalise. This kind of expenditure is what lower level employees see, especially when this happens in cases where they have gone for months without pay.
The fourth problem is that companies are still providing unnecessary benefits. Companies need to get rid of some of the unnecessary benefits. Why should a company pay DSTV, buy cellphones for the executives, etc? Surely at this level most of these executives can afford these things without company assistance. Other benefits that need to be removed are canteen meals (except where it is not possible for employees to go and buy their food without disrupting production). Give people a choice to buy their own food and choose what to eat for themselves. We have also now seen a proliferation of company buses. This a practice from hyperinflation. Let people find their own way to work; unless you are saying your location is not accessible to public transport. Imagine what catastrophe will befall your company if a full bus with employees is involved in an accident.
The fifth problem is the per diem problem. A number of companies pay their employees for going on training or strategy sessions outside town. The same employees are receiving a salary from the same company for the same days they are away on training.
As a result managers are creating workshops outside town or outside the country in order for them to earn per diems.
That is a very bad practice. The company needs to pay for accommodation, meals and transport and a refundable incidental expenses money. That is it.
The sixth problem is the practices of paying people when they have not created value. When we start paying people for value created we will never have a problem. Even in cases where performance incentives are paid, they are not well structured to allow the company to pay extra remuneration for extra value created. The problem is that such schemes pay people extra remuneration for no extra value because they are poorly structured.
In such schemes, very few companies define the minimum value to be created for the fixed remuneration we are already paying an employee. Only after the minimum threshold is reached should we start talking about paying for the extra value created.
The way forward is, you must define value and how that value is created in the context of your business. Once that is done, find a scientific way of sharing that value between employees and shareholders. This can be achieved through profit linked productivity measurement schemes.
The seventh and final problem is misplaced priorities when it comes to remuneration. Executives must, by all means, try to dismantle all symbols of wealth when ordinary employees are starving. Some of these symbols include top of the range vehicles, trips that are not business linked, expensive offices meant to show status when employees have not been paid.
Zimbabwean executives can do themselves a favour by leading by example; if employees have not been paid, the next time your cash position improves, pay the lower level employees first.
Most of them have no other means of raising money for their upkeep. We have heard stories of executives paying themselves every month while ordinary employees go for months without receiving anything.
One of the lessons Zimbabwean CEOs need to learn is that salaries and wages grow exponentially overtime (because of the wage system in the country) while revenue follows cycles over time and in some cases these cycles can rake havoc on your business. As a result of these two very different movements, be very careful when setting salaries. You may end up not being able to sustain the salaries.
The starting point in restoring competitiveness for Zimbabwean companies is to start paying people for the value they create and not pay people on the basis of what they need to maintain a preferred life style.
Nguwi is the managing consultant of Industrial Psychology Consultants (Pvt) Ltd, a management and human resources consulting firm. Phone 481946-48/ or cell number 0772 356 361 or e-mail: firstname.lastname@example.org or visit our website at www.ipcconsultants.com.