Salarygate: Time to shut the gate

via Salarygate: Time to shut the gate – The Zimbabwe Independent April 11, 2014 by Sam Hlabati

There have been lots of noises in all forms of media about the apparent exorbitant salaries that have been pocketed by executives in state-owned Enterprises (SOE’s) and other public entities.

Recently there was a time when there was a “salary scandal” headlines in the press every other alternative day.

The press was quick to name the “scandal” trend the Salarygate. We had the Willowgate scandal a couple of score years bygone, we had the Asiagate and now the Salarygate.

Let me start by tracing the origins of the suffix Gate.

It’s now over 40 years since the world became familiar with the word “Watergate”. The original “Gate” takes its name from the Watergate hotel complex in Washington DC — scene of the burglary which triggered the cover-up, the scandal and the resignation of President Richard Nixon.

Press editors are fond of a “-gate”. France had Winegate — a scandal which involved the use chemicals to turn vinegar wine into table quality.

An independent inquiry into betting on horse racing, set up by the UK Government in the early 1980s, became Totegate. Contemporarily there is Bloodgate, which refers to fake blood being used to allow a substitution in a rugby matches.

Let us come back to our own Salarygate.

Common citizens on the street curse when they mention names of particular individuals who were reported to be earning millions of the scarce dollars.

One has to forgive the ordinary citizens for being angry because the packages that were revealed would make the packages of executives of major corporations in the developed world look like schoolboys’ pocket money.

A few things have been pointed out as being the underlying flaws that were perpetuating the grandiose packages that look like “loot” amid the glaring tough economic situation, in which some citizens struggle to lay their hands on a single US dollar in a day.

politicians have shown “surprise”. It is quite surprising they were surprised by the salaries in the entities they were supposed to be overseeing.

Salaries have been slashed to levels that do not necessarily look too bad for senior civil servants in comparison to the salaries of their fellow civil servants. Of course the pegged salaries look minuscule in comparison to what the fellas were pocketing.

I remain intrigued with the oscillating behaviour of some commentators who took to the podium when salarygate came to the fore.

When the state decided to put a temporary cap on the salaries, the commentators crawled out of their holes and shouted about the illegality of the seemingly arbitrary action.

The underlying issue in this instance is surely more of a corporate governance than legality. The ones pitching the hue and cry about the proposed salary cuts are asking the question, “How did the state get to the proposed salary cap”?

That is understandably a good question to ask. I hope the state can answer that one. Wait all of you winchers and whiners sobbing about the salary cuts, I am not on your side.

Seriously none can explain, in proper flawless corporate governance terms, how the salarygate figures were conjectured.

So questions crop up. How did the governing bodies in those entities get to those figures? What was used as a benchmark? Some of the figures look like they were photocopied from our yesteryears’ mid 2000’s economy, and then the “creative strategists” just dropped the ZWD suffix for USD.

The governing bodies that allowed the salarygate astronomical remuneration creeps did not do well at their task, they can deny that.

The state’s action of pegging the salaries, though not the best option, was inevitable. the situation could not be perpetuated.

The question to both parties is universal. How did you get to determine the figures you determined?

I point to both the astronomical salaries and the pegged amounts. The answer would be that one had to do what one had to do, more so an acceptable excuse for the decision to peg amounts that for the extravagance of the governing bodies.

It is now time to get down to the important business of the day. It is unquestionable that the persons who are in charge of the entities have to be paid their due remuneration.

The operative theme is “due remuneration”. Due remuneration is a figure that is neither more nor less than required, just that and nothing else.

Executive reward structures are different from normal pay structures for other ordinary organisational team members. The difference is not just about the pay quanta, it is about the actual structuring of the package.

Executive reward should be structured as a “mix’” consisting mainly of base pay, perks or perquisites and most importantly, pay-at-risk (otherwise known as incentive pay — long and short-term).

The general structuring of the reward mix is such that the base pay and the perquisites would form a lesser portion of the total reward mix. The larger portion, which is the pay-at-risk, would be tied to both the individual executive’s performance and the overall performance of the organisation.

While public entities would ordinarily not have profit targets; the business performance target would be tied to the entity’s financial sustainability and the accomplishment of set goals.

Structuring the reward mix in that manner would ensure that the public entities are both run sustainably and do accomplish their set goals; without this, the executives in charge do not access the larger portion of their remuneration which would have been structured into the performance related pay-at-risk component.

The other question that remains is determining what the remuneration quantum should be for each of the different executives in the various entities.

I was amazed when I stumbled onto a talk show recently, where the salarygate issue was being discussed. What amazed me was the assertion that there is no need for a job evaluation exercise to solve the salarygate scandal.

Reward is the price paid by an organisation for the effort and knowledge that an individual will exert in executing the job.

The value of the job at an executive level is determined by the size of the responsibility that will be shouldered by the incumbent. There will always be a difference between the executive roles in different organisations; despite the roles carrying the same titles.

A job evaluation system that caters for the dimension of such differences should be used to get to the result of equitably graded jobs across the public entities which are paid equitably

Take note of the use of the word equitable. Equitable is characterised by fairness; or what is just and right; or in other words reasonable.

What the equitable concept entails is that no two similarly titled executive roles in two different entities would be graded the equally, lest they are truly equal; hence they will not necessarily be paid the same.

Whoever will champion the state enterprises job evaluation should have that in mind. There are a few job evaluation systems that can achieve the level of differentiation of similar jobs in different entities.

One system that is known to achieve that differentiation is the Hay system.

When announcing capping of salaries of the CEO’s of state-owned enterprises, Finance Minister Patrick Chinamasa said contracts of CEOs should spell out at the time of engagement the terminal benefits and circumstances under which an executive’s contract will be terminated.

That is good governance honourable, a salute is due.

The minister went further and said that the Hay job evaluation methodology which evaluates jobs against a set of common factors that measures know-how, problem solving, and accountability will be used.

Applause to the honourable minister, for that system will determine the “shape and size of the jobs” and give different jobs their due value, which will be translated to due remuneration.

I can already hear the hissing sounds of the opportunistic tenderpreneurs who were hoping to sneak in some shoddy half-baked job evaluation consultancy in the name of solving the problem; then walk away smiling all the way to the bank.

Of course, the Hay system is licenced to its owners, but that does not take away from the fact that the system is both robust and reliable.

Some parties with vested interests have been crying about foreign currency being spent to solve something that could be solved locally; albeit using inappropriate methodologies the honourable minister realised the need to solve the problems fully using the right systems.

All parties with undeclared vested interests should allow the state enough space to resolve the problem at hand.

At the end of the day, what is required in the state enterprises is equitable job grading and equitable executive rewards derived through a robust methodology, there is no time to entertain opportunistic tenderpreneurs otherwise we will graduate from Salarygate to Tenderpreneursgate. It is time to close the Salarygate and prevent other “Gates” from happening …..

Sam Hlabati is a Senior Professional in Human Resources (SPHR®), a Certified Compensation Professional (CCP®) and a Global Remuneration Professional (GRP®). E-mail; twitter handle; @samhlabati