People Dynamic November 2011

Nov 2011 • Vol 29 No. 11

People

Dynamics

 Permanent Placements  Temporary and flexible staffing  Employment Relations  Training

Journal of the South African Institute of People Management www.ipm.co.za

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CONTENTS EDITOR’S LETTER

2

PENSION FUND REGULATION

6

Regulation 28 – at what cost?

By Francesca Kilfoil

WELLNESS

8

Managing corporate wellness

By Lesanne Brooke

MENTOR MATTERS

10

Fired by SMS

By Gary Taylor

EMPLOYEE ENGAGEMENT

11

Staff engagement vital in choosing employee benefits

By Jennifer Grefen

BUSINESS TURNAROUND

12

Roadmap to recovery for failing businesses

By Jannie Rossouw

MEDICAL AID

14

Vital employers do not use nhi to cut medical benefits for employees

By Kenny Khoza

MANAGEMENT

15

Why isn’t your direct report starting that new project?

By Ken Blanchard

PAYROLL GIVING

16

R5 in payroll giving can generate over R1 Billion

By Kelvin Glen

NATIONAL HEALTH

17

Green paper indicates that NHI might not cost an arm and a leg

MANPOWER PLANNING

18

Concerted approach to manpower planning strategy: A must do

INCENTIVES

19

The effectiveness of incentives

By Karen Crous

WAGE NEGOTIATIONS

20

Striking accord – how to deal with negotiations

By Nritika Singh

CREDIT RATINGS

23

The term “blacklisting” is a thing of the past

By Darrell Beghin

GABRIEL’S HORN

24

Even communists make good bankers-without the frills FORTHCOMING ISSUES FEATURES JANUARY 2012 – Conference report back, coaching and mentoring, training and education, competencies.

FEBRUARY 2012 – Recruitment & Retention, Job Enrichment, Career and Talent Management

EDITOR’S LETTER

N

ovember marks the month of the annual IPM Convention which takes place in Sun City from 30 October to 2 November 2011.

This year’s theme, ‘Resourcing the future, positioning Africa for success,’ will set the stage for discussions regarding the future role of human resources in the organisation and the development of a different outlook on the integral part that human resources plays in each and every department within an organisation.

The convention has attracted many outstanding players in the human resources field who will share their knowledge and expertise in the field with topics such as the changing reward management landscape and effective reward strategies, a topic integral to this month’s theme of employee benefits and incentive programmes. Other topics include improving company and individual and company performance and developing innovative solutions for the growth of effective organisations.

Plenary discussions, workshops and case study sessions allow participants the opportunity to respond and initiate dialogue in certain areas while guest speakers will share their best practice models.

The gala dinner and IPM Excellence Awards will salute those men and women that have made a difference in their field and contribute significantly to their role and to furthering excellence in people management.

It looks to be an informative few days with significant outputs. All the best to the IPM for the convention.

Editorial Alex Bouche E-mail: alexandra@eaglepub.co.za Advertising Bookings Helen Bennetts Tel: 011 326 0303 Fax: 011 501 2878 E-mail: helen@eaglepub.co.za Publisher The Eagle Publishing Company Tel: 011 326 0303 Fax: 011 501 2878 E-mail: rob@eaglepub.co.za www.eaglepub.co.za Rob Furney Tel: 011 326 0303 Fax: 011 501 2878 E-mail: rob@eaglepub.co.za Tony Proudlock Tel: 011 326 0303 Fax: 011 501 2878 E-mail: tony@eaglepub.co.za Design Margie Carter Tel: 011 326 0303 E-mail: studio@eaglepub.co.za IPM Central Office 287 Kent & Harley Street, Randburg PO Box 3436, Randburg 2125 Switchboard: 011 329 3760 Keith Pietersen Tel: 011 329 3760 Fax: 011 329 3765 e-mail:keith@ipm.co.za www.ipm.co.za

People Dynamics is the monthly journal of the South Africa Institute of People Management (IPM).

The IPM is dedicated to the effective development of human potential.

In terms of fast emerging global challenges, it is critical to champion the strategic role of human resources and to acknowledge that both development and management are catalysts for growth.

In the spirit of progress and support, the IPM provides members with effective leadership and access to appropriate knowledge, information and the opportunity to network with key local and international players.

People Dynamics provide a forum for debate and discussion on all issues affecting people managers in South Africa, the African continent and beyond.

People Dynamics is distributed to all members of the South African Institute of People Management (IPM), and to other key decision-makers in the industry. To receive People Dynamics regularly and enjoy additional benefits, including discounts on HR-related services, professional networking events and HR vacancy postings on the IPM web-site, contact the membership manager of the IPM.

INTERNATIONAL FEDERATION OF TRAINING AND DEVELOPMENT ORGANISATIONS

WORLD FEDERATION OF PERSONNEL MANAGEMENT ASSOCIATIONS

No part of this publication may be reproduced without prior written approval from the IPM.

ISSN 0261-2399 The views expressed in this publication do not necessarily reflect the values of the IPM.

BHP Billiton SA Ltd

BHP Billiton is the world’s largest diversified natural resources company with 40,990 employees and 58,000 contractors working in more than 100 operations in over 25 countries.

In southern Africa we have a corporate centre in Johannesburg, and operate three BHP Billiton Energy Coal collieries in the Mpumalanga Province. Our Aluminium business includes two smelters in Richards Bay and a 47.1 per cent interest in the Mozal joint venture outside Maputo in Mozambique. Our Manganese business includes interests in Hotazel Manganese Mines, Manganese Metal Company and Metalloys.

While operating a global company responsibly in an increasingly complex world presents us with a range of challenges, we remain committed to ensuring the safety of our people and respecting our environment and the communities where we work. In South Africa we strive to transform this commitment into reality across all our operations.

That’s why we have invested over R300 million across a broad range of sustainable development projects in southern Africa over the past five years to make a long term difference in the areas of health, social and youth development, education, environment and enterprise development.

With a unique and varied portfolio, our breadth and diversity provides us with the flexibility to manage our growth in line with global demand. At BHP Billiton we are resourcing the future.

www.bhpbilliton.com

Express Employment Professionals – Respecting People. Impacting Business.

E

xpress Employment Professionals was established in 1983 by founders Robert A Funk, William H Stoller and James Gray from the dissolution of Acme Personnel, a Washington-based company in which all three were associates. In 1998 Express was established in South Africa and currently has offices in Bloemfontein, Cape Town, Centurion (HQ), Durban North, Durban South, Midrand, Pietermaritzburg, Pinetown, Port Elizabeth, Pretoria, Randburg, Richards Bay, Rosslyn, Rustenburg, Sandton and Witbank.

Globally Express Employment Professionals employ approximately 350,000 people from its more than 550 offices each year.

As a franchised business, we are both an international company large enough to serve you completely and a local office small enough to move quickly and act independently. Each franchise is a business owner and they are therefore able to react swiftly to clients needs.

Express Employment Professionals is an ISO 9001:2000 registered company who understands, that maintaining a competitive edge requires a steadfast dedication to providing a superior quality product delivered through exceptional service

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People Dynamics November 2011

levels.

Express Employment Professionals’ offices aim to professionally market and provide quality and specialised human resource solutions to the benefit of our customers.

Specialised Service Offerings to clients include:  Automated Fingerprint Identification System (AFIS) The South African Police Service (SAPS) discontinued the use of names and ID clearance checks for criminal records. The only legal avenue to do a criminal screening of a person is through AFIS, the SAPS Automated Fingerprint Identification System.

Ideco AFISwitch is South Africa’s sole provider to the private sector of automated criminal record checks. AFISwitch interfaces with SAPS Automated Fingerprint Identification System (AFIS) to determine the criminal background status of a person.

In order to capture fingerprints electronically, agents must be enrolled with the SAPS AFIS system and that requires certification which in turn requires training. Only persons with no criminal convictions and a clear credit record can be trained.

Express Employment Professionals are certified for AFIS screening.

Express utilises the MorphoSmart, a multipurpose fingerprint processing unit that has enhanced cryptographic security features and fake finger detection in conjunction with one of our strategic alliances.  Background Screening and CCMA checks In a highly competitive job market with spiralling unemployment and uncertain social and economic trends, there is a marked increase in the presentation of fraudulent credentials amongst candidates in all business sectors.

As an employer you are entitled to an honest workforce but are almost never in a position to verify this requirement quickly and economically. This is where Express Employment Professionals through tried and tested verification software systems and procedures operates with incomparable efficiency. This reliable verification system enables us to verify individual credentials for education, skills, abilities, experience, criminal and credit records.

Through strategic alliances Express can establish whether a candidate has any CCMA Awards or Labour Court judgments against or in favour of them.  Qualifications and Skills Testing South African Matric (Grade 12) and Senior Certificate qualifications are verified through state organisations. Of real value is the fact that the software used by Express is by means of formal agreement for the supply, according to strict service levels, of verification information for endorsed Matric certificates. Tertiary qualifications (degrees, certificates and diplomas) are verified through the National Qualifications Register (NQR). Express owns and utilises these NQR software to verify tertiary qualifications and verification is done directly with institutions not subscribed to the NQR. If you require testing and assessment of applicants, we organise and manage testing and assessments on your behalf, as and when you require. Testing varies from manual skills to computer skills. Skills tests include: Accounting, Call Centre, Financial, Healthcare, Industrial and Legal.  Personal Profile Analysis Personal Profile Analysis (PPA) provides an insight into how people behave at work. PPA enables your staff to become more aware of their work style. Only by improving their self-awareness will they have the means to consolidate their working strengths and compensate for their behavioural limitations.

A PPA can be used to improve your recruitment process, increase staff retention and enable more effective people management.

The insights gained from PPA will lead to a greater understanding of why your staff behaves the way they do and can be used to hone and modify managers’ communication skills.

Once a PPA is completed there are a wide range of reports available which will enable you to appreciate and understand the way your staff works.

Key Benefits  Fast, accurate and cost effective  Takes only 7-8 minutes to complete  Eliminates the need for guesswork  Enables more effective people management The Thomas International Management Systems comply with all the Health Professions Council of South Africa’s criteria and are regarded as a legal instrument. We are registered with the Psychometric board and carry out regular validation studies.

You are only as good as the people you employ and recruiting, training and developing the right people will give you a competitive edge.  Candidate Selection Process We know that every person we send you – whether filling in for a day or interviewing for your top position – represents Express. A lot of thought and care goes into selecting Express candidates. We take extra time to pre-qualify people to our own high standards.

We screen, interview and place people everyday. Our process creates more consistent results. Each person we place completes our thorough ISO-registered selection process. We pay attention to your needs, matching up candidates who not only fit the job description, but also your company. We check, test, verify and can even train to make sure you get the skills and credentials you requested. And we follow up after every placement or interview, to ensure that the person we send you lives up to your expectations.

We are proud to announce that in the 2011 PMR.africa Annual National Survey on Outsourced Staffing Solutions Companies, Express Employment Professionals was awarded a Bronze Arrow, equivalent to outstanding.

Companies were rated across a range of 22 attributes. The awards represent competitiveness, effectiveness, excellence, leadership, resilience and indicate customer service and customer satisfaction.

“You are only as good as the people you employ. Recruiting, training and developing the right people will give you a competitive edge.”

Contact your local Express Employment Professionals office for more on our specialised human resource services.

Bloemfontein Cape Town Carletonville Durban North Durban South Head Quarters

0861 222 281 0861 222 280 (018) 784 4868 0861 222 276 0861 222 265 0861 166 853

Midrand Pietermaritzburg Pinetown Port Elizabeth Pretoria Randburg

0860 604 949 0861 222 263 0861 177 758 0861 177 757 0860 403 500 087 741 1179

Richards Bay Rosslyn Rustenburg Sandton Witbank

0861 222 264 0860 608 787 0861 177 756 0861 177 755 0861 177 754

www.expresspros.co.za November 2011 People Dynamics

5

PENSION FUND REGULATION

Regulation 28 – at what cost?

By Francesca Kilfoil

T

he changes to Regulation 28 of the Pension Funds Act are due to come into effect on 31 December 2011. At face value what appear to be minor changes in terms of reporting and tweaks to the asset classes and limits, are in fact much more onerous. The changes will result in huge ramifications for all industry players.

Regulation 28, in terms of section 36 of the Pension Funds Act No 24 of 1956, governs the asset allocation of all retirement funds, which includes pensions, provident funds, retirement annuities and preservation funds. According to the National Treasury all retirement fund investments should be invested “in a prudent manner whereby economic development and growth can be achieved.”

The intention of Regulation 28 is very clear, it aims to protect the savings of the retirement fund member and ensure adequate risk adjusted returns, at a member level, to meet sufficient liquidity needs and liabilities. In line with the funds’ interest, all investing should be stable, transparent and sustainable in the long-term and apply across all asset classes. This means a broader investment selection and lower correlation between portfolios.

The revised regulation has been long awaited as it was last amended in 1998. Drafts of the revision were released in February and December 2010 for public comment.The final regulation was approved by the Minister and gazetted on 4 March 2011 with an effective date of 1 July 2011. However, in considering the practical difficulties for funds to effect full compliance in such a short period of time, the Financial Services Board (FSB) applied a six month transition period until 31 December 2011.

During this initial six month period, which we are almost through, funds are expected to adjust their monitoring and reporting systems and ensure that the investments are realigned within the new asset class parameters.

With the deadline looming and a great deal of uncertainty around the implementation of the required reporting, does this allow sufficient time

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People Dynamics November 2011

for retirement funds to fully comply with the revised regulation? And, more importantly, is the December deadline realistic? However, before we debate this, let’s take a look at the appropriateness of the revised regulation as the changes do come at a significant cost to the industry.

Which, I believe will result in pension fund members carrying the load.

According to the FSB there are currently around 3 500 registered funds with private retirement assets totally R1.1 trillion. South Africa’s gross savings as a percentage of GDP is approximately 15.4% which lags significantly behind China – in first position – at 53.8% and with only around 5% of South Africans making adequate provision for their retirement, it is important that pension funds are properly managed and reviewed on a regular basis.

In terms of their fiduciary duties and responsibilities Trustees are going to have to ensure that their funds are moving towards full compliance within the transition period. Apart from the actual asset classes and limits, the most significant change is in terms of reporting.

Investment limits now apply at an individual member level and no longer at a fund level. As a result, for the larger funds, especially those offering individual member choice, compliance could mean an extensive exercise to implement new monitoring and control measures. This could prove to be a very expensive exercise and our concern is who will ultimately pay for these system enhancements.

The Registrar is allowing funds to be exempt from having to report any breach of the regulation limits immediately, on a member level, and is satisfied that member breaches can be reported on a quarterly basis.

With the first report due for the period ending 31 March 2012.

However, should a fund be in breach of a regulation limit, the fund has a maximum of 12 months to realign the investment. Any such breach must be reported to the FSB immediately. This poses another reporting obstacle for retirement funds as market movements could be the cause of funds being non-compliant. With regular monthly contributions to group

PENSION FUND REGULATION schemes, should a fund be in breach of a limit, the investment must not be permitted if it exacerbates the breach. This in turn could complicate the requirement to invest contributions within a certain time period.

The revised regulation is probably the most onerous for asset managers. Currently all asset managers are required to report compliance on fund level but, effective 1 January 2012 this requirement is was also at a member level. For those operating in a retail space this is probably no big deal as they already have systems, processes and procedures in place however, on the institutional side, substantial system modifications will be required.

Currently institutional asset managers do not hold member records – they are held by the fund administrator – who in most cases are separate legal entities. As such, some kind of interface between the asset manager and fund administrator will be required or the asset manager has to spec, test and implement monitoring systems before the end of the year in order to report any breaches. It is possible that the new regulation may force certain parties to merge their businesses in order to comply. Alternatively asset managers may have to outsource this function to a third party!

This is where costs become a factor. Asset managers may have to increase fees by 2 or 3 basis points to recover or partly finance the increased cost of outsourcing, merging and system adjustments.

Asset managers also need to take cognisance of the new “lookthrough� principal and apply it to all investments at an underlying asset level. This means that a fund cannot attempt to circumvent the asset class limits in the regulations where the asset is actually made up of a number of underlying assets. The fund is required to disclose the underlying assets in each asset class so that the real economic exposure is apparent. Private equity and hedge funds are to be excluded from this principle as these vehicles are to be seen as the final asset.

Hedge Funds create an additional challenge because pricing changes monthly and not daily, which will impact the requirement for the reporting of breaches on a daily basis.“How can this be accommodated and at what cost?�

We know that the ultimate responsibility for reporting non compliance lies with the Board, however, credible and accurate data needs to be fed from the asset manager whilst it is the administrator who holds the member records. It will be the employer’s responsibility to inform and educate their members regarding Regulation 28 or at least allow the consultants to do so.

As for the members – Regulation 28 can be viewed as a positive or negative. Members with individual member choice can construct a 100% risky portfolio with a combination of equities, property and hedge funds. Members are not permitted to invest outside of the limits laid out in the Regulation however currently there are cases whereby members who participate in umbrella arrangements are invested 100% in property or 100% in equities.

Traditionally, members close to retirement have moved their accumulated assets into cash or near cash instruments. The new regulation will only permit a maximum of 25% in any single money market instrument, which again has potential for increased costs.

Our concern is that the new Regulation may discourage funds from offering individual member choice as a result of a potential increase in costs due to the reporting requirements. Ultimately, we suspect, it will be the member who picks up any additional costs incurred in the implementation of Regulation 28. This will most probably be in the form of higher asset management fees.

It is essential that Investment Policy Statements are revised to take into account the new reporting requirements and that an appropriate risk management policy is adopted. It is furthermore essential that Trustees are made aware of any additional fees or potential risks.

So my questions around Regulation 28 remain, is the compliance deadline realistic, have the cost implications been carefully considered and are we discouraging individual investment choice?

Francesca Kilfoil, employee benefit specialist, PSG Konsult Corporate, 021-852-1193

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WELLNESS

Managing corporate wellness

By Lesanne Brooke

L

eaders, managers and human resource professionals recognise the need for wellness programmes to maintain effectiveness through times of change. Why and how do we ensure that the feel-good factor is integrated and sustained?

This is a changing world and the instability translates in ways that directly affect workplace behaviour. Concerns about financial security, job security and physical security create an underlying tension and affect relationships at work and at home.This affects performance.

Corporate wellness programmes are necessarily responding to the need for stress and tension management. The success of workplace wellness programmes can be found in global research statistics: less absenteeism and improved productivity are major motivators as wellness stakes its valid claim to budget resources.

The real aim of wellness programmes From an organisational perspective, the deeper meaning of corporate wellness is the ability to maintain or gain market presence through challenging times.

Direct stressors like redundancies, experience of crime or family problems; day-to -day details like traffic, technology break downs, tensions between colleagues, negative media headlines etc. create under-functioning, short-fused, problem-prone employees.

Lacking outlets and coping skills for dealing with such common stress, the problem is compounded over and over again. Burnout, illness, addiction, conflict, inefficiency and depression bloom. Out with talented skillsexpression and in with repetitive crisis management.

The aim of wellness programmes is to support adaptable, vital, fullyfunctioning employees. Fierce competition in a fast-changing world demands this priority. The actual outcomes required are not just stress management and happy employees, but qualities that shape corporate competence, stabilise employers through rocky economies and maintain the competitive edge.

Balancing the heightened stress and many factors of change-realities is the foundation of true workplace health.

The deeper motivation for corporate wellness:  stable employees expressing their unique talents  lateral thinking  clear vision  cohesive team relationships  dynamic problem solving abilities  leadership confidence and stamina  dependability  follow-through  flexibility} How to make programmes meaningful After an initial focus on exercise programmes and general health check-ups, the wellness concept has developed into a more holistic approach. Relaxation spaces and treatments have been added, environments have been greened.

As we have seen, true wellness needs to support people to manage their stress and stressors in ways that enhance their performance, behaviours and interpersonal skills.

Physical fitness plays a vital role in improving stamina and health; spa treatments and fun days bring release, but the effects are not sustainable without emotional fitness. Emotional fitness (or EQ) builds coping skills, resistance and core well-being. Counselling and leadership coaching programmes have been added to the support that physical programmes offer.

Sustainability comes when corporate wellness programmes nurture and validate the vital qualities eroded by stress, trauma and tension.

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People Dynamics November 2011

    

In essence the focus of wellness must include: A healthy environment Inter-personal communication Fitness and relaxation Support and validation Healthy coping skills and skills enhancement

When is a deeper investment into wellness required?

Traumatic group experiences If there has been a traumatic event that affects the team, a period of sustained tension or big company changes, denial and unhealthy coping skills may create a group ethos of limited functioning and de-motivated thinking.

Individuals may deal with some of these issues privately, but the group dynamic will over-run positive changes and limit outcomes. In such a case, functional wellness can only be restored with an intervention that goes beneath the overlay of resistance and entrenched behaviour.

Personal trauma This also applies to individuals who have experienced a private trauma and feel unable to release the effect of this on their behaviours. Sometimes this can be in spite of counselling, because there is an unconscious physical resistance, or the person may resist talking to anyone because they find it too painful to deal with memories or patterns.

WELLNESS Again, this would require a specific, gentle intervention, preferably in the context of ongoing counselling support.

A need for change Wellness enhances and restores creativity. An organisation may require a shift in focus, leading-edge thinking and dynamic problem solving. In this instance, conventional thinking patterns and behaviours need to be suspended to allow for change and insights. Specific interventions can greatly contribute to opening people’s minds and releasing in-the-box attitudes.

Interventions to break through blocks and habitual ways Creative interventions allow break-through to come naturally, by suspending conventional reality and allowing for safe release of whatever has caused the restriction. Such interventions do not need to name, analyse or re-experience negative memories, patterns or traumas.

Through individual coaching, or group workshops, facilitated breakthrough experiences can really make the difference and create effective overall corporate wellness. When done in a group, the enjoyment and bonding increase the effects and create a sense of effortless, supported change.

With careful crafting of individual and group dynamics, processes could include cross-over activities between brain hemispheres, creative non-competitive activities that allow for spontaneous play and go beneath the protective shield of logic and specific exercises to free core-held resistance.

Some people find this unusual for their ‘work-self’, so it must be contextualised in a way that feels comfortable. Rather than presenting it as an intervention, it is better perceived as an unusual way to encourage creative thinking or inter-personal dynamics.

Back-to-basics methodology Encouraging a new perspective As we know, the right-brain is the infinite, creative brain, whereas the left brain is the focussed, detailed brain which maintains rational, workplace functioning. It can only respond from a finite, known set of information.

Simple techniques for making the left brain safe, whilst opening to right brain consciousness, allow for significant insights, releases and creative patterning. (Suspending logic for creative problem-solving can be done through puzzles and multi-sensory activities.) ‘Returning’ to left

brain thinking means a new (now known) data-pattern and therefore allows for different behaviours.

When specifically facilitated, change takes place without challenging the established coping reality of the individual.This makes it particularly effective. Such techniques open the mind; enhance well-being, release traumas and change behaviours. Participants usually report renewed vigour and focus and find that the changes are easily incorporated in both the short and long term.

Physical release Tension, trauma and rigid thinking patterns are also held in the body.

Cellular and muscle memory is usually unreachable by analysing and talking. Specific muscles and nerves hold these patterns and left-brain thinking bypasses them. Exercise can relieve the muscles without reaching the core where body memories are stored. There may be temporary release, but triggers will activate the body memory and old patterns will ‘habitualise’ the response.

A series of exercises called Trauma or Tension Release Exercises (TRE) are specifically designed to centre and relax the body at the precise place of physical response. These exercises induce gentle vibrations that ease old stress-based chemicals out of the muscles and tone the central nervous system releasing limiting body-memories.This enables almost effortless change.

In the context of a wellness intervention, these exercises shift group dynamics as well as individual behaviour patterns. When these techniques are combined with skills building, the overall effect translates directly to the desired outcomes for both employee and employer.

Commit to the principle of true wellness Valuing the way in which the wellness budget is spent requires a creative, holistic approach and the intention for positive change. Seemingly simple interventions make a significant contribution to the successful, long term outcomes of corporate wellness programmes when part of a considered approach to managing people.

Investing in employees and their well-being brings results and sustainable results will encourage genuine valuing of the wellness programme and its corporate role.

Managing wellness well is genuinely win-win!

Lesanne Brooke, facilitator and coach, dialogue Communications Training, communicate@dialoguejhb.co.za, (011) 4426572

November 2011 People Dynamics

9

MENTOR MATTERS

Fired by SMS

By Gary Taylor

N

o, we are not going to discuss technical labour relations issues. It just struck me the other day, when Australia’s equivalent of the CCMA upheld the termination of a spray painter who was informed of his sacking by a SMS from his employer. His five years of service came to an end after a mistake costing his employer $ 74,000.

The legalities of notice-giving are not the issue of this article, but more specifically the way in which employers part from their ex-staff. And here I am talking about the soft stuff. What is the final impression we leave in the minds of employees when they walk out the door for the last time?

The confident (read “arrogant”) employer says that we are able to attract and retain the best, so leavers are losers – there are plenty of other fish in the sea, etc. I have caught myself thinking that in my naïve years, only to see those sore ex-employees returning in the form of an influential regulator whose favour you now need. Sometimes they return as a customer you wish to woo, or back in the fold through a merger, and you scratch your head to remember what the terms of your parting were - at least, in their minds.

Let’s take the case of the talented employee who gets a better job with the opposition.You try to entice them to stay, sometimes going out on a limb, but you lose them anyway. So, you rationalise that “if that’s the way you’re going to be, you might as well go…” and they suddenly get relegated from someone with a great career, to traitorous outsider before they have even served their notice. What legacy have we created? Would they ever come back for the right job?

On the other end of the spectrum are those who you terminated. Our customary response is to punish their actions through the industrial relations process, but also to ostracize the person in the hallway. Why? To set an example, of course. OK, so the person loses their job in terms of the Act, but where is the benefit of humiliating and creating an enemy for life out of them?

Several of today’s key players have a “past” – whether they have reformed or not – so why go out of your way to crush the dismissed person as well? As parents, we can punish a child’s behaviour while still loving the person. Too soft or possibly pragmatic risk management?!

The third category of leaver comprises the majority, namely those who are not necessarily headhunted stars, nor the departing demons. They are just people who are moving on for a myriad of reasons which suit them.

Mostly they are seeking career advancement, money or to get away from a boss.To be honest, that’s probably why all of us left our previous job, so how do we treat them when they choose to move on for the same reasons they joined?

Firstly, any bonus or performance increase is frozen.At senior levels, they immediately get frozen out of the inner circle, and heaven help them if they are going to the opposition – pack your bags is the frequent response. Even if that is the protocol, the issue is how we do it.

What if HR were to spend extra time with our leavers – not just handing them the exit Interview form and ensuring they hand back their keys, laptop and Blackberry, but just asking them how they are feeling about the move, whether they need any assistance with a change of medical aid, exiting the provident fund or just talking about their time in your employ, and feeling good about it. Imagine a phone call in the first week of their new job, just to wish them well.

Farewell parties might not necessarily add value, as they are often strained and contrived. It is the simple and personal touches which will contribute most to the impression which we would like all leavers to hold: If the right job comes up in future, I would consider coming back If someone talented wants a job there, I would recommend the employer If I have to do business with them in the future, that would be fine If I can make the handover smooth for my successor, I will Unilever has been one such employer that turns ex-employees into advocates. Historically, they have had pretty high turnover amongst their graduate trainees, but they maintained that they do well enough with those who stayed, and would do business with those who left. And they do.Those leavers join suppliers, competitors and, if nothing else, remain consumers.

Few of them regret their time at Unilever, and are proud to have them on their CV.That’s pretty mature on the part of an ex-employer.

Alumni management is something which the old lifetime employers used to do well, when people would retire after a long career with one employer.

But, to be honest, that had little return on investment, other than just being nice to the pensioners.These days, people have a very different career track, and familiar faces pop up in the strangest of places.

Hopefully, we are not just being nice to ex-employees to prevent vengeful attacks in future. Our behaviour possibly speaks to our true culture.

Regardless of your motive, it is worth considering how you are going to treat your ex-employees.They are a stakeholder, regardless of whether you want them to be, and you normally have a very brief window within which to impact their impression of you before it sets in their mind.

Gary Taylor has written several articles for People Dynamics over the years. His Mentor Matters is a regular column in which he addresses topical HR issues from the perspective of a career HR practitioner (and mentor) and offers some new perspectives on regular issues that HR practitioners face daily.

Gary has been in HR for 25 years, in National Mutual and Unilever, HR director at Medscheme for 14 years, and three years as Executive Director: HR at Wits University.Two years ago, he was appointed to start up HR for a new university in Saudi Arabia, where he is now Director of the Policy Office. He is registered as a Master HR Practitioner and Mentor with the SABPP, served as vice president for the IPM for two years, and received the IPM President’s Award in 2008. He has written a chapter for an HR book, been published in People Dynamics and HR Future, and was the SA correspondent for the UK magazine, People Management, for a year.

EMPLOYEE ENGAGEMENT

Staff engagement vital in choosing employee benefits

By Jennifer Grefen mployee benefits have historically been provided by companies as a means of attracting and retaining good calibre staff. However, it is important that employees understand the benefits which have been provided for them, as well as any choice with regards to contribution levels, risk cover, investments etc which may be available to them.

According to the provision of employee benefits arrangements are an extension of the employers HR promise to its staff, and the employer and fund trustees should engage the services of an expert employee benefits financial intermediary or consultant who can advise the employer and staff of the various options available, and the possible consequences of those elections.

It is important to seek expert assistance from a fully licensed intermediary – who is authorised to provide advice on pensions and/or retail pensions – who will assist in structuring the most appropriate employee benefits solution, whereby the pros and cons of all options can be debated, and explain to staff how these will practically benefit them.

In a defined contribution fund, members’ savings works much like a bank account, with the member bearing the investment risk, and thus it has become more essential than ever to ensure that employee benefits are appropriate for the members. Employee benefits can still offer staff ‘unique’ benefits as part of their overall package, including tax-efficiency and risk benefits based on group rates that may not be possible for them to find on an individual basis, and also provide a basic benefit without the need to submit medical evidence below an agreed threshold.

For the employer, the provision of certain benefits also reduces the extent to which there may be a sense of responsibility for staff members who end up in difficult financial circumstances due to illness or an accident.

E

Having the appropriate disability benefits in place can also mean that a worker who is no longer fully productive due to illness or injury can ‘retire’ more easily.

Smaller companies often choose not to offer employee benefits due to the perceived high cost. There are different options available to smaller organisations such as umbrella scheme arrangements that can reduce costs or choosing to structure benefits outside of the ‘traditional’ range.

The type of retirement benefit to be offered, as well as the contribution rates agreed, is one of the biggest decisions for employers. Thereafter, it is a matter of choosing the type and amount of additional risk benefits to be added, such as death, disability, etc.

While companies may want to choose a cheaper option for their employees, money should not always be the main deciding factor. It is not simply a matter of saving money when choosing what benefits to offer staff.

It is also vital to ensure that what money is being spent is spent wisely, by choosing benefits that are appropriate to employees, and will provide them with the means to make meaningful savings towards their retirement while also offering protection in the event of unforeseen circumstances such as death or disability.

The advantages of an effective employee benefits arrangement can never be underestimated. Money is a deeply emotional substance and appropriate employee benefits provisions are able to make massive differences to employees’ lifestyle and standard of living.

Jennifer Grefen, member of the Employee Benefits Exco, Financial Intermediaries Association of Southern Africa (FIA), 012 665 0085, www.fia.org.za.

BUSINESS TURNAROUND

Roadmap to recovery for failing businesses

By Jannie Rossouw

S

ome 60% of the South African labour force is currently employed by small and medium-sized businesses (SME’s). Contributing 50% of the country’s GDP, South Africa’s SMME sector currently comprises some 1.5 million small, micro and medium-sized enterprises, with approximately 140 000 businesses with a turnover of more than R1 million per annum.

Despite these successful drivers, and the impact of SME’s on the growth of the South African economy, there is still an 80% failure rate among startups within the first two years of operation. Cash flow and access to finance, complicated regulatory challenges and restrictive labour practices are some of the factors that hamper opportunities for SME’s, and contribute to noncompetitiveness.

In a demanding economy that continues to battle unemployment, it is vital to recognise the contribution of SMEs to our economy, but also the challenges they face.

Regardless of what the reasons are for businesses going through hardship, turning around a declining business is challenging and complex. It is not only external factors, but also the attributes, needs and motivation of the entrepreneur that hampers his ability to reach out in the time of a crisis.

Business failure is a demoralising event in anyone’s life because it impacts both your professional and personal self-esteem, but, critical to the survival of your business, is your ability to reach out and get help – from the right source.

Many owners of struggling businesses are often too proud to acknowledge failure, or are reluctant to invite external scrutiny into a business that has been driven by passion and personal ambition.The good news is that most businesses in distress can be saved if the necessary corrective actions are implemented within a clear and defined business turnaround plan.

A turnaround plan identifies and corrects your business’ operational and financial challenges. It formulates the steps you must take to help your business survive in the short term so that you can turn it around and grow it into the future. In September this year Sanlam launched the Business Turnaround Book as part of the client value proposition of Cobalt Solutions for Business Owners, Sanlam’s portfolio of financial solutions for business owner (www.sanlam.co.za/cobalt).

This Business Turnaround Book has been designed as a workbook that empowers the business owner through a DIY, step-by-step process to accurately identify challenges facing his business, and implementing corrective strategies to help salvage the business.

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People Dynamics November 2011

It is true that no independent outsider will understand your business better than yourself, but your passion for your business may leave you blind for some glaring, fundamental oversights that may be at the root of the challenge. The processes outlined in the Turnaround book will force you to think through those critical challenges you may never have considered otherwise.

Most importantly, it provides useful guidelines on how to manage the stakeholders in a business in time of a crisis – from customers, suppliers, employees, banks, and creditors, to family and friends. Very few business owners realise the importance of the co-operation of these stakeholders, and the essential role they play in the success of your business turnaround.

Most small business owners facing a business crisis are caught in a classic Catch-22 situation. On the one hand, they require specialised business turnaround expertise to save their business. On the other hand, their financial crisis prohibits them from hiring the turnaround specialists who offer the expertise.

This typically leaves the owner with one of three choices: walk away at great personal financial ruin; hope for someone to bail the business out of trouble, or simply battle on.Most battle on, often trying to work their way out of the crisis using the exact same strategies which led to the business’ failure in the first place. They change little or nothing about the business, hoping it will work this time – and it rarely does.

Worse, far too many small business owners think that a cash injection is all that is needed to save any business.They plough the last of their life’s savings into the ailing business, and end up losing everything, the business included.

Given the challenges facing the SME market and the current start-up failure rate in South Africa, a critical element of any business plan should be a turnaround solution. It is important to remember that all is not lost when a business goes through a phase of hardship.All too often business owners give up the fight too early due to the lack of turnaround know-how – the Sanlam Business Turnaround Book will empower you with both the knowledge and the courage to help steer your business back onto the growth path.

The Sanlam Business Turnaround Book is available to all business owners free of charge, and can be downloaded via www.sanlam.co.za/ businessturnaroundbook. Please contact Sanlam at 0860100 539 for further information regarding the Business Turnaround Book.

Sanlam Personal Finance, Jannie Rossouw, Head, Sanlam Business Market, 021 947 3515, jannie.rossouw@sanlam.co.za

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MEDICAL AID

Vital employers do not use NHI to cut medical benefits for employees

By Kenny Khoza

F

urther clarity on the government’s proposed National Health Insurance (NHI) initiative should be welcomed by all stakeholders, yet with the green paper suggesting that the project will be phased in over the next 14 years, it is essential employers do not stop offering medical scheme benefits to employees in light of the forthcoming change.

According to Andre Jacobs at Aon Hewitt South Africa, currently only around 18% of South Africans have some form of medical scheme cover through private medical schemes. “This is a shocking figure and demonstrates exactly why it is so essential to take this step towards providing essential healthcare to all South African citizens. We can no longer tolerate a healthcare system where only those who can pay for healthcare will have access to it.”

However, he warns that with the NHI project only expected to begin properly offering medical care to all South Africans from 2025, it is important that those without healthcare currently are not forgotten in the interim. “I would urge all businesses with the capacity for offering medical schemes to their current employees to do so now. There is still much to be both discussed and decided upon before NHI is actually implemented and it is vital not to exclude people from quality healthcare in the meantime.”

“This is a hugely complex project and we believe that with such far-reaching changes being introduced and the very long timeframe involved, further consultation – on top of that stated by the government – will be needed throughout the project.”

According to the green paper, 10 health districts are to be selected to pilot the NHI proposals from 2012, which will then be expanded to 20 pilot projects in 2013. In addition, the first five years of NHI will include both the pilot studies and a strengthening

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of the current health system.

Jacobs says that destructive criticism of NHI will only prolong a human tragedy that denies most South African citizens access to quality healthcare and should be avoided at all costs. “We need progressive and consultative forums under the National Economic Development and Labour Council (NEDLAC), whereby we can look at the objectives and evaluate progress, change plans, strategy or tactics, as we progress on this path to human dignity.”

However, Jacobs says even after the introduction of NHI, private medical schemes are still expected to form part of South Africa’s healthcare system. “The minister made it clear that it is not the intention of Government to abolish private medical schemes if individual members wish to retain their membership. In addition, while the actual benefit set of what will be covered under the scheme was not defined, it was made clear that health benefits provided under the NHI system will not be fully comprehensive.

“Following the introduction of NHI, there may still be a strong case for employers to offer additional top up medical benefits to employees, such as dread disease and critical illness policies. These can prove invaluable at the time of any claim by helping to ease the suffering for the patient.”

Aon South Africa is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and speciality insurance underwriting.

The company employs more than 1500 professionals in its 17 offices in South Africa. Aon employs over 2000 people on the African continent. Aon South Africa’s head office is based in Sandton, Johannesburg.

MANAGEMENT

Why isn’t your direct report starting that new project?

By Ken Blanchard

I

f only management was as simple as assigning tasks and checking on progress! The reality is often that managers are faced with employees who seem willing to take on new projects, but then never quite get started. Ken Blanchard tackles the problem.

We’ve all been there – an employee who says they are going to get a job done, but doesn’t seem inclined to put their words into action.There is little more infuriating, especially when even setting deadlines doesn’t work.

Follow-up conversations can identify a lot of reasons why action hasn’t occurred, but often you still have a sense that you haven’t really explored the real issues, and feel that the procrastination is likely to continue, if not on this project, then the next.

If you find yourself in this situation, with an employee who doesn’t seem enthused to take on a new project and you can’t quite figure out why, here are three areas to explore.These aren’t my particular ideas – they were first identified by Edward Deci and Richard Ryan back in the 1970’s – but they make sense to me, and are now being rediscovered as management theorists and practitioners look at what factors create an engaging work environment and, significantly, what motivates people.

Autonomy Everyone feels the need to exercise some level of control over their environment. Is the new role or project that you are assigning promoting autonomy in your employee, or will working on it make them more dependent on you and your organisation? Could it be that setting deadlines – which of course you do to try to motivate – in fact has the opposite effect and becomes de-motivating, as it is perceived as an attempt to restrict and control? Employees will naturally gravitate towards projects and roles that increase their sense of autonomy, while retreating from environments they feel decrease it.What is your new role or project offering? A chance for them to spread their wings, or have them clipped?

Relatedness People are social animals. It’s important to create opportunities for people to work in a way that allows them to feel cared for by others, and to be able to give back to others. Even for people who seemingly want to work in an isolated manner with little interaction, there is still a need to be seen, accepted, and validated by others. Will the new project you are proposing lead to an increased sense of connectedness, or promote isolation?

Competence Everyone needs to feel that they’re growing. People will move toward assignments which provide growth opportunities, and will avoid assignments which seem to be dead ends.While routine work is a part of most jobs, keep in mind that a properly constructed role or task will include opportunities to learn new skills and increase competencies. How does this new task rate on that scale?

Continuing on the competence theme, as you will know if you’re a regular reader of this column, I am a great believer in timely and appropriate feedback, and especially of praising. Deci and Reid found that giving positive feedback - especially when it is unexpected – increases motivation, while negative feedback makes people less likely to complete tasks competently and on time, as people feel their competence is being challenged and quickly get even more disillusioned.

People usually have good reasons why they act on certain tasks and why they delay taking action on others, even if they don’t quite understand them themselves. I suspect many of us have long ‘to do’ lists with items that have been languishing there for weeks, even months!

We put them off again and again.Yet we wouldn’t hesitate to make time to do those things we really want to do, even if we are already very busy.

Setting clear goals, providing day-to-day coaching, and following up with proper amounts of direction and support are vital management tools, and good leaders should be using them all on a day-to-day basis. If you are ticking all these boxes, yet still have employees who appear to be slow to take action, then it is time to ask whether these sometimes hidden drivers of behaviour should be taken into account.

So if someone you know is dragging their feet on an assignment, keep in mind their perceptions of Autonomy, Relatedness, and Competence.Though often unspoken, they are always a part of an employee’s decision process.

For more information on Blanchard’s Leadership Development expertise, email southafrica@kenblanchard.com or call 0800 980 814. Web www.kenblanchard.comSocial Media Links: Twitter @kenblanchard; Facebook: http://www.facebook.com/ kenblanchardfanpage, Blog: www.HowWeLead.org, Business and Management forum: www.leaderchat.org. © The Ken Blanchard Companies, 2011 November 2011 People Dynamics

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PAYROLL GIVING

R5 in payroll giving can generate over R1 Billion

By Kelvin Glen

P

ayroll Giving through South Africa’s collaborative good cause organisation, The Giving Organisation Trust, has the potential to generate over R1 billion to help those in need, if every earning South African gave R5 per month.The funds raised will be shared amongst the organisation’s ten non-profit member organisations.

The Giving Organisation Trust has already signed up 93 companies for Payroll Giving and aims to sign up 200 companies by the end of this financial year. All funds raised through this donations mechanism, which was started in 2005 by The Giving Organisation Trust and its predecessor, the SA Children’s Charity Trust, are allocated equally amongst the ten charities.

The Payroll Giving donation platform is widely used in the United Kingdom and USA, where around 80% of companies contribute.

However, only around 10% of companies make use of the platform locally. The platform provides companies with a basis to improve the Triple Bottom Line. It can improve compliance with JSE listingrequirements in terms of the “Social Responsibility Index” and fulfils a number of King II Reporting criteria.

Payroll Giving has the ability to revolutionise the way that charities operate in South Africa. A joint effort from companies will enable us to touch lives in every sphere of our country.Voluntarily donating on a monthly basis will help provide treatment to those who are ill, alleviate poverty, make dreams come true, make a difference in the life of an animal and contribute to the sustainability of our environment.

The Giving Organisation Trust, whose patrons are Archbishop Emeritus Desmond Tutu and Her Serene Highness, Charlene Princess of Monaco has pioneered a new, collaborative fund raising and sharing approach that is shaping a sustainable financial model for a historically fragmented sector.

The organisation’s Payroll Giving programme enables employees to donate from as little as R5 monthly, which is deducted voluntarily from their monthly salary and paid directly into The Giving Organisation Trust Account. The funds within the Trust are then equally directed

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People Dynamics November 2011

to ten of the country’s most renowned and reputable non-profit organisations on a monthly basis.

The Giving Organisation Trust’s member charities are the ACFS Community Education and Feeding Scheme, Cancer Association of South Africa (CANSA), Childhood Cancer Foundation South Africa (CHOC), Cotlands, Desmond Tutu HIV Foundation,The Hope/Ithemba Trust, National Council of SPCAs (NSPCA); Reach for a Dream Foundation, South African Red Cross Society and the World Wild Fund for Nature (WWF).While working together, they all remain focused on the visions and mission to which each charity subscribes.

To date, companies using Payroll Giving include Accenture, Arup, City Lodge, Ford, iBurst, MTN, Petro SA, Multichoice, SABS, Santam, Strate and Sun International. According to MTN South Africa Payroll Supervisor, Joyce Thobejane, “By signing up for Payroll Giving, we have afforded our staff the opportunity to make a difference to a charitable cause of their choice on an on-going basis. MTN has between 60 to 70% of our staff contributing between R5 to R1 000 on a monthly basis to this amazing programme.”

Companies have the option to either manage the administrative process in-house or to nominate The Giving Organisation Trust to handle this function on its behalf. Reporting is delivered to participating companies to provide participating employees with feedback as to the difference being made through their charities of choice. Every person’s contribution makes a substantial impact on more than one life.

To get involved in Payroll Giving, please visit www.payrollgiving.co.za or contact Riana Scheepers on +27 11 675 0650.

The Giving Organisation Trust (Reg no IT 12425/061) is a registered Public Benefit Organisation and carries section 18(A) tax exemption status. Follow The Giving Organisation Trust on Facebook via www. facebook.com/thegivingorganisation or on Twitter at www.twitter. com/TheGivingOrg. Kelvin Glen, chairman, the Giving Organisation Trust

NATIONAL HEALTH

Green paper indicates that NHI might not cost an arm and a leg

T

he green paper on the proposed National Health Insurance (NHI) has come under heavy scrutiny by the South African public in recent weeks, most especially the tax-paying community who are concerned about the possibility of tax increases to cover the costs of the system’s implementation.

Lullu Krugel, senior economist from KPMG explains these fears. “The bottom line is the pool of South African taxpayers is not big.The majority of the public is unemployed, so the government depends on the minority to contribute taxes. The ideal situation, to implement the NHI, would be in a growing economy where more people that are employed can contribute.”

Are concerns for a tax hike justified? The government has budgeted R112bn on the health system in 2011/12, increasing to over R120bn in 2012/13; whereas the green paper estimates that the NHI would cost approximately R125bn during that same period (2012). That does leave a funding gap, albeit a relatively small one.

“We’re in a relatively stable fiscal situation in South Africa, and we’d not like to unnecessarily grow public debt. However, it appears that the Department of Health has thought really hard about how they want to spend the money. The possibility of a tax increase is there, but it’s more conservative than people thought it would be,” said Krugel.

Perhaps more crucial to the implementation of the NHI is the immediate overhaul of the current public healthcare system.“The first five years will be about getting the public health system right,” said Dr Anban Pillay from the

Department of Health (DOH). “This includes getting the efficiencies right, locating where expenditure is wasteful, rooting out corruption, improving management, and more.”

“Individuals will not be asked to make any contribution to the NHI until the public health system is up and running, and of an appropriate quality.”

More definitive figures on the cost of the new healthcare system will emerge, once the policy proposal is finalised together with the Treasury within the next six months. In the meantime, the DOH has indicated that it intends to initiate a pilot project next year.

“It’s not a big bang approach, as many South Africans were worried about in the beginning,” said Krugel.The quality of healthcare provided by the NHI could also be held in check by partnering with the private sector. “It’s good news to see in the green paper, that the government plans to engage with the private sector.There are definitely skills there that can be used.”

While much uncertainty still remains over the finer details of the implementation of national health insurance in South Africa, the green paper released by government and the input from stakeholders gives much to be optimistic about.

As Dr Pillay points out: “An important principle in the document, and we’ve made this very clear, is that South Africans will not be paying more for the NHI than what they are currently paying for their medical scheme. The intention is not to put households into greater debt.”

November 2011 People Dynamics

17

MANPOWER PLANNING

Concerted approach to manpower planning strategy: A must do

By Ronald Llale

L

loyd Byars and Leslie Rue state that “Manpower planning is the system of matching the supply of people, internally (existing employees) and externally (those to be hired or searched for) with the openings that an organisation expects to have over a given time frame”. It goes without saying that this system should be driven and steered by HR departments. The opportunity provided to HR to sit in company Exco meetings should be utilised to share and guide company executives in the matching of manpower needs against organisational goals.

In most companies, often the shareholders’ directive is optimum output through same or reduced manpower. This directive then translates to management frustration in how to achieve results with the same resources at a higher target. Managers find themselves between a rock and a hard place.

Adding salt to the wounds is a ‘must meet favourable ‘ rapport or compliance with, amongst others, the Employment Equity Act, the Broad-Based Black Economic Empowerment (BBBEE) Act and the relevant industry charters.

South African labour market make-up is a complex affair. The business community, more evidently, major corporates, is faced with a challenge to prove the will to support regulatory reforms while in pursuit of the bottomline. Captains of these corporates are required to achieve more favourable or win-win situations.To achieve this, a clear synergy in manpower planning strategy is a non-negotiable.

Manpower planning entails the consideration of relevant internal business process and/or practices, inter alia: manpower budget, succession planning, training and development, employment equity, organisational structure, BBBEE, production and financial impact. In most cases, these considerations

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People Dynamics November 2011

are conversed in different platforms, yet expected to be driven from one central hub, i.e. the human resources department. When the expected results are not forthcoming, the poor HR leader(s) are brought under a microscope for explanation. Other factors that influence manpower planning are: labour turnover skills (obsolete and new) legal frameworks business strategy/goals social and technological issue Leading 21st century companies have taken cognisance that operating in silos is a recipe for failure. Strategic business units are now operating in unison for one clear goal.Why can’t we use the same formula when it comes to manpower planning? A well coordinated and concerted approach to manpower planning presents an opportunity to rigorously debate all factors affecting the manpower plan, be it short or long-term. The debate should center, amongst others, on employment equity, BBBEE, succession plans, scarce skills (feeder) or skills shortage, recruitment and so on, to influence manpower planning. The end result would then be one strategy document embraced by shareholders and management alike.

HR professionals, be it recruiters, trainers and so on, are in a far better position to implement the strategy and in turn track the progress on an ongoing basis. The tracking would enable management to determine milestones as well as challenges.

Ronald Llale, 035 904 4015, 083 387 8883, rllale@rbct.co.za

INCENTIVES

The effectiveness of incentives

By Karen Crous

T

here is no doubt remuneration and incentive-based packages attract and retain the best talent and underpin a company’s performance. However, in light of the global financial crisis, underlying incentive models are somewhat ineffective, in driving the desired behaviours.

The underlying model aims to drive shareholder value through greater alignment of managers’ behaviour with the interests and expectations of the shareholder and relies heavily on the use of incentives. The model is based on the principle that a conflict exists between managers and shareholders and that the role of the incentive is to create a long-term view among managers and shape decisionmaking behaviour.

However, if we look at these reward mixes where there is a fixed salary and a variable portion, you would find the variable portion relates to a company’s and employees’ performance and is based on complex models. As changes in accounting policies and increased transparency requirements from shareholders influence remuneration models, current structures and models, which are difficult to understand and complex, detract from the common-sense perspective. King III advocates transparency and simplicity, but current models operate counter intuitively to these guidelines.The model must change to allow fairness and achieve a balance between employees and shareholders.

As a solution, there are a number of alternative models, one of which includes a significant increase in the employee’s salary with

a requirement to use the increase to purchase shares rather than receiving options. This long-term incentive is aligned to the objectives of shareholders and the employee. If equity markets suffer losses and impact shares, when economies recover and bulls enter the markets again, the employee’s performance will be rewarded by the value of shares over a number of years.

A number of companies in the mining sector have adopted another model where a bonus is paid in shares and cash. The shares are vested for three years and the cash is received at the end of the financial year.

A third option is a bonus bank, where employees defer their bonus over a number of years into a bank, which they can subsequently claw back a bonus from. If a company’s strong financial performance over a number of years is followed by one year of losses, employees have the opportunity of ensuring they can still receive a bonus from the years where the company performed well. However, the criticism here is that the longer people wait to get their bonus, the more it gets diluted.

Even though the principles of King III advocate transparency and simplicity, it’s not a one-size-fits-all approach. Remuneration committees need to be practical and offer models that make sense in their industry. The key is to understand that complexity and ambiguity destroy value.

Karen Crous, Associate Director, PwC, +27 11 797 4616, karen.crous@za.pwc.com November 2011 People Dynamics

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WAGE NEGOTIATIONS

Striking accord – how to deal with negotiations

By Nritika Singh

T

he traditional strike season may be over for this year; however this does not mean that some of the unions are not still pushing for higher wages for their members. Unfortunately this comes at a hefty price for both employers and employees, due to increased overheads, downtime, lost productivity and the, “no work no pay” principle.

When unions and some non-unionised organisations decide to go on strike to demand higher wages, the percentage increase is often unrealistic, with the contention that if one starts at an inflated level, it will lead to a better offer from the employers. However this inevitably results in strong resistance from employers because in most cases the increases are financially unaffordable.

On the other hand there are many cases where the employers aim is to get their labour at the lowest possible rate, often resulting in minimum wages that do not meet inflation and are a strong motivation to go on strike.

One needs to look at the fundamental problems in the negotiation process. For a start there is a ‘them and us’ mindset inculcated in many employees, especially those who belong to trade unions. The hostile approach from the shop floor is based on a deep-seated mistrust

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People Dynamics November 2011

of management and business owners, including the public sector. The employers on the other hand often see their workers’ demands as a form of blackmail to force them into a corner.

What is needed is a more mature approach, where there is transparency in the organisations’ operation. How does one go about implementing a transparent structure? For a start, management needs to embrace the fact that unions are part of business.They need to also build better relationships with shop stewards. Perhaps have weekly or bi-monthly meetings, during which they take the shop stewards into their confidence, explaining the current business performance of the company or public enterprise. Management should even embrace shop stewards and see them as business partners.

The shop stewards can then pass this information on to their constituents and members, in turn by way of weekly or bi-monthly meetings. If this can be successfully achieved, then a culture of transparency will go a long way to a better understanding between the employers and employees and reduce the hostility.

It must be stressed that there is no universal solution, no one easy fix. Many areas that can be considered are inter alia: having a transparent, open relationship with the unions through their shop

WAGE NEGOTIATIONS stewards; improving working conditions; paying acceptable wages by making comparisons with other similar businesses and keeping pace with the rising cost of living.

If the shop stewards have kept their members informed about the economics of running the business profitably and have relayed this information to their union constituents, even if a strike ballot is successful after a vote, at least some of the animosity towards management will have been reduced. Tactically this would then mean that when the two parties come to the negotiating table, there is a better climate of understanding. It is also a reality check to diffuse any possible hostility from the unions. The ‘them and us’ mindset has a better chance of being changed over a period of time, with the ultimate goal being a win-win situation for both parties.

The current reality is the alarming cost of industrial disputes that are not resolved before strike action is taken. According to the *Annual Industrial Action Report for 2010, data recorded by the Department of Labour shows that the number of working days lost to work stoppages last year were the highest by historical standards, with approximately 20,674,737 working days lost from about 74 work stoppages. This increase is attributed to the public service strike that started in July 2010 and ended in August 2010. Although the number of work stoppages was higher than in the two previous years (i.e. 57 in 2008 and 51 in 2009) at 74, they were lower than in 2006 and 2007 respectively.

The months from June to September remain the strike prone period of the year as about 18,788,794 working days were lost during these four months in 2010. About 1,593 working days were lost to work stoppages in 2010 compared to 119 in 2009. In other words for every 1,000 employees in South Africa in 2010, approximately 1,593 days were lost due to work stoppages. Another interesting statistic is that the median wage settlement as reported by the Labour Research

Service in 2010 was about 9%, which is above the level of inflation in South Africa.

Although mining and quarrying have traditionally been plagued by high levels of strike activity measured in working days lost, in 2010, the community, social and personal services industries had the highest working days lost of 18,866,531 days, 91.6% of the total working days lost in 2010.

In 2010, approximately R407,082,302 (that is R407 billion) in wages was lost due to the participation of employees in work stoppages, compared to R235,458,414 in 2009. This is a disturbingly high figure.

If the unions and their members are kept well informed about an organisation’s operating performance relating to prevailing economic circumstances, then the chances are that they will approach negotiations with employers with more realistic wage demands. This will prevent a protracted and sometimes acrimonious period before any agreement can be reached.

Some of the explanations of strike occurrences would indicate that workers strike when unemployment is low or decreasing, as they have greater bargaining power. In other words, workers strike after they have become accustomed to rising wages, when wage increases diminish. Unions hold that the basic function of the strike is a levelling mechanism to square up the unions’ membership wage expectations with what the employer may be prepared to pay. Establishing common ground, improving relationships, and establishing trust and transparency between employer and employee should be the objective of every organisation. This will hopefully lead to a reduction in strikes and the concomitant cost to the country. *Statistical source:The Annual Industrial Action Report for 2010.

Nritika Singh, managing director, Isilumko Staffing, 011 267 2920

November 2011 People Dynamics

21

CREDIT RATINGS

The term “blacklisting” is a thing of the past

By Darrell Beghin

T

he term “blacklisting” or “blacklist” is a term still widely used among South African consumers. Typically, consumers mean that they have been listed with a bureau when they use this description.

Many consumers are surprisingly still in the dark that the term ‘blacklisting’ has been discarded from South African credit industry’s vocabulary.The term arose in the times when credit bureaus only held negative or default data about consumers and nothing about their positive payment behaviours was shared by credit providers through credit bureaus.

Now credit bureaus hold both positive and negative data.This is evident from the June 2011 Credit Bureau Monitor. It shows that out of the 18.84 million credit active consumers, 53.3% consumers are in good standing and 46.7% have impaired records. These are consumers who are classified as three or more months in arrears, have an adverse listing, reflect a judgment or an administration order.

It has proved immensely beneficial in predicting the future behaviour of consumers to have both the negative or default behaviour considered with the positive payment actions of consumers in determining credit worthiness and possible future payment performance. Hence credit providers will still continue to load default information or details of enforcement actions, to credit bureaus.

But to use the term “blacklisting” for this sharing of information creates an incorrect perception as most of the data held at bureaus is positive and the overall combined effect of default and payment information makes the informed extension of credit very possible. This is to the advantage of consumers. To have your name appearing on the credit bureau, neither means that you have a bad credit profile nor does it mean that you will never be able to have access to credit again. It simply means that you have an account with a particular credit / service provider who makes use of credit bureau services, irrespective of how the account is conducted. The information of how you do or do not pay your accounts forms the payment profile portion of your credit record and this on its own will also not determine your access to credit.

The practice of credit bureaus collecting and storing both positive and negative information has been in existence since the mid 1980’s.

The majority of credit providers are members of the Credit Providers Association (CPA). The aim of this organisation is to ensure that members submit quality data to the credit bureaus.

Amongst other, data submitted include the

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People Dynamics November 2011

credit limit, monthly instalment, term, months in arrears (if any) and amount in arrears (if any).

The credit bureaus load the information and display a history of the account for a period of two years, the payment history may be stored for up to a period of five years as prescribed by regulation 17 of the National Credit Act (NCA).

A poor credit profile that contains default data, shows non-payment or habitual late payments of accounts typically makes it difficult for a credit provider to justify the approval of a loan. Whereas a healthy credit profile shows the credit provider that the applicant has a history of honouring other agreements and is most probably willing to meet a further commitment.

It’s not the responsibility of credit bureaus to make decisions to approve or turndown credit applications. Credit bureaus make the data available to credit providers to assist them when deciding to grant credit. Each credit provider grants credit based on its own set of policies which will be influenced by the type of credit, target market and appetite for risk.

The account payment information section (typically referred to as your payment profile) is part of the credit profile that the credit bureau maintains and makes available to its subscribers when they request a credit report.

Remember that your consent as a consumer should be given where the NCA specifies consumer consent. Consumer consent should be sought when considering a candidate for employment in a position that requires trust and honesty and entails the handling of cash or finances; setting a limit in respect of the supply of goods, services or utilities and verifying educational qualifications and employment.

Consumers have the right to one free credit report a year per credit bureau, thereafter the report is charged at a nominal fee of not more than R25.00 including VAT. You further have the right to challenge any information listed on your credit profile that is deemed inaccurate.

Consumers who want to access their credit report, can contact any of the credit bureaus that are registered with the NCR. For any further information consumers should call the National Credit Regulator on 0860 627 627 or visit the NCR’s website www.ncr.org.za Darrell Beghin, Credit Information and Research Manager, the National Credit Regulator (NCR.

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23

GABRIEL’S HORN

Even communists make good bankers – without the frills

I

read somewhere that the chairman of the world’s most valuable bank was once a good communist learning his skills in a collectivist commune in China’s Jiangxi province. His first job was as a teenage miner in Henana.

Today, Jiang Jianqing has left his modest beginnings to become the head of what is claimed to be the World’s biggest bank, Industrial and Commercial Bank of China.

As a matter of local interest, ICBC has a 20% stake in South Africa’s Standard Bank Group.

But despite his success Jiang has not abandoned his socialist ideals. His salary for 2010 was reported to be $150 000 which is a mere 1.5% of Bank of America’s CEO Brian Moynihan’s estimated pay packet of $10m for last year. And it’s even smaller fry when compared to the $20m Jamie Dimon was paid for running JP Morgan.

Jiang is apparently pretty typical of China’s top bankers who are first and foremost Communist Party members appointed directly by the government. This gives rise to the question” Who are you trying to impress – your shareholders or party chiefs?” The answer seems to be the latter and thus many Chinese bankers will be destined for senior roles in Government.

It is rumoured that Jiang himself is in the running to become head of China’s bank regulator.

Another banking big shot, Guo Shuqing, chairman of China Construction Bank is a firm communist who completed his Master’s Degree in Marxist and Leninist theory. Guo is strongly tipped to be the next head of the central bank.

China seems to swim against the normal banking tide in that most executives stay put rather than job hopping. In fact few top Chinese bankers have ever made the jump to foreign-run banks or financial services companies, despite the promise of vast salaries.

24

People Dynamics November 2011

I am tempted to say that perhaps the whole banking sector should take a leaf out of the altruistic Chinese’s book, but I won’t.

CHARM COUNTS Like all those who are fiercely anti-form filling, I was not looking forward to taking part in the new census.

Hours completing a form with ambiguous and confusing questions are really not my idea of fun and neither is imparting very personal details to an unknown.

I know I am very quick to criticize bureaucracy so it is extremely gratifying for me to award a bouquet rather than the normal brickbat.

The visit I received from a “census operative” and the subsequent completion of the required form turned out to be an absolute pleasure.

On a warm Saturday afternoon a lady regaled in yellow uniform and numerous methods of identification arrived at my gate. I showed her in and to my delight she proceeded to interview me through the whole form giving copious information on each stage.

She was able to demystify the whole process with a mixture of charm and professionalism. She completed the whole task in less than half an hour.

To Lindela Shedi of Statistics SA a very warm thank you.

If the bankers don’t get me first, I’ll see you next month.

Cheers for now, Gabriel

3RI GER RIZIV EGLMIZI EPSRI [LEX E XIEQ GER EGGSQTPMWL XSKIXLIV 2S[LIVI MW XLMW QIWWEKI QSVI VIWSRERX XLER MR XLI TIVJSVQERGI SJ ER EGGSQTPMWLIH SVGLIWXVE % QIWWEKI XLEX GSQIW EGVSWW PSYH ERH GPIEV MR ]SYV S[R SVKERMWEXMSR [LIR ]SY IRNS] XLI GSPPIGXMZI TS[IV SJ TVSXIGXMSR JVSQ SYV )QTPS]II +VSYT 7GLIQI 8LI FIRGLQEVO MR JSV[EVH XLMROMRK IQTPS]II FIRI½XW SYV )QTPS]II +VSYT 7GLIQI TVSZMHIW ]SYV XIEQ [MXL TVSEGXMZI ,SYWILSPH ERH 1SXSV -RWYVERGI GSZIV 3YV WSPYXMSR GSQFMRIW GYWXSQMWIH GSZIV JSV XLI IQTPS]II [MXL XLI OMRH SJ WEZMRKW XLEX GER SRP] FI IRNS]IH [LIR ]SY ³FY] MR FYPO´ ;I EVI QEVOIX PIEHIVW MR XEMPSV QEHI WSPYXMSRW JSV IQTPS]IIW [LMGL MRGPYHI -RWYVERGI EHZMGI ERH IHYGEXMSR 4IVWSREP WIVZMGI (MWGSYRXIH TVIQMYQW =SY VIGIMZI &Y]MRK ERH RIKSXMEXMRK TS[IV EW E KVSYT ERH 4VSHYGXMZMX] KEMRW [LMPI [I XEOI GEVI SJ ]SYV IQTPS]IIW *SV QSVI MRJSVQEXMSR SR LS[ ]SY ERH ]SYV KVSYT GER FIRI½X TPIEWI GEPP 0]HME 6MXGLMI SR SV email quoteme@aon.co.za

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