Snap Survey on Actual / Predicted increases for 2010.

Every year Mabili conducts a snap survey at the end of April to determine the trends occurring in the business environment from a pay increase perspective. The Survey highlights the actual increases that have been granted across a range of employers during the period January to April 2010, and solicits the predicted increases from companies that have yet to grant increases in 2010. The sample is made up of over 50 of South Africa’s leading employers including Aveng Group, Barloworld, Dimension Data, First National Bank, Metropolitan, Nestle, Pick n Pay, SAB, Tiger Brands, and Vodacom.

The survey indicated 2 key observations:

·         While the economy, appears to be experiencing a slow recovery since the beginning of the year, annual package increases have continued to decline. The overall figure for actual Basic Package increases has dropped from 9.9% in 2009 to 6.86% in 2010. Looking at the Total Cost of Employment (TCOE) figure, increases have dropped from 8.5% in 2009, to 7.89% in 2010. Figures for the remainder of 2010, suggest that increases may decline even further, depending on the level of job one has within the organisation.

·         The survey clearly indicates that top executives are predicted to receive the lowest increases in terms of Basic Salary (4.62%), while lower skilled staff groups are predicted to receive the highest increases in terms of Basic Salary (6.9%) as well as TCOE (7.9%). Thus top executives are predicted to receive lower increases than the predicted market average increase for both Basic Salary and TCOE, while the lower skilled staff are likely to receive increases in line or above the predicted market average increases; a clear sign of the role bargaining units are having on the labour environment.

The survey goes on to analyse three key sectors that had sufficiently large response groups. These include: Financial, Manufacturing & Consumer Services.

For more information please contact paul@mabili.co.za, or 011 236 4900.

Retention Survey providing insight into Reward after the crisis 

Production Bonuses in the Coal Mining Industry

Laurence Grubb designs a Production Bonus Scheme that leads to significant improvements in output at large, complex coal mining operation.

Introduction

A large coal mining operation based in Mpumalanga, was experiencing significant operational inefficiencies. The organisation was extracting a relatively low level of coal per month, while at the same time the life-of-mine was decreasing more quickly than planned as the coal reserves were not being optimised. The organisation had developed a production bonus scheme some years earlier, but its value had eroded over time and had some significant implementation flaws.

Coal Mining for Dummies

Coal mining generally takes place closer to the surface, than gold or platinum. In some instances coal is found on the surface and is mined through open-cast or open-pit techniques. However, it is estimated that 60% of the world’s coal is mined below the surface. Coal mining takes place along tracts or belts of coal deposits known as seams. In underground mining environments, the coal seam is mined in a series of parallel and perpendicular tunnels, which develop a network of passages in the coal seam. In order to maximise production, the remaining pillars of coal need to be mined, through a process of retreat mining. Safety is critical to avoid roof collapses and methane explosions. The challenge of extracting as much high quality coal is further complicated by irregular coal seams; the seams do not exist in neat straight flat seams but rather irregular belts that move up and down, and from side to side. Further challenges include dykes; igneous rock that pushed through the seam and burnt the coal on either side. Simply put, the challenge from a production perspective is to maximise the economic value of the mine. A trade off exists between the amount of high quality coal that can be extracted, and the speed at which it can be extracted. Maximising quantity ensures less quality coal is left behind but requires a more resources to deal with technically challenging areas of the mine. Maximising speed, requires the organisation to focus on the easily mined areas and results in a greater amount of coal left behind and hence a reduced life-of-mine.

Problem Definition

The organisation identified that its corporate objectives were not effectively aligned with the production bonuses that drove employee behaviour. As a result the organisation was battling to improve achieve the desired coal production. The organisation was aware that the current production bonus scheme had been developed over a period of time and had lost direction. Most certainly the organisation was aware that in certain situations, the incentives were not affordable as the rewards were being given for factors that weren’t contributing to the profitability of the organisation. At this point Laurence Grubb was engaged to drive a process of redesigning the Production Bonus Scheme.

Step 1: Focus Groups

Focus groups were held to obtain input from participants and stakeholders on the current scheme. 3 simple questions were asked: What do you like about the current scheme? What do you not like about the current scheme? What and how would you change the current scheme? While management had a firm belief that the scheme wasn’t effective, it was important to get a holistic view of the perceptions of the scheme form the participants and stakeholders. The stakeholders involved in the Focus groups included all groups who received production bonuses as well as unions, HR and Finance.

Step 2: Analysis

Feedback from the focus groups was then categorised into ten main themes. A task team was set up to investigate these themes. The task team ran weekly workshops to investigate the perceptions provided by the employees, and determine if they were valid and could be substantiated.  The task team looked at the figures across mines, shafts, and teams. The analysis provided a detailed understanding of the core elements that were affecting production.

Analysis of the payments made and the production statistics showed that there were two key concerns. Firstly, the corporate strategy of coal reserve optimisation was not closely aligned with the production strategy which focussed on quantity. This meant focussing on easily mined areas leaving large areas of high quality coal behind. Secondly, the various criteria for measuring performance were found to be invalid, allowing employees to benefit from factors that did not directly contribute to organisational profitability. Thus the existing Production Incentive Scheme lowered the mine-life and lead to inconsistent and often unnecessary bonus payments.

Investigation into the ten themes validated some of the perceptions, dispelled a few, and highlighted that some were incorrect due to poor understanding of the scheme.

Where the perception was valid, the Task Team worked on creating alternatives and determining the best solutions.

The key change was to ensure that the performance measure used to determine the bonuses was aligned with the strategy of the organisation. All the other changes were built around this new focus. The new design therefore ensured that any bonuses paid were from value creation in line with the company strategy.

Step 3: Modelling

The modelling phase was concerned with understanding what the new scheme should look like. The new scheme would need to ensure that incentives were clearly linked to primary production drivers. In modelling the new scheme, extensive scenario planning was done through the use of data models. The data was manipulated to ensure that the new scheme was affordable for the organisation, and relevant for the individual. Modelling looked at equitability, consistency, and affordability across all job roles as well as identifying critical success factors for the scheme. The task teams played a key role in the scenario planning providing useful insight into implementation challenges.

Step 4: Implementation

In most organisations, systems play a key role in the success of the schemes. The system required to measure and track all the changes can be complex and needs to be designed carefully.

The implementation of the scheme relied heavily on an effective communication strategy. Training and briefing sessions were held at all levels within the organisation. Leaders, including informal leaders, were tasked with communicating the strategy to the different operational groups. The communication strategy included a range of marketing collateral such as posters and pamphlets in work areas, monitoring sheets, as well as visual communication messages on intranet and executive dashboards. The communication has been ongoing to ensure a sustainable change in employee behaviour.

Production levels increase

With the implementation of the new scheme, greater operational efficiency was achieved within a very short space of time. It took two months for the organisation to realise a record output. Importantly the record output was not achieved at the expense of coal reserve optimisation. While the old scheme penalised employees for focussing on more difficult underground reserves, the new scheme actually rewarded employees for extracting coal from these areas. Furthermore, a re-alignment of measures ensured that employees focussed their energies on activities that drove production. The organisation’s coal stock piles rose from a critical level to the targeted level. Furthermore, the increase in production provided the option of manpower reduction.

The result: the scheme itself became more affordable, while the organisation realised increased operational efficiency and profitability.

Are we embracing the true spirit of Transformation?

By Paul Shaw

Transformation is occurring in South Africa. That much is true. Mabili’s Transformation Survey has indicated that over the past 5 years, transformation at the Top 100 listed companies has occurred, at both executive and non-executive level.

The Report indicates that the representation of black executives has risen from 7.4% to 13.4% while the representation at non-executive level of black executives has risen from 28.8% to 36.2%.

Transformation in terms of Gender has been even more significant with the percentage of female representation at executive level rising from 4.4% to 7.1% in five years while the representation of females in non-executive roles has increased from 11.8% to 18.2% during the same period.

While there is still much to be done to see truly inclusive and representative figures at director level, the trend is certainly moving in the right direction. However the spirit of transformation encompasses so much more than changing the complexion of the workforce. Too often we are confronted with clients whose only goal is to ‘deal with the numbers’. Transformation is about knowledge transfer, and skills empowerment. Therefore a committed transformation program does not end with Affirmative Action recruitment. It involves key strategies to coach and mentor young talent into productive contributors.

Malcolm Gladwell in his latest book, Outliers, looks at the key elements of success and identifies the concept of ‘cumulative advantage’ as a key driver in personal and professional success. The theory states that ‘success breeds success’ and that opportunity and exposure early on in life provides the platform for continued and sustained success. This has huge implications for a country like South Africa where the key transformational goal is to promote previously disadvantaged individuals. The apartheid system set in motion a legacy of discrimination of opportunity; be it at educational opportunity or work opportunity. As a result transformational goals seek to promote individuals that have experienced a ‘cumulative disadvantage’ of opportunities, while the expectation for delivery remains unchanged. Therefore organisations and institutions that focus purely on race or gender as the key elements of transformation are likely to encounter transformational repercussions.

Lyndon Johnson, the former US president framed the true spirit of transformation in a speech at Howard University saying: “You do not take a man who for years has been hobbled by chains, liberate him, bring him to the starting line of a race saying ‘you are free to compete with all the others’ and still justly believe you have been completely fair.” Johnson went on to note: “We seek not just freedom but opportunity – not just legal equity but human ability – not just equality as a right and theory, but equality as a fact and a result.”

In delivering a true transformational experience, organisations need to not only to promote opportunity, but just as importantly, drive a process of 'empowerment of ability'. The key talent management strategies to facilitate effective knowledge transfer include: feedback, challenge, exposure and visibility, role modelling, and counselling. Whether focused on the long-term personal development as in the case of mentoring, or more immediate performance criteria, in the case of coaching, specific alternatives are available, and necessary, to drive sustainable transformation initiatives.  

Shareholders should vote on executive pay packages

Edward West - Finance Editor: Business Day

The publication of directors’ remuneration principles, design and performance in annual reports and the formulation of measurable incentives for long-term targets was better than the government meddling in the determination of executive pay.

This was the view of South African Executive Search and Reward company Mabili MD Laurence Grubb who was interviewed yesterday ahead of the launch of the human resource firms’ Directors’ Remuneration Report that analyses the remuneration paid to the directors of JSE-listed companies.

Executive pay, especially for financial services groups, has become the focus of global attention by regulators in developed countries as it is believed excessive remuneration and bonuses helped to feed greed that led to excessive lending and the global financial crisis. The dutch government has already capped bonuses to one times guaranteed pay. Instead, shareholders needed to be able to vote on executive pay, and board discretion was required as the future was unpredictable. Grubb said difficult markets last year had resulted in reasonably low executive pay increases in SA compared with previous years.

Directors’ remuneration including bonus, increased 11.3% to R5.3m last year, but a main contributor was 21 CEO resignations and also a 15%-25% increase in packages for new executives. Pay for executive chairmen increased 11.6% to R4.3m. Chief financial officer and executive total packages were almost stagnant at R2.9m and R2.6m respectively. There was a gap in the remuneration size for directors of local companies and multinationals.

The size of a company had a big effect on the level of executive pay. Companies with a market capitalisation of less than R1bn indicated a guaranteed package of R1.8m for CEOs, with short-term incentives and other payments pushing the total up to R2.6m.

At companies with a market capitalisation of more than R80bn, the guaranteed proportion of CEO packages came in at R7.1m while incentives and ‘other payments’ pushed the total to R18.4m CEOs in the financial services industry took home the highest total packages of R6.7m.

Grubb said he did not buy the argument that SA had the highest wage gap in the world, especially when the highest paid CEOs in South Africa received a hundred times less than the highest paid executives in the US.