In light of rising food prices following the nationwide drought and weakened value of the rand, employers can expect additional pressure from employees for annual salary increases. Many employees are desperate for an increase in order to make ends meet; however, the challenging economic climate makes it difficult for employers to provide an annual raise to their entire staff. Employers must therefore approach the situation very strategically.
This is according to Francois Wilbers, MD of Work Dynamics – a leading organisational psychologist consultancy in the country, who says that often the workforce doesn’t realise that employers are exposed to exactly the same circumstances and are also battling to keep a steady revenue stream. “Granted, in larger corporations, the extent to which they are exposed is less than in smaller organisations, as smaller establishments experience the economic changes with far more severe financial consequences.”
Wilbers says that it is important to note that salary increases are not regulated by labour legislation, except in as far as may be provided for in any agreement or collective agreement, where provision is usually made for annual wage or salary negotiations. “Essentially, in the absence of any such agreement, salary increases remain a matter of mutual interest between employer and employee, therefore, there is no obligation on the employer to grant annual increases. With that said, if any party in a relationship finds it necessary to refer to the ‘terms of a contract’ as a point of departure in engaging with each other, it says something about the nature of trust between the parties.”
Wilbers adds that in cases where employers cannot afford to pay an increase equal to the consumer price index (CPI), they need to be honest with their staff members and accept the premise of them seeking alternative employment. “It is absolutely essential to maintain an open dialogue rooted in transparency and honesty in order to handle the situation effectively. For example, don’t use the detrimental state of the economy as an excuse to not grant your employees annual increases if you are still increasing profitability.”
When trying to asses the best option for your organisation, the retrenchment of staff members is a pressing threat that must be avoided at all costs, he explains. “For organisations in financial distress one of the most common ways to solve the problem is to retrench staff. From a socio-economic point of view, employers should try to avoid retrenchments and rather think of more creative alternatives. This option is especially less desirable in our country, as our unemployment rate of 25% is of the highest in the world.
“In addition to the socio-economic impact of retrenching staff, the effects on employee morale can be devastating, especially if the process is not handled in a professional and transparent manner. First prize is to avoid retrenching staff altogether.”
Wilbers explains that there are a number of alternatives that can be implemented to avoid the process of retrenchment and that these could end up being a mutually beneficial solution. “One of the most common steps organisations take is to forfeit guaranteed year-end bonuses and to rather assign bonuses according to targets that are achieved.
This incentive system is a great tool for maintaining committed and hardworking employees, while weeding out those that are not target driven, says Wilbers “In extreme cases, organisations can also implement salary cuts rather than retrenchment. “Again the key here is mutual honesty between employer and employee. The employer could for example allow the employee to take on freelance opportunities in order to supplement his or her decreased salary.”
Wilbers continues that other tried and trusted alternatives to retain staff is to implement annual increases subject to affordability, on a ‘pay-as-you-go’ basis. “Here you would have to decide whether you can actually afford the increase. You would have to look at the company’s performance over the first quarter and then see whether you can afford to pay an increase for that quarter. Increase will be paid in the form of a cash amount for the first quarter or spread equally over the second quarter.”
Some orgnisations opt for a performance-based pay on top of current salaries. “In exchange for sacrificing annual increases, staff will be offered the opportunity to earn incentives if targets are achieved. These targets must be set in such a way that there will actually be enough money available to fund the incentives.”
Another effective way would be to pay certain allowances to key staff – despite the difficult economic times – is for companies to keep in mind that they still have to compete for talent, explains Wilbers. “If you are afraid you may lose some of your key staff, consider paying them an allowance to retain their services, without giving an annual increase to other staff.”
“Ultimately, organisations differ in their ability to sustain staff and afford salary increases. Retrenchments in harsh economic conditions should always be avoided. The key is to seek solutions that will be of mutual interest to the employer and employee and engage in a proactive and honest way to find creative solutions,” concluded Wilbers.