Salary cuts and retrenchments at South African tech companies

Source: MyBroadband

While the impact of COVID-19 on IT and telecoms companies is not as severe as many other industries, these industries are still faced with big challenges because of the downturn in the economy.

ICT companies which have a lot of exposure to the travel, tourism, and restaurant industries, for example, have to deal with a significant loss in revenue.

One of these companies is Adapt IT, which said the negative impact of the lockdown on its clients in the hospitality sector has resulted in 20% of its employees being unable to work or perform their regular duties.

The poor forecast of the hospitality sector has forced Adapt IT to consider staff cuts, and it is currently in a consultation process with 4% of its permanent staff who may be affected.

Altron COO Andrew Holden told MyBroadband they have had to effect temporary layoffs due to the inability of some customers to pay for services as their businesses had been affected by the lockdown.

“Where possible, Altron will seek alternative opportunities for affected employees within the group. Retrenchments are a last resort, and will be limited as far as possible,” said Holden.

Many other large tech companies like Altron, Dimension Data, Blue Label, and Alviva have also indicated that staff cuts may be necessary in the event of a prolonged economic downturn.

Salary cuts
Many South African IT companies had to implement salary cuts to mitigate the financial impact of the lockdown.

Salary cuts in the IT industry were necessary for two main reasons:

Many clients stopped paying because of the impact of the lockdown on their businesses.
Employees could not work because their clients had to close their businesses during lockdown.
In April, EOH CEO Stephen Van Coller announced that the company’s executive committee would take a salary reduction of 25%, with other staff taking a 20% pay cut.

This was needed because of the anticipated drop in payments from clients and future uncertainty on the full impact of COVID-19 on the economy and the company.

Cell C also implemented salary cuts and used the COVID-19 TERS Relief Funds to cover the shortfalls for those employees to the extent provided by the UIF.

Alviva told MyBroadband there were no mass pay cuts at the company, but that it had to implement salary reductions in a few isolated cases.

Altron followed a different approach to ensure the sustainability of the company. Instead of cutting salaries, it reversed all salary increases granted as of 1 March.

Good news for the telecoms industry is that very few of the large mobile operators and ISPs had to implement salary cuts during the lockdown.

Vodacom, MTN, Telkom, Liquid Telecom, Rain, Afrihost, Cool Ideas, and Cybersmart said they have not implemented any salary cuts during the lockdown.

The outlook for the South African ICT industry
While many large IT and telecoms companies were able to prevent retrenchments, they warned that the full impact of COVID-19 may result in staff cuts in future.

Alviva said the full impact of the COVID-19 pandemic on the economy and the company will inform their decision regarding future staff cuts.

Blue Label echoed this view. “Should the lockdown persist indefinitely, and economic conditions continue to adversely impact ourselves and our customers, hard decisions regarding retrenchments will have to be made,” the company said.

Dimension Data told MyBroadband should the need arise to reduce its workforce to ensure sound and responsible fiscal management, it would be done only after exhausting all possible alternatives.

“We will always take a long-term view of the market opportunities, trends, economic outlook, and investment and spend forecasts and put them in the context of our strategy and vision before making any decisions,” Dimension Data said.

Telkom said while it has not cut any salaries at this stage, it is still studying the impact of the virus and the lockdown on the business.

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