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Remchannel

HR QUARTERLY3RD EDITION 2020A quarterly journal published by Remchannel,providing informed commentary on local andinternational developments in the people andreward arena.

CONTENTS

EMPLOYEES RETURNING TO WORK? HERE’S HOW TO PROTECT THEM – AND HELP PREVENT A SECOND WAVEClick here to see lessons a Covid-19 call centre learnt during months of advising workers and businesses as the pandemic peaked in SA.

Letter from the Editor

Note from Malusi Ndlovu

The impact of Covid on engagement and labour turnover

Increased exposure to infrastructure could be good for retirement savers

Salary and wage movement trends

Using professional advisors for your company’s employee benefits

Upcoming publications

Regional contact details

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3

6

8

11

12

13

https://www.oldmutual.co.za/corporate/resource-hub/all-articles/how-to-protect-employees-returning-to-work-and-help-prevent-a-second-wave?utm_source=mailer&utm_medium=email&utm_campaign=october_2020_month_end_mailer&dclid=CMvri4T42-wCFfYh0wodyP4B1g

LETTER FROM THE EDITOR

REMCHANNEL HR QUARTERLY 1

Dear client

We have all faced many changes over the past few months, not only in our personal lives but also in our work environment. The new norm has brought about countless challenges, but it is amazing how adaptable humans are. Virtual meetings fill our diaries, work and life has become intertwined and “on-line” has taken on a new meaning. I have come to realise that change is the only constant and the only way to manage change is to embrace it and in doing so we can focus on the positive, rather than the perceived negative.

This year Remchannel is celebrating its 20th anniversary and by now you would have received the notification of the exciting change relating to the ownership of PwC Research Services (Pty) Ltd, or as you all know us, the Remchannel team. The decision to find a new home for Remchannel was not taken lightly and it was largely driven by the global and local audit independence restrictions that affect professional services firms. At the same time, it was a priority to identify a partner that would not only complement our value proposition but to enable us to realise our full growth potential. For this reason, we entered into the share purchase agreement with Old Mutual Corporate and we believe that Old Mutual has the scale to continue offering our clients the quality service, data and tools that you have become accustomed to over the past two decades.

LETTER FROM THE EDITOR

So, what does this change mean for our clients? Firstly, I would like to assure you that the change will not affect our data collection processes, systems, the quality of information or the service that you receive from us. Secondly, we have always been the custodians of your information and not the owners and this will continue. It will be business as usual and the rules of engagement will remain the same. Remchannel (Pty) Ltd will have its own board and governance structures to ensure that the continuation of data protection is aligned to the ethical principles we have practiced over so many years.

Our 20 year journey has been one that has created many valued relationships with our clients and we look forward to you joining us on this new exciting path that will provide us with the ability to service you and grow our value proposition exponentially.

Yours in reward

René RichterManaging Director of Remchannel


NOTE FROM MALUSI NDLOVU

On 1 November 2020, we welcomed Remchannel (Pty) Ltd (formerly known as PwC Research Services) to the Old Mutual Corporate family.

The addition adds a world class benefits advisory capability to our corporate advisory offering. Together with our existing employee benefits advisory capability - Old Mutual Corporate Consultants (OMCC) - the combined consulting businesses give you a single source of expertise and advice covering both salary and aspects of long-term employee benefits.

Human Capital is the largest asset that most companies use, even though it does not appear on the balance sheet. It is the animating factor of any business. Remuneration, benefits and incentives are a key to growing, maintaining and getting the best value out of this asset. The uncertain economic times, technological shifts, globalisation of talent and changing attitudes to the world of work all increase the complexity of all these elements. Our intention is to be the trusted partner to companies as they navigate this complexity, and to be connected to their world and unique realities. We will do this through our insights and analysis, deep expertise and close partnerships.

Current clients of Remchannel can expect a continuation of the professional, high value, confidential service they have come to expect for the past 20 years. We have adopted a guiding data principle - all data contained in

the product and service offering of Remchannel will be protected and used solely for the purpose originally set out when contracting with clients.

We will, in the medium to long term, invest in improving the Remchannel offering and to retain its market leading status through innovation.

We look forward to partnering with your organisation.

RegardsMalusiGM Old Mutual Corporate Consultants


THE IMPACT OF COVID ON

ENGAGEMENT AND LABOUR

TURNOVER

The value of truly engaged employees has been publicised widely. Numerous studies indicate that employee engagement and alignment to the overall organisational strategy increases productivity, client experience and ultimately the profitability of organisations. Whilst we in most cases continue to conduct employee engagement surveys to assess the well-being and preferences of our workforce, COVID-19 and the lockdown has had a severe impact on employee engagement which cannot be ignored. The uncertainty of job security, working from home with all the complexities associated with it, freezing or even reducing salaries has created unprecedented anxiety for many employees. This is evident from the trends indicated in Figure 2 overleaf.

The Remchannel bi-annual salary and wage movement survey measures employee turnover in various industry sectors. In the latest publication we noted, not unexpectedly, that voluntary employee turnover levels are decreasing which is a very similar trend seen during the 2009 financial meltdown.

We also conducted snap surveys for each of our main industry sectors to assess the impact of COVID-19 on labour turnover and the general engagement trends. From the graphical illustration in Figure 1, it is interesting to note that most healthcare industry sector participants continue to conduct employee engagement surveys during the pandemic and that they have the lowest percentage reported in terms of

the difficulty to retain staff. Conversely the higher education industry sector continues to face challenges in retaining key and critical skills but less than 50% conduct employee engagement surveys and only 51% have implemented a retention strategy. In the information technology and communications sector, the number of participants who conduct employee engagement surveys remain high and yet the retention of key skills remains difficult. We expect this trend to continue into the foreseeable future due to the impact of COVID-19 on technology trends. In particular certain skills in job disciplines such as cyber security, digitization relating to online marketing and distribution channels will be in high demand in the coming months and this will in turn impact remuneration trends and premiums paid for these skills. By implication this means that remuneration will probably escalate at a higher rate than other job disciplines and needs to be carefully monitored in all organisations as the loss of these skills will have a severe impact on the continued operations of the business in the new “normal”.

The top issue raised by employees in most organisations remains remuneration. During a pandemic this will be exasperated by the fact that potentially one contributor to the family income may have been retrenched and it will certainly impact the ability of households to meet their financial obligations. Reductions in pay in certain sectors will also put strain on employees and increase the importance of take-home pay.

WRITTEN BY RENÉ RICHTER


100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0% Financial Services

FMCG

/M

anufacturing

Healthcare

Higher Education

Information Technology/

Comm

unications

Mining

CONDUCTS ENGAGEMENT SURVEYS

DIFFICULT TO RETAIN STAFF

IMPLEMENTED A RETENTION STRATEGY

Employee engagement and retention by industry sector

FIGURE 1 ENGAGEMENT TRENDS

67%

46%

64%

47%

21%

36%

90%

20%

66%

42%

75%

41%

76%72%

53%

40%

47%

60%

Leadership effectiveness

Flexibility and well being

Personal development

Employee assistance

Recognition

Renumeration

HIGHER EDUCATION

INFORMATION TECHNOLOGY/COMMUNICATIONS

MINING

Employee engagement and retention by industry sector

FIGURE 2: EMPLOYEE PREFERENCE RANKING

3,11 3,0 4,0 4,0 2,9 2,5

4,57 2,9 4,0 3,5 4,3 3

2,89 3,6 3,3 3,0 3,2 3,67

3,95 4,1 3,6 3,3 4,1

3,39 4,0 2,6 4,0 3,9 3,67

4,22 3,9 3,6 4,8 3,8 5,8

FINANCIAL SERVICES

FMCG/MANUFACTURING

HEALTHCARE

Mining

Information Technology/

Communications

Higher Education

Healthcare

FMCG/Manufacturing

Financial services

SPECIALIST SKILLS TURNOVER INCREASING

RECRUITMENT SUSPENDED

Employee turnover trends

FIGURE 3: EMPLOYEE TURNOVER TRENDS

35%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100

%

52%

13% 63%

44% 40%

45% 17%

35% 28%

29%

RECRUITMENT SUSPENDED: INSUFFICIENT DATA FOR MINING

4


There is however another trend emerging, especially in the financial services, fast moving consumer goods/manufacturing and information technology/communications sector. Employee assistance programmes, flexibility and well-being are being ranked second highest in these industry sectors. This may be attributed to the stress relating to the changes in the work environment that has been instituted by organisations over the last few months, and especially the significant impact of the lockdown on employees and their personal circumstances.

It is however concerning that employee development is ranked quite low by all the sectors. In the new world of work the importance of upskilling employees quickly to adapt to change remains a priority for all organisations. The new norm requires innovation, learning and development and more importantly rebasing organisations to be fit for purpose in the future.

Whilst organisations are primarily focused on preserving liquidity and protecting as many jobs as possible, the turnover trends indicated in Figure 3 above will continue to impact the salary and wage bill in the coming months. The fast-moving consumer and manufacturing industry sectors reported the highest suspension of recruitment of all the sectors surveyed, followed closely by the financial services sector. In terms of the latter the sector reported the lowest turnover of specialist and key skills.

It is evident that the higher education and healthcare industry sectors are experiencing challenges with the retention of key skills. Whilst the suspension of recruitment is limited in the higher education sector it is significantly higher in the healthcare sector. This will in turn create a severely pressurised environment for employees who will most probably have an increased workload due to decreased capacity. The effect on the well-being of these employees over the long term will impact their ability to be productive and delivery in terms of their key performance areas. Motivational levels will also be impacted with an overall negative outcome for employers. Managing reward and employee benefits in this environment will be particularly challenging for human resources executives and striking a balance between cost control and the attraction and retention of staff will require analysis of all the moving parts of reward, both from a cash and employee benefits perspective. HRQ


INCREASED EXPOSURE TO

INFRASTRUCTURE COULD BE GOOD

FOR RETIREMENT SAVERS

20 October 2020: Retirement savers’ already limited local investment universe has diminished even further with the news that African Oxygen (Afrox) will be delisting from the Johannesburg Stock Exchange. This follows news that Grit Real Estate and Intu Property will be leaving the stock exchange, reducing the number of listed shares on the bourse to less than 350, from more than 600 in 2001.

Prabashini Moodley, Managing Director: Old Mutual Corporate, says the smaller pool of listed investment options presents a concentration risk for people saving towards their retirement, which is why recent calls for increased infrastructure investments by retirement funds may be good news for South Africans saving towards their retirement, she says.

“Infrastructure assets are less volatile than equities and show a lack of correlation with your traditional assets like property. Moreover, they deliver inflation-beating returns over the long run if properly structured and properly managed,” says Moodley.

“Alongside equities, infrastructure offers members in retirement funds decent diversification, particularly in the context of the comparatively small local equity markets.”She says that calls for Treasury to enable retirement funds to increase their exposure to infrastructure is not to be confused with the concept of prescribed assets – the controversial proposed law that would force retirement

funds to invest in specific government-approved instruments.

“There is ample evidence that the previous prescribed assets regime in South Africa — from the ’50s to the ‘80s when it was abolished — was detrimental to fund members.

“This is because one of the main problems with prescribed assets is that if the assets in question had sufficient investment merit, they wouldn’t require a prescription. Artificially increasing the demand for these assets results in a lower expected future return for the member. And when the owner of the asset is assured of funding, there is no financial incentive to perform,” says Moodley.

According to the South African Institute of International Affairs, the private sector’s investment into African infrastructure represents only 2.8% of all investment into the asset class. Moodley says that the mismatch between potential and committed exposure is an indication of the opportunity that could unlock long-term benefits for the country and investors alike.

Given that most retirement funds are currently permitted to invest in infrastructure yet remain underexposed, would a change to Regulation 28 be a sufficient catalyst for investment?

MEDIA RELEASE


“Infrastructure projects tend to have some unique characteristics, and the investor’s understanding of its role in the portfolio is an important driver of investment. Understanding what’s required to help trustees to make an informed decision or what mechanism would be an appropriate catalyst needs to be interrogated further,” says Moodley.

Currently, Regulation 28 limits the type and amount of exposure of retirement funds to a maximum of 75% in equities, 25% in property, 25% in foreign investments, 5% in Africa, as well as 10% in hedge funds or private equity, and up to 10% in unlisted equities. Increasing an allocation towards alternative assets could allow funds to allocate as much as 25% of assets under management to infrastructure projects.

She says that Old Mutual Absolute Growth Portfolios currently allocates just over 8% of funds to infrastructure projects seen as impact investments that seek social or environmental effects in addition to financial gains. “The pricing and investment merits of these assets aren’t artificially skewed by excess demand, and the question, therefore, is whether increasing limits could encourage more investment into these types of projects without undermining returns,” says Moodley.

Moodley adds that post the Covid-19 pandemic, South Africa will desperately need a catalyst to stimulate the

economy. “Unemployment is at a record high and youth unemployment is north of 50%. In my view, the Covid-19 crisis has exposed the under-investment in some parts of the country and the extent of the infrastructure backlog.” This investment would help people get access to basic services such as road networks and bridges, hospitals and schools that help to improve the quality of their lives and their future prospects,” says Moodley.

The market is still comparatively small in South Africa, but future growth and long-term infrastructure offtake agreements should deliver long-term real returns. “Trustees and advisers to retirement funds should actively seek out opportunities to learn more about this topic and seek out specialist investment advice to make informed decisions,” she concludes. HRQ


SALARY AND WAGE MOVEMENT

TRENDS

The majority of our clients have implemented cost cutting initiatives which is totally understandable given the impact of the pandemic on the cash reserves of organisations. As the salary and wage bill is probably the highest cost item for most organisations the expenditure is being scrutinised by all stakeholders and in particular the boards and remuneration committees of organisations. The decisions taken today will impact organisations for many years to come and a cautionary approach has been followed since the announcement of the lockdown period in March this year. We monitor salary and wage movements regularly and in particular the movement of salaries on a same incumbent basis. As at October 2020 the average same incumbent increases in the REMchannel® online salary survey has been 6.9%. It should be borne in mind that it is measured over the past 12-month period and the full impact of COVID-19 on these increases will only be seen in April 2021.

Of course, if your organisation has experienced higher turnover rates for critical and key skills it is important to keep track of market movements over the past 12 months. If you have for example taken the wait and see approach and you have frozen increases in the short term, there may be certain job disciplines such as information technology where you could be at risk. This will require extensive analysis of remuneration movements utilising data that is representative not

WRITTEN BY RENÉ RICHTER

HIERARCHICAL STAFF CATEGORIES

SAME INCUMBENTSGUARANTEED

PACKAGE PERCENTAGE ADJUSTMENT

1 October 2019 to 30 September 2020

Executives 4.8

Senior Management 5.2

Middle Management 5.4

Junior Management 5.8

Entry Level Management 6.1

Supervisory 6.3

Senior Clerical 7

Clerical 7.7

Semi-Skilled 7.7

Unskilled 13


only of your industry sector, but also the national all industry sector. This will however differ from industry sector to industry sector and will be dependent on the unique circumstances of each organisation.

In the October 2020 publication of the Salary and Wage Movement survey, which is conducted bi-annually to supplement the information obtained from REMchannel®, it is evident that organisations are being extremely cautious when considering increases. In the past one of the major contributing factors to determine the annual increment percentage has been CPI. Although this has steadily changed over the past ten years to consider more factors, the participants in the survey indicated that only 2% consider only CPI to determine increases. The remaining 98% indicated a combination of factors as can be seen from the table. Not surprisingly, company profitability and affordability are at the top of the list and secondly the guidance from salary surveys, which assesses what competitors are doing is the second most popular criteria. In the current economic climate where the funding for short term incentives is severely limited it can be seen that individual performance is weighted quite heavily in determining annual increase percentages. Of course, this may have unintended consequences for the future. Higher performance in a particular year is not indicative of future performance and increasing guaranteed remuneration means that the individual will receive higher guaranteed pay ad infinitum.

INDIVIDUAL CRITERIA PERCENTAGE OF PARTICIPANTS

Company profitability / affordability 74.0%

Guidance from salary surveys 72.0%

CPI 70.0%

Individual performance 70.0%

Market position / market trends 58.0%

Company budget constraints 56.0%

Internal positioning / internal equity / income differentials

54.0%

Positioning relative to the scale / midpoint etc.

52.0%

Wage negotiations / collective agreements

50.0%

Company performance 48.0%

Board / CEO / Management discretion

32.0%

Skills retention 26.0%

Prevailing market indicators e.g. GDP

16.0%

CPI plus additional fixed percentage

14.0%

Group benchmarks 14.0%

Sectoral determination 14.0%

Market premiums / industry conditions

10.0%

Department performance 6.0%

Team performance 2.0%


Although the criteria have been defined, South African companies are taking a very cautious approach to salary increases. 44% of the participants indicated that they are unsure whether increases will indeed be granted in the next review cycle, i.e. September 2020 to August 2021. 20% indicated that salary increases are either deferred or they have implemented a salary freeze period to assess the impact of COVID-19 on the organisation. At the same time 26% indicated that they are either implementing reduced increases to those that were budgeted or that increases will not be granted in the upcoming cycle. Only 10% of the participants indicated that they will grant the initial percentage as budgeted.

To assess whether increases would be withheld across the board, participants were asked to indicate the specific employee categories where they have either implemented or are intending to implement withholding of increases. On average 37% percent indicated that increases would be withheld at executive and managerial level, 30% at general staff level and only 18% indicated that this would be the case for unionized staff.

The results indicated that participants were less likely to withhold increases at the unionised staff level. It must be remembered that several companies may have multiple year agreements in place which may make it more difficult to withhold or delay increases. In addition, in instances where negotiations happen at industry level, companies

would need to abide by the results of those negotiations, again with significant cost implications for the future.

Considering that all the complexities of the increase landscape can be a minefield, uninformed decisions could have many unintended consequences in the future. It is anticipated that companies will be considering innovative ways to manage the financial challenges both in terms of the reviews but also more broadly in terms of the continued financial viability of their business. HRQ


USING PROFESSIONAL ADVISORS FOR

YOUR COMPANY’S EMPLOYEE

BENEFITS

Executives have several high-level responsibilities that require rare and specific skills and personality traits. They have to inspire and motivate their teams, lead with enthusiasm, have a vision for the future and navigate the most effective route to get there – all while running a profitable business. This is no easy task and would explain why CEOs and other executives spend more time at work, and why they need a loyal and committed workforce to support them. A good employee benefit solution will attract and retain that loyal and committed workforce.

YOUR EMPLOYEES ARE YOUR BIGGEST ASSETTaking care of your employees should feature high up on any CEO and her company’s list of priorities. Using professional, expert advisors for this important function can prove to add a lot of value for both the employees and the employer.

As professional experts in employee benefit solutions, Old Mutual Corporate Consultants offers advice on how to tailor-make an employee benefit solution for your company or alternatively, optimise and improve your existing employee benefit structures. In doing so, we free up the CEO and senior management team’s time so they can concentrate their efforts on high-level decision making.

WE OFFERGeneral and benefit consulting Old Mutual Corporate Consultants offers a wide variety of general and benefit consulting that is customised around

your organisation’s needs.

Investment consulting You will have the support of a focused investment consulting team. This professional team has the skills and resources to assist trustees with their fiduciary duties. Members will also benefit from an optimal investment strategy that has been designed to meet their unique needs.

Actuarial consultingNot many companies have the luxury of an in-house actuary to assist with fund valuations, benefit calculations, employer liability valuations and replacement ratios – to name only a few. Old Mutual Corporate Consultants offers professional actuarial services that go beyond the traditional production of regulatory valuations.

WHAT IS AN EMPLOYER TO DO?Speak to a consultant that has the expertise and a proven track record to help you package your employee benefits to suit your business’ unique needs and budget. Ideally, one that is focused on delivering specific, well-defined outcomes for your employees. That means they partner with you to ensure that your staff are on track with their retirement savings and the outcomes they want for the future. HRQ

Call us to create a smart strategy for your business.RODNEY MSIMANGO: Head of Business Development +27 011 217 1420 or [email protected]

WRITTEN BY MALUSI NDLOVU


UPCOMING PUBLICATIONS

Short Term Incentive Scheme Survey

in the second quarter of 2021

April 2021 Salary and Wage

Movement Survey

Old Mutual Corporate MiNDSPACE Magazine

December 2020

Lisa Tamkei or Margie Manners at [email protected]

FOR ENQUIRIES REGARDING SURVEY PUBLICATIONS, PLEASE CONTACT

[email protected]

FOR ENQUIRIES REGARDING OLD MUTUAL CORPORATE PUBLICATIONS, PLEASE CONTACT


REGIONAL CONTACT DETAILS

© Remchannel (Pty) Ltd with registration number 2010/010554/07 (“Remchannel”). All rights reserved. Remchannel is a subsidiary of Old Mutual Life Assurance Company (South Africa) Limited and as such is part of the Old Mutual group of companies. No portion of the information in this presentation / in this publication / in this document / in the training material may be reproduced by any process without the written permission of Remchannel.

Malusi Ndlovu+27 (0) 78 904 7167

René Richter+27 (0) 82 460 4348 Puseletso Matsheng (Workshops)+27 (0) 72 221 7693

Louna Robbertse (REMchannel®)+27 (0) 79 494 3222

Minda Botha (REMeasure®)+27 (0) 81 546 0931

Carol Shepherd (Africa/Global)+27 (0) 84 657 3526

Nthabiseng Moeketsi (REMprofile®)+27 (0) 65 943 4383

Rodney Msimango +27 (0) 83 468 7385

GAUTENG

Gizelle Erwee+27 (0) 82 871 5728

WESTERN CAPE

Heather Young+27 (0) 82 513 4906

KWAZULU-NATAL

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