HR management must report to shareholders on Human Capital.
We question whether King IV will kickstart some badly-needed changes in remuneration policies and practices in South Africa in 2017 and 2018.
The P-E Corporate Services remuneration policy surveys, which I have helped to compile for over twenty years now, throw out some revealing statistics with reference to our labour market, and some fundamental flaws.
One notes for example the flexibility and diversity in policies regulating the pay of senior executives and senior professionals. Below this is a lethargy of policies that were inherited several decades ago. They are almost treated in some organisations as being somehow ‘sacrosanct’ – as if they embody a protection of rights and freedom.
Yet, one reads at the same time of the practices sweeping through organisations in the East and the US securing the ‘total involvement’ of employees at all levels. This systemic intransigence represents a serious problem, and a challenge to HR practitioners, and indeed to our leaders, in South Africa currently.
Dimensions of the problem
The ‘new’ approach towards employment is in fact four-dimensional:
1. Enhancing the ‘line of sight’ of all employees in relation to controllable variables: This is achieved by measuring everything and posting the results, then meeting to discuss how to do better;
2. Raising the level of trust in management: This is achieved through the performance management system by good leadership, enhanced communications and so forth;
3. Fostering team effort and cooperation: The power of peer pressure is harnessed and brought to bear on results by ensuring that each and every employee is part of a team that he or she identifies with – using team-based incentive schemes; and
4. Recognising and rewarding individual effort: Pay progression and competency-based systems (merit increment grant policy) must be developed to achieve this.
So, we see that the performance management system must be linked to the competency-based pay system and to the financial reward system, and it must all happen together, and at all levels. If it is only happening at senior executive level, you have got problems.
This is what HR management is all about, or should be all about, today – influencing the behaviour of employees at all levels.
Constraints to change
Let us look at the constraints to change in South Africa currently. A common argument heard is: “What you are proposing is too complicated. Employees prefer a simple and understandable arrangement.” That is the easiest to argue against. On the contrary, our findings in the field are that employees like to be engaged with the detail, and of course IT systems can be designed to handle the complexity. Another is: “The trade unions will block this.” The question in response to this is: “Have you asked the unions?” If the members want something, the unions are in practice compelled to support it – simply because they are trying to retain a majority in that organisation.
So, is it not instead a failure by the leadership of the organisation, through its HR department, to speak to its employees and to the trade unions – well ahead of the annual wage negotiations? What about the logistics? Yes, organisations may need to double up or treble the size of their HR Departments. The payback, far exceeding these additional costs, will be enhanced productivity, flowing from self-motivated employees in each and every operational department.
Impact of King IV in context
The King recommendations of the King Committee under this heading are simple – emphasising the need to report to shareholders on ‘sustainability’ – which includes, of course, the propensity to compete against the productivity levels reported by organisations in the East. The real power of the King recommendations lies in the requirement of companies to observe the guidelines of the International Integrated Reporting Council, which calls for a report to shareholders on Human Capital. Surely, by its nature, this has to be reported on by incumbent HR management. It cannot be left to PR advisers. And, shareholders will expect to be given meaningful statistics and explanations, including, for example:
• A configuration over, say, the last twenty years, illustrating how the graded profile of the organisation has changed as a result of the skills development programme;
• The trend in the staff costs to value added ratio over the last twenty years; and
• Management effectiveness – the trend in the ratio of the median of management remuneration to the median of total remuneration over the last ten years.
Drive the behaviours of every group to the right and up!
Deon Thomson is the Managing Director of Silvermark Holdings, and Director: Financial Research Consultants SA.
This article appeared in the December 2017 issue of HR Future magazine.