Retirement

Retiring Retirement

This year, I will be delivering a paper on Retiring Retirement – challenging participants to rethink the concept of retirement in the 21^st century. There are four drivers that warrant a significant shift in the way we look at retirement:

1. Rapidly Changing World of Work & Retirement

As the world of work continues to change at break taking speeds, the relationship between the work we do, the rewards we get and the role of retirement will require greater consideration.

2. War for Talent

Notwithstanding the short term wobbles, the war for talent is here to stay. Employers are rethinking their employment value proposition and one of the puzzle pieces to attract and retain talent will be retirement – funds, contributions/benefits, management, taxation and returns.

3. Multigenerational workforce & the value of Retirement

Excluding baby boomers that are marking the days off their calendar until retirement, the value (or should that be NO value) of retirement to Generation X & Y is frequently overlooked.

4. Role of retirement fund contributions in guaranteed pay & remuneration structures

This could easily be a separate workshop. The days when the remuneration structure (traditional or total cost package) could comfortably use retirement funding components to achieve financial and tax objectives is long gone. But what has replaced it?

If you are attending this premier conference, drop by and let us chat about retirement in your organisation.

Cost of Living 2011

When I received yet another email from a disengaged employee, working in a different company about their pay, I decided that it deserved some consideration.

The economy is posting better numbers and many companies have a healthier bottom line (small miracles after “resizing” their operations and workforce last year). Government is plodding along and the municipal elections went off smoothly. Employment levels are up. We should be happier.

Cost of Living, going up and up

Except for the cost of living. Raise your hands, if you believe that the cost of living is outstripping the growth in your remuneration. From January to May, we have seen steep increases in fuel prices, electricity and coming-to-a-highway-near-you, absurd toll fees. Or does the high cost of living feel that way because we don’t budget, mismanage our finances and love spending on credit?

Maybe the tenderpreneurs know something about the spiraling cost of living that we don’t: in the past corruption was in the hundreds of thousands, now they wipe millions from the coffers in one tender. They need millions to maintain the same lifestyle that they were accustomed to in the time of five rand notes. Inside the corporate jungle, executives are also negotiating in the millions, compensating for negligible increases in the past two years. Even the rich are worried about their retirement nest egg and holiday home.

For those outside these dark and elite circles, they should be monitoring their guaranteed pay and the remuneration structures behind it. Like a hawk.

During the 1970s and 1980s, the battle between employers curbing employment costs and employees pushing the lid up, was partly settled by structuring their package.  Something about paying the minimum tax, then paying less and getting away with it. Not that it was necessarily illegal.

Cost of Living & Remuneration Structures

Under the traditional package, the employer paid a basic salary plus add-on components. The employee went on a shopping spree in the candy store, filling the package with different tax sweets. From strawberry flavoured allowances and benefits to sugary contributions and perks, it was too sweet to last forever. On a monthly basis, the employee paid less employees’ tax and pocketed the higher net pay. Upon assessment, the employee easily deducted their fictitious business expenditure against taxable allowances and banked a tax refund.

When employers wanted to reduce their employment costs in the 1990s, they turned to the (in)famous salary sacrifice schemes. The employee accepted a reduction in their basic salary in exchange for a sugary contribution. Again, the employee scored higher take home pay, so the sacrifice seemed a fair trade. Today, I still come across employers that carry the legacy of salary sacrifice schemes, especially 2.5% retirement fund contributions.

As SARS woke up, they systematically removed the tax sweets from the candy shop and went after the owners, with crushing penalties and interest. To minimise their tax risks, employers converted their traditional and salary sacrifice schemes to total cost packages. Under this structure, the employer set aside a guaranteed sum of money to spend on the position. The guaranteed sum was allocated to earnings, allowances, benefits and contributions. Many employers also used the conversions to transfer the economic risks, related to the retirement fund and medical aid to employees. But they didn’t explicitly tell them so, Rather, employers, together with their consultants convinced staff that total cost packages, were good for their lifestyle choices, threw some tax sweets for the pocket and mumbled “best practice” to cover their tracks.

Cost of Living & Taxation

Fast forward to 2011: the taxation of employment income has dramatically changed to the point where the salaried employee is unlikely to derive a net take home pay benefit by adopting one remuneration structure over another. Those long standing tax sweets, medical aid contributions, travel allowances and company cars, come in sugar free and sour versions. SARS won’t be picking up the bill for high incomer earners.

But cost of living is going up. Employees want more. The employer can’t legally structure the package to significantly bump up net pay. As the economy strengthens, employees, especially the stars, will be seeking employers with richer offers.

Get there early by overhauling your guaranteed pay and remuneration structures. The finance and HR team should be working together to manage employment costs, without prejudice to the star players. Reward them handsomely. You don’t want them to be worried in the office about their cost of living.

What do you think about the cost of living in SA?

(HR Future, June 2011)

Remuneration & Wellness

2011 Remuneration Association of Educational Institutions (RAEI) Conference

I was honoured to have been a speaker at the 2011 Remuneration Association of Educational Institutions Conference, that was held in Boksburg from 15-16th September. The remuneration conference was organised by ITS Evula (Pty) Ltd and was well attended by finance, payroll and remuneration professionals from University of Fort Hare, UJ, UKZN, NMMU, TUT, DUT & many FET colleges.

The theme of the conference was the relationship between Staff Remuneration & Wellness, and my recent HR Future column on remuneration resonated with it, viz:

“Money buys happiness. For many years, consultants, especially those in the reward profession, have contended that there is more to attracting and retaining talent, than money. While that assertion may be valid for those occupying the seven figure levels of the organisation or those paid to do nothing, the masses would disagree”.

Remuneration Rules!

Remuneration is a topical issue in many academic institutions – employment value proposition, tight budgets, regulations, below market rates, package structuring and sharp increases in the cost of living.

During the presentation, I covered the age old issue of staff being unhappy with their pay, the conventional responses from yesterday’s experts, emerging remuneration issues and three ”differentiate or die” changes.  I look forward to engaging with several of the participants in the months ahead about the remuneration challenges in their institution.

Property Boom

Remember the property boom from 2000 to early 2008? The paint may have long dried, but in those golden days, almost any “location, location, location” was better than cash in the bank.

Let me refresh your memory: First time home owners, supported by the banks, signed up for the maximum bond.  Why get a starter home, when you could join the wealthy and infamous today? Others used their existing property, to trade up for a bigger home or purchase a holiday getaway by coast. If you wanted to change the view, sell up in six months, to another foolish buyer, willing to do the same. Investors jumped on the buy-to-let bandwagon. At social functions, the “smart” person was the salaried employee turned part time landlord, not the tenant. Speculators purchased off plan and sold for a tidy profit, before the ink had dried.

While the property owners, investors and speculators got rich, perhaps the real winners were the estate agents. As long as demand outstripped supply and credit flowed fast, estate agents could easily move their property stock to irrational buyers. Some HR professionals also joined their ranks, hoping to make a six figure income in a relatively short period. 

When the market tanked, owners were trapped in their house of debt and speculators lost their title deeds. The falling interest rates didn’t help buyers, cash strapped and strangled by the new credit regime. Estate agents battled to stay on the ground, there were three options (1) Slash head count (2) Close shop (X) Dip into trust funds.

When I first read about the riff between the Estate Agency Affairs Board (EAAB) and Wendy Machanik Properties (WMP) late last year, I didn’t expect to be writing about it. Historically, the relationship between the EAAB and estate agents has been a rocky marriage. WMP wasn’t a fly by night estate agency. The WMP empire has been around for decades, their distinctive red boards and sleek estate agents, as solid as the property on offer. Or so it seemed. 

I noticed that media coverage of the EAAB versus WMP, concentrated on the financial issues, largely ignoring the role of talented individuals in this story. For the savvy HRF reader, here is the talent side:  

1.         The Whistle Blower

The EAAB acted on a a tip-off from a whistle blower regarding alleged irregularities and non-compliance at WMP. The EAAB undertook further investigations and applied to the South Gauteng High court to prevent WMP from dipping into the trust accounts and to appoint an interim curator. We work in a country where whistle blowing, especially in companies, is not promoted and celebrated. When last did your company have an awards function for whistle blowers?  Or are they no longer employed?

2.         The Ethical Employee

To avoid curatorship, WMP illegally tried to reinvent its name to “White Acorn trading as WMP”. In those dying hours, WMP depended on the actions of one employee, a conveyance secretary to process the changes. The employee refused and the rest is history. In a world where potential corruption is a transaction away, HR must champion ethical business and assist employees in high risk positions.

 3.       The Invaluable Workforce  

As the WMP empire unravelled, their last hope was in the Rawson Property Group taking over their business. But they didn’t. They understood, what many executives don’t: when it comes down to the wire, the value in the business, is not in the brand, the buildings or the customers, but the talented individuals behind it – in WMP, the mass walk out of agents ended the prospects of saving the business. (Many agents quickly secured employment at other estate agencies) So much for the stereotype that estate agents are next to used car salesman, not professionals that bring value to the business.

WMP is likely to be the first case of many irregularities in the estate agents industry. I suspect that the auditors are going to have a field day with other agencies that have been using trust funds to float their business.

(HR Future, March 2011)

1.  We pay less, just like other companies in the market

Don’t feel too bad. Unless you hate the job. And report to a toxic boss and work with slimy, backstabbing co-workers.

2.  We pay like others, but you will work twice as hard

Foolish you!  Next time, don’t forget to carefully considere the role and responsibilities in the job, relative to the pay. 

3. We pay more, because our market consists of 4 companies, chosen by us, for paying less

These companies are in India, China, Brazil and Russia. Our new found friends in BRICS that squeeze value of the job and pay less than SA.  If you are dissatisfied about your package, blame the job “market”, not us. Or we found four SA companies that have agreed to not compete on pay. 

4. We pay more than the Chinese sweatshops.

You will live. You will have a roof over your head. You have a job. Be grateful

So what does competitive pay mean in your company?

Benefits of HR and payroll “over the cloud” outweigh perceived threat

Companies with apprehensive attitudes towards technology are losing out as a result of a deferred shift to cloud computing

In recent research findings on Cloud Computing and its’ benefits to the HR function by IQPC South Africa, the obstacles for companies to taking up virtual services seem to be as intangible as the notion of cloud computing itself. While the HR community has welcomed virtual networking in aid of business goals, in contrast, skeptical attitudes towards virtual services within their companies could be holding them back.

“Despite the fact that cloud computing is used on a daily basis in our personal lives, companies remain reticent to entrust their core functions, such as HR and payroll, to companies offering Software as a Service (SaaS) functionality” points out Dave Philp, COO of CRS Technologies. According to Philp, security is listed as the number one concern when it comes to SaaS, although providers of virtual services have some of the most stringent and complex service level agreements. “From the moment your data leaves your desktop, it is securely encrypted, delivered over managed networks and stored in remote server farms with some of the most advanced security protocols in the world. From a logical point of view, it would seem the benefits of cloud services far outweigh the perceived drawbacks and companies should put HR and payroll software delivered over the cloud firmly on their radar.”

Philp’s top benefits for using hosted services delivered over the cloud:

1. Cloud computing is cost effective. Your IT provider will host services for multiple companies, sharing complex infrastructure allows you to pay only for what you actually use.

2. Cloud computing is quick and easy to implement and upscale. Skip the hardware procurement and capital expenditure phase.

3. Cloud computing allows you to be completely up-to-date. Updating software and adding new features on the fly is important. SARS and the Department of Labour changes can be incorporated immediately.

4. Cloud computing is infinitely scalable. If your business is growing fast or has seasonal spikes, you can go large quickly because cloud systems are built to cope with sharp increases in workload.

5. Cloud computing enables a truly mobile workforce. Your staff will have access to most of your systems on the go. Perfect for companies looking to expand into other regions.

For information about CRS at HR Technology Africa conference, 11-14 April 2011, Sandton Sun, Johannesburg, South Africa please visit www.hrtechnologyafrica.com or contact: Katia Andrejev, Marketing Manager  katia.andrejev@iqpc.com or call; +9714 446 2748