The recent downgrade of South Africa to junk status by two of the three ratings agencies has wide-ranging impacts for our economy. Heads of Reward and HR need to understand the impact it has on our ability to attract, motivate and retain talent, and put plans in place to manage this.
The major impacts on the economy are expected to take effect in 6 – 12 months’ time, which gives us some lead time for proactive management.
In simple terms, the downgrade means we will have less to spend on employees when they’ll need us to spend more.
1. With the expected increase in costs and inflation, organisations will need to reduce costs to maintain profitability. This profitability will also be under pressure as the organisation’s customers have less to spend. Payroll, as one of the largest expenses, will be a focus area for saving.
2. Our employees will earn less in real terms, as inflation and interest rates increase. A 3% interest rate increase can result in a 10% increase in the cost of employees servicing their debt. (ABSA and Fin24)
Coupled with this, the attractiveness of emigration, particularly for our most mobile and in-demand employees is also likely to be higher.
What steps can we take do to manage talent through employee Reward and other retention practices?
1. Ensure Rigorous talent measurement. Talent management is not performance management. Talent measurement is an objective measure of the value of each employee, not only factoring their performance, but also their potential, our succession plans, market risk and the impact on the organisation if they leave.
2. Ensure our pay practices not only integrate talent measurement, but are drivenby them. Whilst most Reward functions will be able to analyse employees pay against the market and in-house bands, this analysis needs to expand – to our talent measures. We need to be able to measure how well our reward correlates with talent measures and where our reward does not reflect employee value. An analytics approach tends to be the best way to integrate and understand these mismatches.
3. Make tough, but business-oriented reward decisions. Given limited ability to increase our employee spend, our reward-talent analytics need to guide us as to where best to allocate funds to ensure that we target retention of the people that drive our company success. This is zero-sum, so tough decisions are required where not to allocate funds.
4. Create a discretionary bonus pool. With organisational performance likely to be under pressure, bonus payments will be lower. Our best performers expect to be rewarded for their individual contributions regardless of company performance, and are most likely to leave if they are not. One way of managing this is to allocate some of our current employee spend to a bonus pool that is not dependent on company performance. This enables us to recognise performance in key areas and for key employees, to improve retention even when times are tough.
5. Understand and implement what drives retention. While money is certainly part of what retains employees, what will truly differentiate employers in this environment is their ability to retain key employees where funding is limited. There are a number of highly effective retention approaches that don’t involve cost.
Low- and no-cost retention approaches will be explored in more detail in part 2 of this article.
I’m a Master Reward Specialist, the highest level of professional accreditation awarded to less than 15 consultants nationwide. Feel free to get in touch with me to understand how your Reward spend, structure and activities can be made more effective – optimising your Reward spend.
I also have a passion for Business Intelligence, Analytics and the benefits that a Big Data approach brings to Human Resources. My company, REM Solutions, is an outsource solution for HR analytics that enable better Reward practice and spend decisions.