Flexibility of total reward

Written by: Cindy Smit (7 min read)

When President Cyril Ramaphosa announced that South Africa would enter a nationwide lockdown with effect from midnight on Thursday 26 March 2020, nobody could have imagined the devastating affects – or duration – thereof.  The President asked all South Africans to stay at home and announced various other restrictions, urging companies that were able to continue operations remotely, to do so. Who better to change your company policy than the President himself?

Businesses were catapulted into a new way of work and left with no choice but to implement working-from-home arrangements. Companies that wanted to continue with their operations and generate income had no choice but to allow their employees to work from home and make the necessary changes to policies and implement technology solutions and platforms to enable them to do so.

These unprecedented times have brought to the forefront the ability of companies and their employees to adjust swiftly. There’s been no need for change agents, and lengthy processes coordinated by external consultants leading change and transformation initiatives at exorbitant rates. Humankind can be extremely resilient when faced with no options or alternatives. 

Notwithstanding the fact that employees have been able to continue working, the mental and physical health challenges should by no means be underestimated. Companies should remain mindful of the fact that employees are holistic beings and that all aspects of their lives are equally important. They should continue to offer support, both mentally and physically, to ensure a healthy work life balance and productive and happy employees.

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But let’s assume for a moment that all is well with your employees. With the benefit of hindsight, what else can your business change in its employee value proposition?   

  • Are your employees perhaps ready for even more flexibility in their world of work?  
  • Has the organisation been too paternalistic, for too long?
  • Do you consider the individual needs of your staff, or follow a blanket approach for all? 
  • Do you have a policy that prescribes the level of pension or provident fund contributions or do you allow employees to choose?  
  • Is the death and disability cover the same across all levels of employees, irrespective of age, family make-up or preference, possibly eroding some of your employees’ retirement investments?
  • Do you pay a guaranteed bonus or 13th cheque to ensure employees can afford holidays or pay school fees?
  • Do you only offer one company-elected medical aid scheme for your employees to join or do you allow flexibility and freedom of choice?
  • Have you considered how the employee benefit needs of a 22-year-old may differ from a 50-year-old?   

 

In the most recent PwC employee benefit survey published towards the end of 2019, representing 46 participating organisations across various economic sectors and industries, it was reported that the majority of the participants have a total cost-to-company package approach, particularly for professional and middle management employee levels and higher.

Although employees are provided with some level of choice, this is often within prescriptive and often limited parameters. How flexible are the package structuring options offered to employees really?   

The ability to define pensionable emoluments has a direct impact on the quantum being saved towards retirement savings as well as the level of risk cover. The majority (76%) of participants indicated that the group life contribution is included in the retirement funding. Only 37% of participants indicated that employees may be able to increase or decrease the amount of cover i.e. employees may choose 1 to 5 times life cover, and then pay the resulting premium.  

For the companies that indicated that a fixed percentage of total package was used as the base for the pensionable emolument calculation, the selected percentages ranged between 70% and 100% of package.  

Individuals will have different needs, dependent on their own priorities or family structures. If you are not offering flexibility in defining risk salary, it might be time to consider it.

Furthermore, 60.9% of participants reported that they still provide for a guaranteed bonus or 13th cheque and most indicated that the benefit was calculated at 8.33% of the remuneration base. Payment of the 13th cheque has traditionally been in December, which supports the notion that employers continue to ‘save’ on behalf of their employees to cover the additional expenses that come with the festive season and a new school year.  

With regard to additional allocations to retirement funding, 58.3% of companies with a defined contribution pension fund indicated that they allowed employees to elect a higher or lower employee contribution to retirement funding, and 33.3% allowed employees to elect a higher or lower employer contribution to retirement funding. 

37.8% of companies with a provident fund indicated that they allowed employees to elect a higher or lower employee contribution to retirement funding, and 24.3% allowed employees to elect a higher or lower employer contribution to retirement funding. Seven companies indicated that they gave both the employee and employer higher or lower contribution options.

Only six (13%) of the participants reported that supplementary retirement funding is offered as an option to employees. Several participants noted that employees were able to make their own arrangements in their private capacity, but the deductions would not be permitted to go through the company payroll as a deduction. Over the past number of publications of this research there has been a continued downward shift in this benefit offering.

The question is then whether companies should be encouraging greater savings towards retirement funds and providing the facilities to allow employees to contribute to at least the SARS threshold of R350,000 or 27.5%.  

All participants indicated that they provide a group life benefit and all but two indicated that group life was compulsory across all employee levels. If the employee is compelled to contribute towards group life benefits at a level or premium, they are unable to influence, they may be over insured and possibly saving less towards retirement savings than they would have chosen to.  

Although considered responsible that companies are insuring the lives of their employees and offering some level of financial security for surviving family members, how relevant is group life to those employees with no financial dependants? 

Flexibility should, however, go hand in hand with sound financial advice. Employers should ensure that employees receive the necessary support and have access to financial planning advice should they consider offering more flexibility in their group life cover and investment options.

Given that only 26.1% of participants in the last Employee Benefits survey indicated that they would offer home office benefits, it will be interesting to see the change in the number of companies, post-COVID, that will offer this when the next survey is released.  

Although all of the participating organisations offer a medical aid benefit to their employees, only 58.7% offer more than one medical scheme option. The reason stated for offering more than one option is to allow employees maximum flexibility and choice, which is a step in the right direction.  

The implementation of the proposed National Health Insurance Bill (NHI) might be in the distant future; however, employers will again be forced to reconsider the shape and form of medical cover and health insurance offered to their employees.   

In an era where we are spoiled for choice, and options and information are available at our fingertips, is it not time for employers to reconsider their total reward offering and allow for more flexibility in reward?  For instance, reward that is linked to their employees’ different life events; be it the graduate who prefers a smart phone and more disposable income in order to travel abroad versus the mother-to-be who would prefer extended maternity leave or comprehensive medical cover for the birth of her baby.  

Although employers enjoy bulk purchasing power from benefit schemes, and payroll administrators and HR practitioners may argue that providing an increased number of options and benefits will undeniably increase the complexity of the payroll, HR policies and time spent on administration, the up-side of these changes should be something to consider.   

Most remuneration professionals will agree that the lowest ranking topic in the engagement survey is often remuneration and reward. Employees will hardly ever answer YES when asked whether they are being paid enough, however they might just say YES if asked whether they are satisfied with the level of offering and choice in the reward space. Happier and healthier employees will be able to focus on their key deliverables within a free and flexible environment over which they feel they have control.  

If companies could adapt and implement work-from-home policies within such a short amount of time, perhaps anything is possible!

 


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Rene  Richter

Rene Richter

Partner, PwC South Africa

Tel: +27 (0) 11 797 5067

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