Factors driving changes to remuneration policies in South Africa

• Published date: 01 January 2015
• Pages: 43-63
• Date: 01 January 2015
• Author: Mark Bussin
• DOI: 10.10520/EJC179270

South African Journal of Labour Relations: Vol 39 No 2 2015 43

Correspondence to: Prof M Bussin, Department of Industrial Psychology and People Management, University of

Johannesburg, PO Box 524, Auckland Park, 2006. E-mail: drbussin@mweb.co.za

Factors driving changes to remuneration

policies in South Africa

by Mark Bussin*

Abstract

This study was conducted in 2012 and replicates Bussin and Huysamen’s (2004)

work, conducted in 2003, on remuneration policies. It investigates the factors

driving remuneration policy in South Africa and determines whether these factors

have changed since 2003. Anonymous e-mail questionnaires were received from

131 senior company representatives. All participating compan ies wer e mem bers

of the South African Reward Association (SARA) or clients of a large

remuneration consulting firm. Data were analysed using a chi-squared test and

factor analysis . Results support Bussin and Huysamen’s study, which found that

the two main drivers of change in policy were th e retention of talented staff and

the financial results of the organisation. Howeve r, three components of

remuneration are receiving greater prominence than they did in 2003: governance

in the organisation, merit pay and retention strategies. These findings suggest a

greater shareholder expectation that pay should be linked to performance, and

that pay acts as a retention strategy for critical staff.

Key words: compensation, remuneration, remuneration policy, reward, South

Africa

1 Introduction

Globally, the economic crisis, the collapse of public companies and rising public anger

over executive pay packages have again focused attention on the strategic importance

of remuneration policies in organisations (Petra & Dorata 2008). The US Treasury

Secretary, Timothy Geithner, argued that excessive pay packages were partly to blame

for the 2008 Wall Street crash and as a consequence introduced a “compensation tsar”

to oversee remuneration in organisations that had received government bailouts.

Geithner was also instrumental in introducing legislation giving shareholders a non-

binding vote of confidence on remuneration issues (“say on pay”) and he tabled

legislation to ensure the independence of rem uneration committee members (Farid,

Conte & Lazarus 2011).

Within the South African environment, King III recommendations on corporate

governance were introduced with effect from 1 March 2010, with a significant increase

in focus on executive remunera tion. Some of the requirements are inc reased disclosure

on executive pay, a non-binding advisory vote on a company’s remuneration policy and

more extensive reporting requirements (King 2009).

Along with a greater emphasis on governance issues, the South African government

is also focusing on public spending. Government has expressed concern over

* Prof M Bussin is a member of the Department of Industrial Psychology and People Management in

the Faculty of Management at the University of Johannesburg.

44 South African Journal of Labour Relations: Vol 39 No 2 2015

consistent increases in the public wage bill, which more than doubled in the five years

ending 2009 (Gordhan 2010). In addition, protests over government’s poor service

delivery and labour unrest have highlighted South Africa’s excessive wage gap and

rising inequality (Aharoin 2014; PriceWaterhouseCoopers 2014). Other factors pushing

South African organisations to review their remuneration policies include the renewed

focus on staff retention, the implications for the financial situation of stakeholders,

pressure from competitors, organisational redesign, and changes to legislation

(Corporate Leadership Council 2010; Ogedegbe & Bashiru 2014).

The myriad of factors which drive the review of remuneration policies need to be

understood in order to achieve good corporate governance, as well as inform the

communication and change management necessary when the policies are

implemented (Bussin & Huysamen 2004; Herkenhoff 2000; Tian & Wang 2014). The

present study was conducted in 2012 and comparisons were drawn between this study

and the 2003 study by Bussin and H uysamen. It is contended that the study has not

dated as major changes to remuneration policy design happen infrequently and usually

affect only one component of remuneration at a time (Bussin 2012).

Reward policies are a subset of a company’s human resource policy, which is driven

by the human resource strategy, which in turn must be integrated into the business

strategy (Lawler 2000). As such the remuneration policy has an essential role to play in

talent retention and attraction, and the motivation of employees (Deal, Stawiski,

Graves, Gentry & Ruderman 2013; Lawler, Boudreau & Mohrman 2006) and needs to

be integrated into the total human resource management strategy (Armstrong & Murlis

2007). WorldatWork (2007) offers a widely accepted rewards mod el that is

comprehensive and takes cognisance of the multiple factors driving remuneration policy

development.

1.1 Remuneration policy components

The elements of the total rewards framework shown in Figure 1 below closely mirror the

headings used in remuneration policies. Compensation is further sectioned into base

pay, short-term incentives and long-te rm incentives. Remuneration policies are

generally around 10 pages in length and cover most of the headings in this framework

(Bussin 2012).

The Total Rewards Model (WorldatWork 2007:6) purports that rewards operate

within the culture of the organisation, the business strategy and the HR strategy. There

are five components of a rewards strategy that all work together to attract, retain and

motivate employees. If they are successful, employee satisfaction and engagement will

result and the business will see improved performance and resu lts.

Salaries, incentives, benefits and perks generally comprise companies’ biggest cost

item – estimates vary from 50% (Milkovich & Newman 1999) to 80% (Singh & Loncar

2010). This means that remuneration can be used to gain competitive advantage as

pay affects employee behaviour, which in turn impacts organisational success

(Milkovich & Newman 1999). As capital and technology become more accessible,

innovative pay strategies are becoming increasingly attractive (Aguinis, Gottfredson &

Joo 2012; Milkovich & Newman 1999). Despite this, Bussin (2012) argues that the

impact of pay packages on bu siness strategy is not always we ll understood, and often

changes in remuneration have not kept pace with other changes in business.