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Sunday Times STLive By Margaret Harris, 2011-06-26

Q & A: Pay scales tip workers' way

Martin Westcott, MD of P-E Corporate Services, speak to Margaret Harris

Salaries have been kept fairly static because of the recession; are they increasing again?

Companies have had a difficult balancing act in this area over the past couple of years. Increases in payroll costs obviously have to be debated in the context of tight cost control and productivity imperatives. The impact of the global recession on our labour market was most evident three years ago, with a significant number of companies either waiving salary increases or offering minimal amounts, to the most deserving employees. Overall average market increases also dropped below inflation rates for the first time in many years. Since then, however, increases have again begun to lead inflation, highlighting the continuing impact of skills shortages on labour costs. Particularly noticeable over the past year or two has been the fact that the decline in inflation rates has not been matched by a corresponding reduction in wage increases. A combination of union pressure and competition for scarce skills has opened up a 3% gap between increases and inflation.

Are certain sectors doing better than others?

In the two to three years leading up to last year's World Cup, this plus other major capital projects resulted in construction sector workers enjoying particularly good increases in relation to other sectors. The construction sector party is now over, however. Sectors that are currently awarding the most generous increases include mining and resources, consumer goods and service industries. These are all sectors which are leading SA's aggressive industrial expansion into Africa, and in which the need and competition for skilled resources is intense.

The public sector has enjoyed increases above private sector rates for the past three to five years. Increases granted have often been influenced by weak negotiation by the government and perceived need to maintain political harmony within the alliance. The net effect, however, is that wage increases plus increased employment has seen the public sector payroll double over this period.

What role does remuneration play in a company's retention strategy?

A very vital role. Job content and job challenge, potential for career progression, an effective supervisor-subordinate relationship and an environment in which politics and bureaucracy are minimised are often cited as crucial factors in an employee's decision to remain with a company. But an equitable reward structure can also make or break this decision. Rewards need to be perceived as equitable internally - in relation to work colleagues with comparable responsibility - and externally - in relation to the open market. Remuneration structures need to be seen to reward effective performance rather than less productive criteria such as tenure. Incentives play an important role in this regard and many contemporary incentive schemes contain an element of deferred pay as a specific retention strategy. This may be sacrificed should the employee elect to leave the organisation before the deferral period has expired.

What role does remuneration play in attracting new recruits?

This is very much a function of job level. At lower organisational levels, employees who would normally have very little discretionary income may be prepared to move for a 10%-20% improvement. At the more senior managerial and professional levels, however, issues such as job content and challenge, career advancement opportunity and the opportunity for personal fulfilment will always receive first consideration. Compensation packages are also more complex at this level and the right candidate will always assume that he or she will be capable of negotiating a fair and performance-linked package.