Employers are constantly fighting the battle to contain salary expenses to ensure the business still report profits to shareholders, while reducing the risk of permanently shutting their doors. The reality of today’s tough economic times is often a choice between preserving a job versus rightfully demanded increases. Employee increases are few and far between, and in many cases, employees feel as if they are despondent due to the pressure of ever rising living costs on an annual basis.
An Uphill Battle for HR Executives
What can human resource departments do in order to motivate employees and keep up the morale of the work force in such a tough economic environment? No real relief, except for the primary rebate increase of R153.00, was provided by the tax man in the current tax year, as no inflationary tax bracket increases were announced. Ultimately South African employees are poorer year on year. The effect of this is that the employee’s net take-home pay is under the hammer and the chance of saving for a rainy day becomes only a dream. Based on the increases in living costs, the human resources departments need to be innovative to optimally utilise flexible benefits according to employees personal and financial requirements.
Informal gatherings around water coolers and designated smoking areas in many offices soon enough end with comments like “If I could just get a little bit more cash every month” or “Why must I contribute to certain benefits which are clearly of no benefit to me?” Correctly so, why should employees pay for benefits, from their remuneration packages, which do not meet their personal financial circumstances or has no value to them? A typical example is where employers offer compulsory spousal cover to all employees irrespective of marital status.
The Answer – Let Your Employees Decide What’s Best
The human resources department of the modern era should break away from the more traditional rigid remuneration structure and offer employees flexible benefits within a total guaranteed package environment. This can be offered with a cost-neutral effect to the employer and with minimal impact to the payroll administration. Flexible benefit offerings within a remuneration structure, ensures employers are adopting a leading practice in the market. This in turn assists with the attraction, retention and motivation of key employees in an organisation.
In this way, the choice is given to the employee to decide whether they would like to opt for a more benefit rich package or a more cash rich package which ultimately impacts the employees net take home pay. Organisational management have the option to set the minimum requirements for each benefit offering depending on the level of paternalism which is enforced by management. This way employees can extract the most value out of their current remuneration packages.
Designing Best-In-Market Remuneration Packages
Employers who want to be market leaders from a remuneration perspective in the current tough economic climate currently experienced in South Africa can do so by offering more flexibility in its benefit structure to employees, while minimising their overall tax liability. Careful analysis should be performed to ensure the mix of benefits offered, would appeal to majority of the organisation’s employees.
During an employee’s life cycle of an employee certain benefits are prioritised due to each employee’s personal requirements at a particular stage in their life. Typically, for a young entry level employee starting their career, cash is very important to them, whereas benefits like retirement fund contributions and life insurance typically, are moved to the back burner. Such a person values cash more, to be able to start a life and travel the world. An employee midway through their employment life cycle, possibly married with children, values an increase in life and disability cover and perhaps more comprehensive medical cover over cash. Whereas a person close to retirement typically values increased contributions to their retirement fund to ensure maximum growth in light of their imminent retirement.
The key solution to optimising the flexible remuneration structure is that the decision around benefits and cash is left in the hands of the employee and this is not dictated or provided to them in a rigid remuneration structure by the organisation. The essence therefore is that the control of the split of the remuneration structure is in each employee’s hands. A practical solution to implementing flexible benefits in remuneration structuring would be to implement a packaging structuring tool that allows employees to make amendments to their remuneration structures on an annual basis.
Be Ahead of The Curve
By offering true flexibility in the organisation’s remuneration structure, employers can set themselves apart with a competitive edge, while those who fail to offer this level of flexibility will battle to attract, retain and motivate their employees.