Big shift to hit salaries in South Africa in the next 12 months

Employers in South Africa expect average wage increases of 5.4% to be awarded in the next rolling 12-month period – below the inflation – leading companies to try and find new ways to keep staff happy in the face of record labour turnover.

This is according to René Richter, managing director of Remchannel, a member of the Old Mutual Group, who was discussing the findings of the group’s bi-annual 2022 Salary and Wage Survey. Richter said that salary budgets are potentially no longer sufficient to meet evolving employee demands.

Rising costs due to escalating inflation, exacerbated by increasing fuel prices and food shortages due to the Russia-Ukraine war, has created a perfect storm for employers as workers return to the office. The South African Reserve Bank also increased the repo rate by 50 basis points in May – the steepest increase since 2016, which takes the bank’s key rate to 4.75%.

Richter said the overall average lift to payroll is expected to be 5.24% on a total guaranteed package basis across industry sectors for the next 12 months compared to South Africa’s benchmark Consumer Price Index (CPI) which held steady at 5.9% in April, according to Stats SA.

“The historical average CPI for 2021 of 4.5% presented a more positive view in terms of the differential, but we need to be guided by the current information, which shows a worsening of the gap between increases and CPI,” the report’s authors said.

The pressure on salaries presents a new challenge to employers as they look to retain and attract talent while remaining competitive. This is as they continue to deal with the effects of the Covid-19 pandemic that has prompted millions of workers locally and abroad to rethink work and its role in their lives.

Difficult choices ahead

The disparity between the increases companies have budgeted for, versus what employees expect to be paid given the economic pressures, will push businesses into a difficult position.

According to Yolanda Sedlmaier, chartered reward specialist and exco member at the South African Reward Association, South African businesses have largely already planned their pay increases for 2022 and so have some tough decisions ahead of them.

Sedlmaier said that employees who are faced with an escalating cost of living may be underwhelmed and demotivated by increases falling well below their needs, which can negatively affect their productivity as well as that of their company.

The effects of inflation on worker attitudes can already be witnessed as unions, demanding increases of 7%, 10% and even up to 15%, are prepared to go on strike against employers offering 6%, she said.

“As a result, companies could be forced to implement interim mini-raises to offset the unforeseen inflationary conditions or even bite the bullet and revise their plans altogether. They may have to implement better cost-saving initiatives, such as more work-from-home allowances, to alleviate the burden on workers.

“There’s no easy answer to the million-dollar question they face, and employers will have to dig deep to develop effective reward strategies,” she said.

The Great Resignation continues

Pressure is also mounting on companies to think creatively about remuneration, increases and rewards, given the wider trend of high levels of worker turnover, colloquially dubbed ‘the great resignation’.

This trend refers to workers quitting amid the Covid-19 pandemic, opting instead for stimulus packages, or for job opportunities that provide a better work-life balance and work-from-home opportunities. This trend is being seen worldwide, including in South Africa, as workers seek better opportunities and flexibility.

According to the Old Mutual survey, 36.4% of the labour turnover resulted from resignations over the past 12 months.

“Resignations continue to be at the highest levels of all the termination categories that we have seen over the past 10 years, despite the pandemic and the economic uncertainty,” said Richter.

“The total sample of employees covered just over 618,000 people. This means at an average turnover rate of 17.7%, just under 40,000 employees resigned from 82 companies.”

Richter said this untenable situation would force employers to reconsider their employee value proposition and retention policies if they are to retain their brightest staff.

Reasons for resignation include the following breakdown:

  • 19 % indicated that they left for better pay
  • 53% indicated that they’re leaving for a better working environment, improve career opportunities, or avoiding a toxic environment citing bullying or harassment
  • 20% said they were leaving for greater work-life balance or to avoid burnout and/or stress
  • 8% indicated that they are emigrating

Richter noted that while more than half of participant companies didn’t measure the replacement cost of labour staff turnover, the figure was staggering.

“Assuming that most are professional staff at an annual salary of R600,000 and that conservatively costs 1 times annual salary to replace these workers, it would have cost these companies a staggering R23.9 billion,” she said.

When the attraction and retention of critical skills are perhaps the most difficult challenge facing organisations, the survey finds that human resources professionals have experienced the highest turnover.

“This impact on this crucial business function could be why the resignations are at a high percentage. Sales and marketing professionals were second in line, which could be attributed to the greater focus on marketing to ensure organisational growth,” said Richter.

Read: It’s not worth driving into the office anymore in South Africa, workers say

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