Garbage in and out

It is said that ‘garbage in, is garbage out’ and we are in real danger of not measuring genuine pay differentials. Employers are currently being forced to report wages paid to employees at seven occupational levels. But, if the ‘benchmarks’ in the Employment Equity Act are totally flawed any reports based on the information submitted by employers will be totally useless and meaningless.

For this reason it was decided to appeal to the President personally to take action to sort out this serious situation and to avoid a possible constitutional challenge as well. On 13 May 2019 the Daily Maverick published the open letter and with permission it is repeated here: Dear President Cyril Ramaphosa, please revisit our pay differentials

Value-exchange

In the private sector, if not the public sector as well, there has to be a ‘value-exchange with pay linked to the content of the job and the level of decision-making. It is no longer appropriate to refer to a ‘wage gap. Legally there must be proportional pay differentials based on a semantic scale as intended by EEA9 attached to the EEA. But, as pointed out in the letter there is a serious flaw because it has included in one group two distinct groups, including junior managers, who must be recognised and elevated to a higher separate level.

Subsidies to compensate for lack of basic services

The other important issue raised in the open letter is serious consequences of not appreciating that according to the current flawed system it is possible for managers in the top levels to argue that their pay is not disproportionate relative to the lower levels. But, if employers ‘subsidise’ pay at the very bottom to compensate for basic services that are not provided by the State, such as transport, it is essential to disregard the subsidy and determine the true value of those jobs for the purposes of creating the necessary pay curve and determine proper pay differentials and the appropriate pay at the highest levels.

Nothing prevents employers from treating the subsidy as a necessary contribution for social development but the premium should not be used for determining differentials. It can also be disregarded for calculating the costs of production as well. When it comes to BBBEE there are unexpected consequences when linking the scorecards to EEA9 as will be seen in the draft Accountants Sector Code.

Open letter to President as published

“Dear Mr President,

You may not remember me, but in 1981 we both participated in a mediation workshop in Johannesburg which resulted in the creation of the Independent Mediation Service of SA (IMSSA) in 1983. Eventually, in 1996, the Commission for Conciliation, Mediation and Arbitration (CCMA) was created by statute and has proved to be most effective in resolving disputes of right and interest.

I congratulate you on the unbelievable and critical role you have played in the inspiring story of this wonderful nation and I firmly believe that you will continue to do so.

There is one important issue that I would like to bring to your attention because I believe there has been and continues to be a serious misunderstanding regarding pay differentials. Legally, employers and senior management are obliged to eliminate all differentials that are disproportionate within the so-called seven “occupational levels”, but they are really decision-making levels.

There was clearly a need to do this as the previous regime purposely created a “wage gap” which also had the effect of preventing the majority of the workforce from moving up into the management levels. In the early 1970s, Thomas Paterson visited South Africa and conducted workshops to examine the wage structures. He focused on “decision-making” and advocated the need for six such levels. But in those workshops, it became clear that to avoid overlapping pay within the levels there needed to be seven distinct levels to ensure rationality.

This resulted in the belief that to eliminate the “wage gap” and ensure a rational and justifiable relationship between pay and actual work, there needed to be a constant proportional differential across all the seven levels. Unfortunately, when the Employment Equity Act of 1998 (EEA) was promulgated, it only provided for six categories and occupational levels. It did not take long to scrap the categories, but the six levels remained, presumably based on the false assumption that this was acceptable.

Recently the six levels were increased to seven, but a very serious error occurred. Instead of separating one of the critical middle levels, a level was added at the top.

So, in the same category, we presently have:

  • “Junior management, supervisors, superintendents and specialists” and
  • “Skilled technical and academically qualified employees and foremen”.

It should be obvious to anyone that employees in these two categories do not perform work or make decisions of equal value. Junior managers are vital and are potential candidates for up-skilling into more senior management functions.

They ensure that management decisions are implemented. This means giving effect to the strategic and tactical decisions made by senior and middle management who in turn give effect to the policy decisions made by top management. In other words, junior managers decide the “how”, “who” and “when” questions. There is no good rational reason why they should not be paid up to 100% more than the employees at the level below them. But as matters now stand, they are all grouped in the same category and this clearly discriminates unfairly against the junior managers.

The simple solution is to create seven rational and justifiable levels as follows:

Occupational Levels

1 Top management
2 Senior management
3 Mid-management and professionally qualified and experienced specialists
4 Junior management, supervisors, superintendents and specialists
5 Skilled technical and academically qualified employees and foremen
6 Semi-skilled and discretionary decision making
7 Unskilled and defined decision making

Unless this framework is adopted it is impossible to achieve rational and justifiable pay differentials that are truly not disproportionate as required by sec 27 of the EEA.  In other words, there has to be a straight-line wage curve that is generic, but the slope will depend on the nature of the enterprise itself.

Unless and until this serious flaw in the reporting structures is eliminated and corrected the information that is being gathered annually is totally useless and in fact grossly misleading.

Another issue that deserves urgent attention is that employees in the lowest levels tend to be subsidised by employers to cater for various services that are not provided by the State, due to no fault at this stage of our development.

In itself, there is nothing wrong with this “subsidy” approach provided the actual wage paid to those lower-level employees is not used as the basis for determining the pay of senior managers. In other words, unless that “subsidy” is disregarded when creating the pay curve, it will allow senior managers to justify much higher pay than is actually justifiable.

What is being advocated was developed by the late Daan Groeneveldt, a personnel manager for many years and who participated in the workshops all those years ago with Thomas Paterson. Dr Paterson was a scientist who played a significant role in strategic management and various plans were based on his ideas and are still used today without appreciating the changes he advocated. Before dying in Canada in about 1994 he wrote a book, “Pay: For Making Decisions”, but it is understood that his ideas and the book were “captured” by those determined to promote job evaluation” systems. Thomas Paterson advocated the single factor of “decision-making” rather than multiple factors ranging from nine to 26 with the discretionary allocation of points.

Annex EEA9 to the EEA lists some of the job evaluation systems but it is suggested that it is possible to achieve rational and fair pay differentials with the single factor of “decision-making”.

So, Mr President, please cause the present flawed system to be examined to verify if what I am drawing to your attention deserves correcting in the interests of being able to determine genuine disproportionate pay differentials. DM”