Business
IMPACTS ON FIXED AND VARIABLE PAY : WHERE ARE WE NOW
By Dr Mark Bussin ( master reward specialist ) and Yolanda Sedlmaier ( chartered reward specialist ), executive committee members of the South African Reward Association ( SARA )
Before COVID-19 hit the world , the approach to reward was well defined .
Historically , organisations paid their employees a fixed basic salary , plus a set of additional benefits that effectively sweetened the pot . The fixed portion served to ensure workers received an equitable market-related income . The variable portion , on the other hand , extended into performance related rewards such as sales commissions , annual bonuses and share plans .
Variable pay itself is categorised into two components . Short-term incentives ( STIs ) are attached to annual performance . Long-term incentives ( LTIs ), like company shares , are often contingent on employees and companies meeting negotiated performance criteria .
At the same time , employers were embracing experiential rewards , like wellness programmes , workplace comfort , flexitime , outstanding performance recognition and other nonfinancial benefits .
The pandemic has turned this model on its head , forcing employers to consider different ways to attract , retain and motivate talented workers , and this without the resources previously at their disposal due to the wide ranging economic impact of the pandemic .
HOW FIXED PAY HAS CHANGED With many staff being retrenched and businesses closing down over the past two years , employees were more willing to accept the pay cuts their employers are forced to implement . It is obviously better to have less income than no income at all .
What has changed is that employers are offering more options . These could include flexible working hours , paid or unpaid sabbaticals , or reduced hours for reduced pay .
Working from anywhere has challenged the way we set fixed pay , and some companies have decided to pay according to the cost of living index in the area that you live in and work from . This has created interesting tax challenges . For example , if I have moved to the Maldives and “ work ” remotely in 10 different countries , how will I be taxed ?
Nattanan Kanchanaprat | Pixabay
Something we are seeing , however , is a global trend towards lower variable pay in exchange for a small increase in monthly fixed pay . This is to provide the security employees need in the short term , and the adoption has started to happen in South African boardrooms .
HOW VARIABLE PAY HAS CHANGED Variable pay is generally accepted to be that part of the reward package more readily tweaked to motivate employees and encourage better performance from them . Now , with almost all employers struggling to save jobs and keep their doors open , they face limited options .
Most have managed to retain basic benefits , like medical aid and retirement funding . What has been more affected is incentives , such as sales commissions , overtime , annual bonuses , and even executive performance bonuses .
With the global business slowdown , workers are unable to reach previously achievable targets , so employers aren ’ t earning the profits needed to reward them . To date , most organisations have made some progress to innovate their reward programmes , but we are still some way off where we need to be to accommodate the new way of working .
www . hvacronline . co . za RACA Journal I April 2022 47