The debate regarding employee remuneration and increases for 2020/21, amid the COVID-19 pandemic and its dire effect on the economy, will largely be determined by the following two variables / key uncertainties, namely employers’ short term cashflow and organisations’ long-term sustainability (commitment and belief in its future vision).

These two variables / uncertainties unfold in the following four scenarios as depicted in the diagram:

SCENARIO 1:  NO JOB

In this scenario, employers believe that certain jobs and even the entity, may not be sustainable over the longer term. Due to the employer’s performance, the ability of its debtors to honour their commitments and the employer’s ability / willingness to secure external funding, it may lack the cash to keep its personnel employed. Employers who may find themselves in this scenario hold a negative outlook for the short to medium term future.

Certain sectors in particular (e.g. retail, hospitality, tourism, wine and tobacco) have been hit especially hard and will in all likelihood continue to struggle immensely to recover from severe revenue losses suffered under the lockdown restrictions. The purchasing power of customers decreased, and customers focussed mainly on buying short-term necessities. Many industries underwent severe restructuring and long-term recovery is the best scenario for them at present.

South Africa is currently in a recession and is most likely heading towards a depression. This will cause further increases in unemployment which is currently projected to rise to 50% as a result of major job losses suffered during the COVID-19 pandemic. South Africa is also losing critical skills (brain drain) which will also impact the ability of the country’s economy to recover.

SCENARIO 2: PAY CUT

Many companies still have a positive long-term vision, but have a limited ability (low cashflow) to sustain their business over the short and medium term. Although very cautious and concerned, they still hope for a future economic recovery and the opportunity to rebuild their businesses.

Even though cash flow is under pressure, these companies do not want to lose key skills and have developed short term strategies / measures to cut costs and to optimise cash flow. Government assistance (UIF, TERS, payment holidays etc.) and external funding were explored to keep the ship afloat.

Under this scenario many employers introduced harsh options including such as:

• Working short-time / reduced working hours
• Pay cuts
• Temporary layoffs

Internal cost saving strategies utilized include improving efficiencies, re-organising and re-engineering of processes.

SCENARIO 3: NO INCREASE

Many employers are very uncertain about the future (low sustainability) and how long it will take for the economy to recover. Even though they may not necessarily experience severe cashflow problems and may have reserves or facilities in place, they opted for conservative methods to minimize risk.

Under this scenario, employers would endeavour to keep their staff employed on full salaries to ensure that they retain the core skills needed when the economic situation changes. They would be very cautious and may not grant any salary increases in the current situation. Some companies have also postponed remuneration-related decisions, until more market movement information becomes available.

SCENARIO 4: SMALL INCREASE

In specific industries / regions (e.g. international exports, emergency services and certain agricultural sectors), there are still employers performing reasonably well and who may experience a positive cash flow. Such companies also have a long-term vision (high sustainability) to retain talented employees and may decide to give inflation related increases (even amidst the global pandemic having an extremely negative impact on the economy).

These companies compete internationally for skills and pay market-related salaries and benefits. Given the current uncertain situation, they give smaller than normal increases.

In a very small category of highly competitive industries, increases of well above CPI may still occur, but this will certainly be the exception.

CONCLUSION

In conclusion, we expect minimal salary movement in 2020 (probably inflation +1%). This situation is, however, an ideal opportunity for companies to benchmark their employees’ salaries, in order to determine their position against relevant market statistics as well as to evaluate their internal pay equity.

It is key for remuneration committees to consider the long-term impact of decisions made in a time of crisis, as these decisions will determine the trajectory of many organisations in the coming months.