Liberating labour’s work ethic

2008-08-18 00:00

A successful economy has everything to do with labour. In order for South Africa to become a truly first-class performer, we need to find ways of managing and remunerating labour that ensure every worker wants to produce the highest possible level of output with the least amount of associated cost.

Over 80% of all government revenue is derived via three forms of taxation: PAYE, VAT and corporate. These three revenue elements have everything to do with work and incomes paid to both employees and shareholders. The various considerations that Finance Minister Trevor Manuel tabled in respect of our “economic compass” — economic growth, job creation, increased savings, poverty relief, export initiatives — are, in some way or another, linked to worker incomes.

Only once government and industrial leaders accept labour incomes as being critical in effecting a successful economy, will we be able to move forward. History tells us that neither has truly appreciated the importance of labour to our economic objectives. In fact, the opposite is the norm — doing everything in their power to keep worker incomes to a minimum. Wage negotiations are almost farcical, with executives getting up to 25% increases (in one perk or another), yet labour is offered five percent, this being justified with ludicrous, re-worked inflation figures.

The reason we need a new economic blueprint is that our current economic strategy is not producing to the required level. The cause has everything to do with productivity levels and particularly, the way in which we pay our employees. We need to abandon the current remuneration system — the fixed wage and negotiated annual increase — and replace this with a new methodology that is capable of rewarding every worker with as much as is possible.

It is important to understand the principles behind this thinking. Employees have their incomes set at the beginning of the financial year. Shareholders, on the other hand, receive their incomes at the end of the financial year as a variable income that is dependent on the success achieved in the business — the profit generated. To a large extent, this practice fails to satisfy both parties: employees feel under-appreciated by management and shareholders believe their returns are inadequate because of labour’s poor performance. The outcome is an accumulation of massive costs locked into our businesses that are adding absolutely no value, yet are reflected in our selling prices.

The important consideration with regard to this situation is that billions of rands are tied up within our economic structure that fail to add any true economic value.

If we replace the existing remuneration system with one that truly motivates labour to produce the highest output from the least cost possible, we will have a structure capable of kick-starting economic success for our country. I am sure a number of readers will make the point that the basic pay of many workers is supplemented with incentive. I suggest that the very fact we need to bolt on incentive to the remuneration structure is in itself evidence that the current system is failing to motivate an above-average performance. I would go further and suggest that, in the main, incentives do more harm than good in the minds of our employees. Management set the goals, management set the rewards and perhaps more importantly, management removes the incentive at the drop of a hat. South Africa needs to liberate its labour’s work ethic if it is to truly effect a world-class performance for the benefit of our nation.

frankgreenfield@iafrica.com

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