Basic wage structure widens gap between executives and workers
A chief executive in Kenya earns 68 times more than a cleaner, compared to 41 times more in South Africa. Photo/FILE
The gap between the highest paid and the lowest paid workers in Kenya has emerged as the biggest in eastern and southern Africa, with the prevalent basic salary structure the main cause of disparity.
A new survey by South African consultancy - 21st Century Pay Solutions Group - says a more structured package, comprising a basic salary for executives and other payments graduated on performance, would substantially reduce this gap.
In South Africa, a total package approach that includes a basic pay, stock options, car and house allowances, and house subsidies results in a smaller ratio between executive and low cadre worker pay.
The total package approach also includes non-cash fringe benefits such as flexible hours, circumstantial compensation such as overtime, inconvenience pay, performance incentives, employer contributions to pension or provident funds, and medical aid schemes during employment and retirement.
“In South Africa, incentive and performance-based pay is more relevant at the executive level. The focus in Kenya is on guaranteed pay,” said Morag Phillips, director 21st Century Pay Solutions Group, at a conference for human resource managers in Nairobi last week.
The survey found that for every shilling earned by the lowest paid worker in Kenya, say a cleaner, the executive earned 68 times more, while in South Africa the executive would only have earned 41 times.
In Botswana and Namibia, the executive would have earned 26 and 21 times more, respectively.
Ms Phillips said a total package motivated workers more than a basic package.
“Variable pay gives the organisation the opportunity to offer flexible benefit and reward offerings. The employee has an option to choose the range of benefits that suit their lifestyle. It is also an opportunity to promote equity within a pay structure,” she said.
Sixteen firms from Kenya participated in survey, which also involved 26 companies from Botswana and 38 from Namibia.
Most of the 659 respondents were from South Africa. The Nairobi conference was organised by Three Green Apples Consulting.
Ms Phillips said companies should embrace other forms of compensation that include qualities such as job satisfaction and engaging workers in the performance of the firm.
“I am all in favour of incentive pay. The prize would motivate workers because they know the objective and the target and it tells them that they can get there,” said CFC Stanbic director in charge of infrastructure, John Ngumi.
He said that there was a place for fixed pay and annual increases, but the remuneration system should be able to reward those who take risks, “because they are the drivers of the firm.”
According to a PricewaterhouseCoopers survey done in 2009, the average pay per month of a chief executive officer in Kenya ranged between Sh1.8 million and Sh3.9 million compared to Sh29,776 for a janitor or cleaner.
That would translate to a difference of between 60 and 130 times, lending credence to the survey.
The Pay Solutions survey found that 87.5 per cent of the companies surveyed in Kenya are using a basic salary plus some benefits at the executive level.
Only 55 per cent of the companies surveyed offer medical benefits and a minority allow employees to remain on medical aid after retirement while all leading organisations in South Africa offer their employees medical benefits.
Locally 55 per cent of companies have a pension fund, 44 per cent have a provident fund and 11 and 77 per cent have a defined benefit and defined contribution fund respectively.
Under the total package approach, executives are offered vehicles including fuel, cell phone, house, subscription and home telephone account benefits in addition to international study opportunities and flexible work hours
The heavy reliance on basic pay may also be costing Kenyan firms increased productivity.
“Incentive pay does motivate some people, but some people are self driven. It can help if what makes a particular individual motivated is identified,” said Paul Kavuma, chief executive officer of Catalyst Principal Partners, a private equity firm.
He said that labour has been expensive at the top quartile since the technology boom that created demand for technical skills pushing salaries higher, with a total package approach a key employee retention tool.
This spilled over to the financial sector, where lack of adequate skilled personnel led to salary competition.
Although Kenyan companies are introducing employee share ownership plans, they are more of a retention rather than a compensation tool.
Few companies in Kenya offer sabbatical leave and study leaves are not linked to a work back period while in South Africa, 73 per cent of the companies surveyed linked study leave to a work back period for their executives.
Better opportunities
Ms Phillips said that the work back period helps companies recoup their expenses after paying for an individual’s education and employees are tempted to leave their work place for better opportunities if this provision is not there.
In the Kenyan market, the gap between highest and lowest paid executive widened by two times between 2009 and 2010 as did that between managerial ranks over the same period of time.
Ms Phillips attributed this to increased demand for talent caused by economic growth and setting up of multinationals in the region.
Salaries in Kenya went up by 9.5 per cent between 2010 and 2009 - the highest among the four countries - despite a dip in inflation from 5.1 per cent to 4.51 per cent.
