Namibia's competitive remuneration structure

By Honorine Kaze
November - December 2015
Prime Business

Research done by PriceWaterhouseCoopers Namibia (PWC) to monitor remuneration and benefits’ trends throughout 2015 in the Southern African region shows that Namibia’s payment structures are competitive regionally.

Talking to Prime Focus Magazine, PWC’s Senior Manager: People & Organizations, Elria van der Merwe said Namibia is faring well in remuneration scales regionally, although South Africa’s remuneration is still higher than Namibia’s. “South Africa’s salaries are on average 25% higher than Namibia’s, mainly because of its larger economy. Botswana, on the other hand, compares 20% lower than Namibia. However, they have a comprehensive benefit structure carried by Government, such as State pensions and medical aid.

In Lesotho, salaries are about 5% higher than Namibia on average. They have a very steep pay curve, where they start lower than Namibia on unskilled positions, but management employees earn more in Lesotho.

A further contributor could also be the fact that most of the data in the survey is from SA’s multi-national companies which are also operating in Lesotho, and are just applying SA salary scales on these individuals. Swaziland is lower than Namibia by around 10% as their public sector is again applying a flatter structure”, Van der Merwe explained.

With regards to remuneration locally, she noted that Namibia, if compared globally, still has a skewed income distribution between rich and poor, which of course links back to the income ratio (comparing the income of unskilled staff to that of executives).

“Rewarding responsibly would mean managing the income ratio to healthy levels. On the other hand, with Namibia’s unemployment rate of over 26%, it is important that businesses create as many jobs as possible. This requires a delicate balance between the number of employees and the level of pay”, she stressed.

Expanding on pay scales locally, she noted that through their annual survey, PWC has noticed that the public and private sectors have totally different remuneration structures which influence their pay, and if these structures are to be ideally combined, it could lead to a more balanced standard of living of employees in both sectors.

“State-Owned Enterprises (SoEs) which were formed from their related line ministries or public sector traditionally known as the public sector pays an average of 25% higher for unskilled, semi-skilled and skilled individuals, which is mostly due to pension and medical benefits and tenure. Public sector salaries are equal to the private sector for professionally qualified positions. Private sector salaries are almost 30% higher than the public sector on the management and leadership level, mainly due to performance and variable income”, she stated.

Van der Merwe added that in the public sector, the focus is on fixed income, with relatively good salaries for employees on the unskilled and semi-skilled levels, which is meant to help them maintain a reasonable standard of living.

There are also legislative restrictions on management and leadership positions, with very little scope for variable pay based on good performance.

On the other hand, she pointed out that the private sector has limited benefits available for unskilled and semi-skilled staff, which makes remuneration on these levels less competitive.

However, premiums of a variable nature and based on good performance are considered for technical skills, appropriate qualifications, the scarcity of the position and excellent leadership, taking these into account the management and leadership remuneration levels are pushed upwards.

In her opinion, those two different structures would produce better results if combined for the benefit of the public.

“I would say a combination of the two approaches could be ideal: to take from the public sector’s relative market salaries to maintain a reasonable standard of living, especially on staff levels, but mix it with private sector paying income which is based on good performance, technical skills, appropriate qualifications, scarcity and excellent leadership and succession”, Van der Merwe explicates.

While most would speculate that a higher salary would be at the base of the retention of employees within a company, Van der Merwe argues that based on their surveyed data, it is not exactly the case as most people do not always consider a move based on a higher salary.

“Although it is mostly the reason given by employees during an exit interview, it is my observation that very few employees would consider a change in employment for a salary increase which is less than 15% higher than their current salary, if salary is the main factor.

“Other factors like company culture, leadership styles and/or personalities, career development opportunities and more play a significant role in the decision-making process for an employee on whether to resign or not”, she emphasized.

She went on to explain that higher pay does not always guarantee higher productivity, and that people engagement is generally the key driver for productivity.

“Of course, if one is paid way below the market, they would be less motivated/engaged. Similarly, one who is paid in excess of the market rates would not necessarily be more productive. So, an organization needs to manage remuneration to ensure it stays within the parameters where it does not negatively affect people-engagement.

“To increase productivity, the focus should be on building healthy organizations where people are motivated, clear goals for performance are set, employees feel empowered and employees work because they want to and not have to”, she stated. She furthermore advised that irrespective of which industry one operates in, one needs to be aware of the market movements by conducting a proper market benchmark study annually.

This way, one will be aware of any market premiums or scarcity which might exist, and change from time to time.

“Also, look wider than just money at factors such as career progression opportunities, flexible working arrangements, deferred compensation plans and more. All of these are built around and monitored through consistent performances. “With Namibia’s limited skills’ pool, the risk exists that salaries spiral upwards with employees constantly moving around between competitors in the same industry it is important that employers understand and manage this practice,” she advised.

In order to build a more competitive remuneration system, she recommended few points that each company should possess.

“The companies should have skilled and knowledgeable remuneration and reward specialists appointed within; remuneration is not just the cash components and benefits: the correct structuring thereof and the efficient application thereof also plays a significant role in the total value proposition which a company has to offer to its employees; Healthy income ratio awareness to establish a reasonable standard of living. Thus the question of when is the money enough; where does career and personal development start to overpower money, and where does leaving legacy start to come in play.”

PWC has been running the Namibian remuneration survey for the past five years, with the participatory number doubling in the last two years from about 35 in 2013 to over 80 active participants currently.

They anticipate the same to happen for the next year or two until they reach the 200 participants’ mark, in which case they would have reached about 80% of the employment power in Namibia.