Productivity Linked Wage/Remuneration Model for Zimbabwe

Productivity Linked Wage/Remuneration Model for Zimbabwe

The topic of productivity measurement in Zimbabwe has been under discussion for as long as 25 years now. Government, Employers’ associations and Labour unions at some stage discussed this very important topic. However up to now no concrete framework is in place to implement this model which I think is the best for an economy such as ours. The lack of progress is partly due to the lack of coordination by the social partners and lack of know-how on the practical implementation of such a model.

During the period of hyperinflation Human Resources Practitioners were very innovative when it came to remuneration. At the time when the country was going through an unprecedented economic decline characterized by hyper-inflation, many new and innovative ways of rewarding employees were found that helped companies survive. These included paying people using fuel coupons and groceries. After the introduction of the multicurrency system some leading companies moved quickly to adopt the Total Cost to Company Model. The more cautious and less responsive remained on the old system which they are struggling to maintain now. It will be even more costly to near impossible to implement the total costs to company model 2 years from now because employees will be so much used to the old model to the extent that they will not want to change. Management of most organisations on the old system are also not willing to move to the new more sustainable model simply because they are afraid of affecting their own personal interests as they are currently benefiting from this old system.

Given the fact that most organisations are struggling to pay decent salaries it is imperative that social partners; government, labour and employers work together and come up with a national sustainable remuneration model. Ultimately if this is not done now a number of organisations will close shop due to unsustainable salaries and wages. Should this be allowed to continue, a lot of people will lose jobs and this scenario is not ideal.

The first step in developing such a system is to come up with the right legislative framework. With the current system at NEC, it is almost impossible to set salaries using productivity figures. The NEC is a grouping of competitors and there is no way they are going to share strategic information at that level in order to set salaries. As a result the NEC’s are “talk-shops” when it comes to real wage issues linked to productivity. This is the same reason why these groupings are obsessed with “Poverty Datum Line” or PDL linked wages which have never been implemented anywhere in the developing world. They have also tried to link wages to inflation; this is understandable but it is not the whole picture.

Companies need to link wages to productivity. One way of ensuring that companies in the same industry share information of strategic nature such as the data required in productivity measurement calculations is to set up an independent statutory body at industry level or national level to collect such information without disclosing the identities of participants. Currently the way NEC’s are operating is like a father who buys the same size of shoes for his sons or daughters regardless of their actual size. There is so much variability in company productivity that it is impractical to give uniform salaries increases to the whole industry.  The current NEC setup also punishes those companies already paying above NEC recommended minimums especially when they recommend salary adjustments on actuals instead of minimums. A number of companies have now simply stopped internal Works Council driven salary negotiations because they are afraid of being chocked by the mandatory NEC adjustment. Our situation demands that salary negotiations be done at company level through the Works Council. This approach takes into consideration individual company circumstances instead of the NEC system which looks at nothing else except inflation and the PDL. Inflation and the PDL do not show company or national economy growth/performance. The current NEC system therefor only looks at the cost side to the employee.

Once the above huddles have been resolved there is need for immense education at all levels on the pillars and importance of productivity measurement. One common and misleading notion currently pervading the Zimbabwe economy is that production equals productivity. This is not correct. You can produce as many units or tons of your products and still remain unproductive. The simple definition of productivity is output divided by inputs. Production which is just the output excluding growth in inputs is therefore misleading when used as an indicator of the company’s performance. Employees normally want to be rewarded on the basis of units produced and most senior managers know that this is not sustainable.

The other misconception on company of performance is that profitability equals productivity. There are so many companies that are very profitable but not productive. It is important to note that profitability equals to productivity plus price recovery. My estimates are that profitability in 80% of Zimbabwean companies is driven by price recovery instead of productivity. Depending on price recovery for profitability is not a sustainable strategy. Price recovery can lead to products you are producing becoming uncompetitive or your customers seeking for substitutes thereby opening the door for new competition. Monopolies tend to thrive on price recovery in many instances because they know there are barriers to entry in their industry. When competition comes for such organisations it normally hits them hard to the extent that they may not recover in the long run. There are too many examples of such cases in Zimbabwe. Most of the companies relying on price recovery for profits have enriched themselves at the expense of their customers.

A more suitable business model is the one where profitability is driven by productivity and employees must be rewarded accordingly in such cases. Therefore when adjusting salaries it is important to look at both profitability and productivity. A model matrix for determining increases based on this model is shown below.

Productivity & Profit Linked Salary Increases Matrix

Profit Growth	Percentage Salary/Wage Increase
30% and above	8	10	12	14	16	18
26% to 30%	6	8	10	12	14	16
21% to 25%	4	6	8	10	12	14
16% to 20%	2	4	6	8	10	12
11% to 15%	0	2	4	6	8	10
0.5% to 10%	0	0	2	4	6	8
Productivity  Growth	<10%	11% to 15%	16% to 20%	21% to 25%	26% to 30%	30% and above

The model above ensures that wage increases are commensurate with increases in productivity so that the competitiveness of the economy is further enhanced. Another positive factor in using the above model is that wage increases, which reflect productivity gains, will ensure that there is no undue pressure on prices and erosion of real incomes. Our situation is currently the opposite of what the above model is trying to achieve. Labour wants salary increases linked to the PDL without considering productivity. The good thing about this model is that if management measures productivity they can use this model as a benchmark for all salary increases.  The same model can be linked to sustainable incentive schemes.

Memory Nguwi is the Managing Consultant of Industrial Psychology Consultants (Pvt) Ltd a management and human resources consulting firm. Phone 481946-48/481950/2900276/2900966 or cell number 0772 356 361 or email: mnguwi@ipcconsultants.com or visit our website at www.ipcconsultants.com