Compensation-remuneration structuring

A recent advertisement for a consultant to conduct a job evaluation exercise read, in part: "The consultant is expected to gather information on all internal jobs, conduct situational analysis through (the) study of the current organizational structure, job families and groupings, grading structures and the current remuneration strategy … to determine the relative worth of each job in the organization and develop a comprehensive job grading structure." 

The advertiser proceeded to outline the minimum requirements that the consultant was expected to meet. The fact that the requirements were, in my view, irrelevant to a knowledge-based consultancy, is not a point I wish to emphasize, or elaborate on. Rather, the fact that the advertisement was structurally flawed, and the likelihood that this might lead to results that could never be implemented, concerned me enough to send the following message to the advertiser: 

I have read your tender notice … and my concern is that, as drawn, the tender is defective and you are unlikely to get results you desire from the consultancy you seek. I would be more than happy to do a free presentation to the team that is dealing with the tender. A 1 to 2 hrs. presentation would be adequate. This offer is without any obligation whatsoever. 

The main purpose of a job evaluation exercise is to remove, or minimize, disparities in a compensation structure. Compensation, in this case, refers to payment for work performed. It is important to differentiate between compensation and remuneration with respect to job evaluation. Remuneration includes pay for work performed, plus all other benefits and allowances. Job evaluation focuses on the compensation structure. 

A job evaluation exercise establishes the relative importance, or the relative worth, of jobs throughout the organization. It is a process of judgment in identifying and assessing differences between jobs. The process entails the determination of relative job weights, which are then applied to the compensation structure. 

Before a job evaluation can take place, jobs must be thoroughly analyzed and understood. Written job descriptions provide the basic source of information about jobs. In practice, to achieve full understanding, this information will need to be amplified and discussed in a job evaluation committee created for conducting the exercise. The committee should be representative of the key stakeholders in the organization. It is also necessary that appropriate senior managers be ready to answer questions that may arise. In this respect, job evaluation is a demanding process in terms of time and resources, for the organization electing to conduct the exercise. 

It is important to mention that, the responsibility to set pay levels lies with the organization, based on its ability to pay, considering the prevailing community pay levels. Job evaluation seeks to establish equity in a compensation structure. 

A well conducted job evaluation exercise can be used for other organizational development purposes. These may include: training and development, promotions, transfers, job re-design, to mention just a few. 

Finally, the selection of an appropriate job evaluation system, ultimately determines the success, or failure, of the job evaluation exercise. This should not be a problem where a qualified job analyst is identified to guide the exercise. 

October 20, 2017 

Website: www.od-internationalconsult.com

Setting remuneration and benefits for State Officers - an uphill task for SRC

Can the Salaries and Remuneration Commission (SRC) "set and regularly review the remuneration and benefits for State Officers" successfully?

For an uninformed casual reader, the following headlines appearing in the media recently, are unhelpful, and convey messages that, in my opinion, are unhealthy: "MPs top losers in new salary slash." "Serem cuts salaries in tough job changes." "Shocker for MPs as Serem releases new pay structure". "Serem stuns State Officers with salary cuts in sweeping job changes".

We are continually bombarded with negative media messages that have little informational value except to generate emotions, that raise expectations that are unrealistic. You don't have to be a transactional analysis expert to understand the hidden meanings behind the above quoted headlines.

Every Kenyan now expects the State Officers' salaries to be slashed come August 2017, when the new salaries and allowances take effect. The problem is: the SRC is not the employer, and cutting pay is not part of the Commission's mandate. In any event, slashing of salaries must be approached with caution, and with a lot of planning, by considering all compelling reasons and circumstances that would warrant pay cuts. Failure to follow acceptable processes and procedures are likely to be resisted, and most likely, lead to legal tussles.

Slashing salaries, as a mechanism for managing wage bill, whether for organization's survivor, or otherwise, must be done in the open, and must involve all the stakeholders. It is not an activity that can be executed without the involvement of the key stakeholders. Often, the process will have several options to work with. Common among these will be attrition, voluntary early retirement packages, reorganization and consolidation of functions, cut back on projects and programs, and if necessary, pay cuts may be considered as a last resort.

In the absence of a credible process for the pay cuts, legal challenges cannot be ruled out. There is no guarantee that the courts would uphold the SRC's decision to slash the salaries and allowances for the State Officers should this be challenged in court. It is instructive to note that a case challenging the SRC's authority to tamper with allowances for the officers of the judiciary is currently before the courts.

Should the State Officers resist the implementation of the pay cuts, it would put the President in an awkward position. The Constitution of Kenya does not give him the powers to enforce the SRC's remuneration structures for the State Officers. This leaves the courts as the legitimate avenues for arbitration. This is more the reason that the Commission knows, with certainty, that its actions are based on the best professional advise available. 

One cannot also rule out the possibility that the 12th Parliament, like the 10th and the 11th Parliaments, may well decide to award its members, salaries, and allowances outside the SRC's guidelines. It will be interesting to see how the SRC responds to such a move by an all-powerful Parliament.

Political offices will always be a challenge for the SRC. It is not even clear why elective offices are classified as State Offices. This does not seem logical.  

As a political institution, Parliament can only change through political will and actions. This can happen where the elected men and women, are motivated by the passion to serve the Nation, and not driven by the urge to make money, and the desire to lord over everyone else. Unfortunately, we have in Kenya, created a 'gold rush reality' in elective offices. Changing this reality will take deliberate political leadership, and administrative decisions and actions, way beyond the SRC's mandate and abilities. 

The suggestion that slashing the salaries will have an impact on the public sector's wage bill is a little far-fetched. A saving of 8.8 Kenya billion shillings does not make a dent on the current wage bill of 627 billion shillings! In fact, the savings are immediately obliterated by the CBAs that are due for implementation at about the same time when the pay cuts are to take effect.

Clearly, the wage bill problem is for the employer to address since this would require drastic reorganization and restructuring of the entire public sector. The SRC's argument that there is need to bring down the wage bill to 35 percent of the total revenue, would mean bringing it down by over 200 billion Kenya shillings! It should be obvious that the SRC's action has very little impact, if any, on the wage bill. In any case, the wage bill problem is for the employer in the public sector to fix, and it would seem obvious that this is beyond the SRC's mandate.

At this time, it is not clear whether the SRC's decision has been arrived at on the basis of a job evaluation exercise conducted over a period of eighteen (18) months, at a cost of KES 1 billion, or the decision is based on, as the media suggests, a job evaluation exercise conducted in 2012, If the decision is based on the latter, then the question that begs an answer is: What happened to the results of an exercise that cost the taxpayer over 55 million Kenya shillings a month, over a period of 18 months?
One does not have to know that there was no comprehensive job evaluation undertaken in 2012, to understand that one cannot possibly apply results of a job evaluation exercise conducted five years ago, to today's jobs! It is five years since 2012! Furthermore, a job evaluation exercise can be conducted only within one organization for the purposes explained here below. 

A problem of the SRC's own making, is the idea that it is possible to set remuneration and benefits structures using job evaluation exercises! Remuneration structuring and job evaluation are two completely different activities. Job evaluation becomes necessary where a remuneration structure is inequitable. The purpose of a job evaluation exercise then, is to remove, or minimize the disparities in the remuneration structure! Job evaluation results can also be used for other purposes like:              

·       Training and development

·       Transfers and promotions

·       Performance improvement, and

·   Minimizing complaints and grievances that can emanate from imagined, perceived, or real disparities in a remuneration structure. 

In the absence of a clear and credible process of arriving at the decision to slash the salaries, the SRC will have difficulty defending its actions.  
It is interesting to note that the "new pay structure for State Officers excluded Chief Justice David Maraga's pay following a dispute between the Judicial Service Commission and the SRC whose matter is in court."

May be Kenyans may not be aware, or have forgotten that the pay for the Judiciary was not included in the Gazette Notice No. 2885 dated March 1, 2013. Furthermore, as recently as February 2017, it was reported in the media that: "Job evaluations have not been done for the national security organs and the public universities because the SRC is yet to secure a consultant. But Parliamentary Service Commission (PSC) and the Judicial Service Commission (JSC) have resisted the evaluation". 

To the extent that the SRC has failed to follow the correct processes and procedures for setting remuneration and benefits structures for the State Officers, its legitimacy to enforce pay cuts for the State, or Public Officers, is diminished. 

Dr. Daniel C. Macaria is an OD professional with expertise in compensation structuring and job evaluation systems. website: www.od-internationalconsulting.com

The public sector's 'wage bill beast' gets bigger with time

In 2004, the Kenya government commissioned a job evaluation exercise for the Civil Service for the first time. In January 2011, the Prime Minister's office commissioned a similar exercise for a selected group of ministries and government departments. From these two experiences, it was evident that there was great need for the public sector to build the requisite skills and competences in this elusive area of organization development.

When the Salaries and Remuneration Commission (SRC) entered the arena in 2012, it hit the ground running. Only this time, in the wrong direction!

Instead of focusing on its core mandate of reviewing and setting the State Officers' remuneration and benefits, the SRC took off on a tangential course, frequently bouncing off the surface of the public sector's wage bill without leaving a scratch on it. Needless to say, the SRC didn't have the necessary skills and competences in remuneration structuring, or in job evaluation, to enable it to carry out its mandate successfully. Without these skills and competences, the public sector could only hope for a turbulent phase ahead.

Why are competences in this area necessary for the public sector?

On July 7, 2014, I implored the SRC to consider, as a matter of urgency, undertaking the task of building skills and competences in remuneration structuring, and in job evaluation systems and their use. Just as the competence in remuneration structuring is fundamental to managing a wage bill, the competence in analyzing and evaluating jobs is fundamental to ensuring equity in the remuneration structure. Done properly, a job evaluation should reflect the relative weights, or values, of jobs in the organization. This provides an acceptable and a logical framework for managing a remuneration structure that is free of disparities and disputes.

A job evaluation exercise can be expensive in terms of money outlay and in time demands on managers within the organization. Having the necessary internal competences can save the organization, both on time and money. It guarantees the ability to hire competent external consultants, who can deliver the desired results. The alternative, which almost invariably has been the norm for the public sector, is to hire and let loose into the organization, external consultants who often deliver results that cannot be implemented.

Any organization serious about managing its wage bill and remuneration structure effectively - the public sector included - should have requisite internal competences to guarantee success.

Why do I make these suggestions?

Why do I provide this information freely? I believe the wage bill challenge cannot be resolved without the necessary skills and competences. It is also evident that a proper job evaluation exercise has yet to be conducted for the public sector. This is important if the glaring disparities in remuneration within the sector are to be removed. My motivation, therefore, comes from a desire to help in an area of my expertise, and one that has few experts in our region. Left unresolved, the public sector’s wage bill will continue to generate discussions that contribute little toward lessening the burden it puts on the Kenyan taxpayer, not to mention the effects it has on the country's development agenda.

One need not be persuaded that disparities in a remuneration structure, inevitably lead to employees’ dissatisfaction, low morale, and low productivity. These conditions are usually manifested in clearly visible manner and form in the delivery of services and in working habits. For these reasons, developing the requisite skills is absolutely necessary, as a long-term strategy, for any organization desirous of improving productivity.

The results of ignoring the many suggestions and recommendations I have made since 2012, are now clearly reflected, not only in the following remuneration structures analyses, but in the fact that the SRC has now proposed a new approach – a new script as it were: "Cutting the salaries across the public sector!" Unfortunately, this will not eliminate the problem of a "ballooning" wage bill.

    

The above salary curves for State and Public Officers show only the basic pay, and the gross pay after adding the allowances. The maximum pay for each job group is missing from the data. This omission is serious because it is an important component of a complete remuneration structure. The only conclusion here is that the public sector's remuneration structure has more problematic issues than is realized. 

Needless to say, the percentage differences between successive job groups reveal a sorry state of the remuneration structure for the public sector as a whole. A credible way of correcting the problem would be for the SRC, PSC, and other stakeholders, to go back to the basics and follow the six-step approach I suggested earlier, as the right approach to wage bill management and remuneration structuring. The new campaign to cut pay across the public sector is misleading. It is simply not the way to deal with wage bill. Period! Why grope in the dark when it is absolutely unnecessary?

The President has come out in support of the SRC's bid to have the salaries in the public sector trimmed. The Parliament, the religious leaders, and the general public, are in support of such a move.

 I foresee a situation where the move to cut salaries is resisted, and even challenged as an unlawful move. The Judiciary, being an independent institution, will concur. By playing its role appropriately, as it did in matters relating to collective bargaining agreements, will lead to the other arms of the government pointing accusing fingers on the Judiciary – all because these other arms of the government would be relying on the wrong script!

Without the requisite know-how, the 'wage bill beast' grows larger as the script on the way forward, continues to confuse many. 

The SRC has come full circle!

At the outset, the Salaries and Remuneration Commission (SRC) made a big deal about the ballooning wage bill for the public sector, but did little about it. After painting a grim picture of the situation, the Commission launched a spirited public relations campaign covering every county. It was not clear how the SRC had arrived at the conclusion that the level of the public sector's wage bill was unsustainable, or even how this had become the responsibility of the SRC to worry about. The core mandate of the Commission was to set and regularly review the remuneration and benefits for State Officers. Still, the Commission hit the ground running, but, in the wrong direction!

First, the SRC commissioned two job evaluation exercises to be conducted. One, supposedly for the purpose of setting compensation and benefits structure for the State Officers, and two, for the purpose of performing its second mandate - that of advising the national and county governments on remuneration structures for all the other Public Officers.

By commissioning the two exercises, the SRC was repeating exactly the same mistakes that occurred across the sub-Saharan countries in the 1980s and '90s, where wrong job evaluation methods were adopted for the wrong purposes. Invariably, all failed to produce desirable results.

In an email of August 14, 2012, to the SRC, I made the following observations:

1)      Since the era of the civil service reforms and restructuring in the sub-Saharan Africa, (1980s/90s), country after country in the region, conducted job evaluation exercises in an attempt to set up remuneration structures, under programmes supported by the World Bank/IMF.  None of these efforts realized the desired outcomes!

2)      Revenue allocation to different competing needs in the public sector, including appropriation for the wage bill, is a factor of economic, fiscal, and other policy considerations. It follows that the wage bill, and the salary base-line, must derive from these considerations rather than from a job evaluation exercise.

3)      Job evaluation, which the Commission seems to propose as the basis for remuneration structuring, will not work. The purpose of a job evaluation exercise is to eliminate or minimize disparities in a remuneration structure. It is also important to note that a job evaluation exercise cannot be conducted successfully across different entities of the public sector, and certainly not in clusters, as your terms of reference for the Public Officers' job evaluation suggest.

4)     The proposed factor comparison methods, are designed for factory and operatives' jobs, and not for salaried and executive jobs. Other robust systems exist that are suitable for evaluating jobs at senior levels.

I further suggested that, the wage bill in the public sector could be brought to manageable and sustainable levels within a span of five to eight years, if the right approach was adopted. My suggestion to the SRC was to consider adopting the following approach:

                 i.          Examine the current distribution of remuneration packages (total wage bill) across the public sector, and in collaboration with Treasury and other stakeholders, determine levels at which the wage bill can be sustained. This should enable the Commission to determine whether a ‘living wage’ (as has been done in some countries) could be used as a basis for setting the minimum pay in the public sector.

                ii.          Get all the stakeholders on board, as policy guidelines on salaries are agreed on, in line with the assessed level of a sustainable wage bill.

              iii.          Commission an exercise on jobs rationalization (the need and the purpose for every job), and a job audit exercise, where necessary, to ensure that the wage bill is for actual, existing, and necessary jobs- (i.e. remove ghost workers from the payroll, and eliminate unnecessary jobs).

               iv.          With the help of compensation/salary structuring experts, set initial minimum and maximum salary levels for each of the entities identified in the terms of reference (in the call for EOI).

                v.          Incorporate in the process, provisions for the forty-seven counties and deal with these after the counties are fully constituted, functioning, and rationalized.  

             vi.          Job evaluation exercises could then follow, as deemed necessary, for each entity in the public sector, in order to remove, or minimize disparities in remuneration structures.

It was a costly error for the SRC to start setting remuneration structures using job evaluation exercises. After spending over a billion Kenya shillings on exercises that can never be implemented successfully, the SRC has gone a full circle! This time around, like in 2013/'14, the "ballooning wage bill" is out of control, and unsustainable! The answer: cut salaries across the board! A new approach? Dear SRC, be warned: It does not work that way!