FINDING NEW INCENTIVES FOR TECHNOLOGY INITIATIVES - SA SURVEY RESULTS
South Africa’s IT organisations need to review their incentive scheme designs as many current schemes driven by the industry’s almost exclusive focus on share price and financial performance - are either ineffective or produce unfortunate anomalies. This could result in the inability of companies to attract and retain scarce executive talent, says Melanie Trollip, COO of independent consultancy LMO Executive Services, which has just published the results of SA’s first Executive Survey for the IT Sector.
The survey found that a total of 75% of executives interviewed by LMO consultants received some incentive in the past year. "The market is very strongly driven by share price performance, putting pressure on companies ˆ and executives - to achieve quarterly sales targets with competition at its highest levels," Trollip says.
"In fact, there is growing concern about the almost exclusive focus on financial performance, the number of external factors that impact on achievement of financial targets, and the lack of line of sight‚ in the performance measures.
"There are, for example, a number of executives who received significant incentives as a result of currency fluctuations, something that is not within their control. In subsequent years they will, even at similar performance levels, not receive a fraction of what they did in the past year. There are also organisations and executives whose performance was exceptional but because the incentive scheme design is flawed, they did not receive any incentive," she explains.
Trollip points out that although attracting and retaining leaders is an international imperative, the situation is even more critical in South Africa. The pool from which to draw talent is shrinking as international opportunities tempt those who may be concerned with local career prospects, the long-term value of our currency and a variety of lifestyle issues.
Rewards - short, medium and long-term - play a major role in any attraction/retention strategy. The specialised Executive-level survey which involved face-to-face interviews with incumbents of several of SA’s leading It companies, covers the full range of fixed and variable pay components.
"The need for such market data arose from the on-going requirement for the industry to attract and retain high calibre strategic leaders and operators," Trollip says.
"The industry is characterised by its competitiveness, volatility and extreme operational pressures. In addition, local executives have the added challenges of R/$ vagaries, BEE and Employment Equity to deal with.
"Without exception, each organisation in the industry has identified the quality and commitment of their people and in particular, their leaders, as being critical to their survival and growth, an interesting observation considering the average tenure of office of executives included in the survey was between two and three years," she comments.
According to Trollip, the IT industry is in a strong consolidation phase and the general opinion of executives interviewed is that it will be another 18 months before the market improves.
"The impact of this consolidation phase can be seen in the quantum of actual incentives paid compared to non-target‚ incentives. Actual incentives are, for those who received incentives, on average 80% of the on-target incentive.
"Reward typically comprises guaranteed cash, benefits, short-term incentives and long-term incentives. Finding the correct balance of these items is critical but if some parts are inherently flawed in terms of design, it renders the whole reward strategy ineffective," Trollip concludes.
Other significant findings contained in the Executive Survey: IT Sector report include:
- While IT industry rewards at higher middle management levels are similar to that of the national market, at the very senior level - CEO and first line reports - the IT sector leads the national market by more than 20% on guaranteed package.
- Of the executives interviewed, 88,7% were white and 86,3% were male.
- IT industry leaders are growing up: the average age of executives interviewed was 41 years.
- The average length of time the executives had been in their current position was 2,8 years with an average of 5,2 years in the same company.
- While executive salaries on a national basis are expected to move by around 11% to 12% in 2003, the IT sector predicts lower movements on average. The average anticipated pay increase budget for 2003 is 9,3% with the range between 6% and 12%.
- To remain competitively rewarded executives significantly lagging the IT industry market would need to receive increases ahead of the projected norm.