Striking a balance between pay and performance

Friday, 30 October 2015 00:00 -     - {{hitsCtrl.values.hits}}


At the head table from left: Esquel Group Managing Director Edgar Tung, JKH Holdings Finance Director Ronnie Peiris, Moderator EFC former Director General Gotabaya Dassanayaka, HSBC Electronic Data Processing Lanka HR Head Lasantha Dassanayaka and Cambodian Federation of Employers and Business Association Vice President Sandra D’Amico



By Shehana Dain

With the new regime placing more emphasis on the private sector playing a leading role, over 350 HR professionals in the country gathered at the annual employers’ symposium recently.

The Employers Federation of Ceylon (EFC) organised the symposium for the fourth consecutive year under the theme ‘The Balancing Act’, primarily to build a balance in performance and wages. Those present were eager to get a 360-degree perspective on the ever-increasing issues regarding employer-employee relationships. The full-day symposium closely looked at legislations revolving around pay and compensation packages.

In that context, globally HR departments have increasingly been receiving prominence in the board room. However Sri Lanka is still slow in the process of putting away conventional methods and welcoming contemporary methods to develop human capital.

The symposium touched many vital areas in today’s competitive business world and its close connectivity with human resources. As a war for talent has been declared, methodologies to retain the best of the human resources were discussed as well. 

The following is Daily FT’s coverage of the Employers Symposium held on 22 October at Waters Edge.



Private sector wage hike and policy reforms

The proposal has been tabled by the Government for wages in the private sector following the hike in the public sector. This most likely will have an impact on the manner in which wages and remuneration is decided in the private sector. Wage determining mechanisms in the private sector more often are linked to performance apart from compliance with regulatory reforms. At this point reliance is placed on the capacity on other productivity levels to sustain business.

EFC Council member Nigel Austin in his welcome speech highlighted this issue saying, “If our country is to achieve higher economic output we as a nation have no alternative to achieve higher competitiveness level. Such outcomes may not be achieved if the private sector is not allowed to operate and determine policy including wages in accordance with market forces in the highly globalised environment.”


The balancing act

Singer Sri Lanka Chairman Dr. Saman Kelegama delivering his keynote speech gave a broad view point based around the theme of the symposium. He highlighted that corporates should figure out the balance between compensation and competitiveness in order to be on par with industry players.

“The balancing act for me is how we provide the compensation to the labourer without compromising our competitiveness. There are many determinants of competitiveness; exchange rates and the quality of the products are some. The most important factor is the cost of the product and when it comes to this cost of labour is a focal point.”

In the Global Competitiveness Report annually produced by the World Economic Forum the primary drawbacks for competitiveness were rigid labour regulation, poor work ethic and low productivity of the national labour force.

“We have compromised competitiveness in Sri Lanka due to excessive labour compensation and benefits. This is well reflected in our exports. The export sector was above 30% of the GDP until about the year 2000 and now it’s only about 17% of the GDP. Sri Lanka’s exports share has stagnated and even reduced from 0.09% in 2000 to 0.06 in 2012 and if it’s extrapolated to 2015 it has further declined,” he highlighted.

If countries like Sri Lanka do not boost productivity, they get into the middle income trap.

We are not competitive in the higher end or the lower end.

Citing examples he said that our ready-made garments are not competitive in the lower end like Vietnamese and Cambodian products, and our electronic items are not competitive in the higher end like those of Malaysia, Hong Kong and Thailand.


Issues regarding minimum wages

Kelegama stressed that the entire wage setting structure in Sri Lanka does not suit the contemporary economic system.

He said in the Sri Lankan scenario no worker can be paid less than the mandatory minimum wage provided; if failed to do so one can be punished by the labour department. He added that this law was brought into act considering the social aspect of the workers and there are no major issues stemming from the minimum wage criteria.

However Kelegama noted that there are sub issues stemming from the minimum wages, because in Sri Lanka there is no distinction between made wages and earnings when wage increments are considered by the wages board.

“The benefits that are over and above the wages have become large over the years. If you take the ready-made garment factory, there is the attendance and production allowance, free breakfast provided in some factories, transport and healthcare. It’s the same scenario in the regional plantation companies. Since earnings are not taken into consideration when minimum wages are set, an imbalance is created which basically goes against the market. When minimum wages are set it’s important to look at overall earning than the wages alone.”

He also stressed the involvement of the Government in the private sector wage increment proposals can hinder competitiveness significantly.

“The wages board should be an independent model to take decisions related to minimum wage; if it’s politicised then the minimum wages will not reflect an accurate market position. There are issues about the representation of the wage board, there are issues about recurrent interference by the Government to increase wages in the public sector,” Kelegama added.


Non-wage cost surge in Sri Lanka

 Non-wage cost in Sri Lanka, that is EPF and ETF, are very high compared to many other developing countries according to research carried out by the World Bank.

Kelegama states that the severance package in Sri Lanka is also very costly for employers.

“The compensation formula that has come about with the voluntary retrenchment runs up to a maximum of 48 months of salary at Rs. 1.25 m which is the third highest retrenchment formula in the country,” he said

However if we look at the under 10 years’ service of the workers; the one year service compensation, the five and 10 year service compensation the average severance pay for redundancy Sri Lanka is on par with Indonesia.

Countries such as Thailand, Bangladesh, Vietnam, Pakistan, Malaysia, India and China have lower costs.


Linking wages to productivity

Linking wages to productivity in the service industry is a very complex exercise due to inability to measure productivity. If productivity is low wages cannot be reduced in many countries due to legislation, this is why productivity related wage systems were held back for so long.

Kelegama noted that when speaking about productivity it should not be comprised of work related to output but should be broadened to power proper utilisation of material from the financial management aspect.

“Many trade unions in Sri Lanka are reluctant to link productivity for wages. Some unions are still to come to terms with globalisation, liberalisation and competition in order to enhance productivity. Productivity is seen in the perspective of exploitation of labour rather than the current global reality.”

Clarity is needed in the productivity related agreement; it should be presented in all three languages; open communication between the management and workers is a crucial factor, he opined.


Strategy in Asia Pacific Region

Esquel Group Managing Director Edgar Tung elaborated to the audience his experience in the field.

He said that the fundamental motive behind a good compensation and benefit system is to avoid people quitting the job and to retain the best talent.

“Why do employees leave their jobs?” he asked.

According to Edgar the primary reason for employee turnover is the weak relationship between the superior; this is the reason 80% of the time. Money is not the only motivator.

“The Maslow’s model shows us that the very first need is to survive and for this we need money. As we progress in the working employment we need more than money, we need self-esteem and finally self-actualisation. This is where interaction with the boss plays a major role; sense of belonging will elevate the employees’ mindset. Providing a healthy work environment is important to retain staff.”


JKH Head of Finance says HR heads to be decisive in the boardroom

JKH Holdings Finance Director Ronnie Peiris brought an interesting viewpoint to the audience speaking on how the HR department can link with Finance Department to boost profitability.

“How many of you in the HR community here engage in leading the compensation and benefit strategy evolving to the business strategy?” Peiris asked.

“HR people should not think their service is only needed at a point where remuneration and termination takes place or to make sure policies and grievances are handled. Compensation and benefits should be brought forward as a tool to adjust behaviour in a positive way. When it comes to the overall business strategy to achieve a particular target we want our employees also to go with us in the same direction. For this, one has to use different styles of compensations and benefits depending on what stage of the life cycle the company is in and the directive of the company.”

He said that without the HR compensation and benefit strategy in place a company cannot operate effectively. “Force yourselves into the decision making process and strategic sessions. If I talk about the culture, every business wants a non-volatile culture. There should be a proper compensation and benefits package to deal with the culture of volatility.”

In that sense he stated that there’s a huge leak in the overall strategy, the culture, rewarding and having compensation and benefit scheme that aligns with an overall business strategy of the organisation.

“Every organisation has quantitative and qualitative aspects which are soft skills now; if an organisation only rewards quantitative aspects that company will only achieve bottom line targets without any regard of the softer issues that relates to the customer. We have to have a matrix developed to reward both of these aspects.”


Compensation package should roll down from the top

The compensation mission statement should be moulded and driven from the top with the aid of HR, Pieris highlighted.

“The people of the top must walk the talk. The mission statement becomes your slogan which will attract the right type of employees. A mission statement must reflect the values of a company and it must also reflect economic evaluation, the pricing of the products, services and the market shares. There is no point of paying a high salary if your market is not doing quite well,” he added.

He urged the HR personnel at the symposium to develop a matrix to see how effective the strategy is by developing indicators, for customer surveys and employer surveys and regularly updating them.


Perception of the Millennials

HSBC Electronic Data Processing Lanka HR Head Lasantha Dassanayaka shared his experience where he heads a work force in which over 50% are Millennials.

He highlighted that Millennials look at compensation in a peer level comparison point of view, where individuals compare themselves with their peers and their remuneration packages.

“It’s a primary driver that attracts and retains. They will also look at flexibility of cash structures which aligns with their lifestyles. In an organisation point of view we will look into building a high performance culture. In a millennial point of view this may not be very attractive because they look into short term goals and not long term,” he added.

Sri Lankan corporates invest a significant amount for benefits in general. Millennials will not necessarily look at this component in their compensation package. They will most probably look at any benefit that will suit their lifestyle.

Citing an example Dassanayaka said that they will look at benefits such as wellbeing, yoga classes and gymnasiums. Employers should also ensure the values of these benefits to the employees on annual or monthly basis become very important to them so that Millennials understand that it would affect their lifestyle.

The other component he pondered on was the work-life effectiveness and recognition which has increasingly been a part of total rewards.

“Flexible work hours, arrangements and leave policies are some of the key drivers that Millennials would look at when it comes to compensation and benefits. This has a two-fold affect both from the employer and employee sides.

“Work place recognition tends to create a bonding relationship with the Millennials and that creates the engagement part with the organisation. Contrary to popular belief where we look at cash recognition, non-cash recognition and visibility plays a major part in the millennial thinking. This could even be in a form of having coffee with a superior,” Dassanayaka said.

Minimum wages vs. 


living wages

Cambodian Federation of Employers and Business Association Vice President Sandra D’Amico gave the audience an international experience of the employer-employee relationship.

Her first point revolved around the minimum wage criteria which was a major talking point in the symposium.

“Globally what we see is there’s such a huge push for a fair share of the pie. As an employer whatever we do isn’t enough to achieve the set goal and this is going to be more complex as employers will have to give more. Today we are not talking about minimum wages; it has evolved into living wages. The minimum wage policy in a country has to ensure job creation and ensure that we are being more productive. SMEs drive our economy and if we keep on pushing them to the informal sector to escape labour laws we are going to continually struggle with the two tier labour market.”

She further said HR has to become a function that is more market driven; a company should sell what it gives as an employer and added that the employer’s contribution to social security is a crucial factor to decide on the minimum wage policy.


Compensation has to be more than just monthly salary

D’Amico then highlighted that the Asian markets should look at compensation in line with economy and its contribution to labour market economy. 

Citing an example she said: “There is an increasing number of women who are getting married and having families who want to remain productive. How does your company’s HR policy support young women with families in the work place? If you look at the labour market’s break down, it’s very important that the HR management creates these opportunities to support the labour market equity.”

“We as HR managers need to make sure we have compensation policies which will retain people and get them to grow within the company. To do that HR managers need to be in touch with the labour market, to do more to understand the mindset of the young people. Engagement with the workforce is so important today. Young people want to contribute and do something more and be heard; we have to make sure that every employee has access to the top tier to make his voice heard.”

“We have to re-think performance management to be less administrative and more dynamic in a recruiting environment. We need to design jobs that leverage the innovation of people.”

Pix by Bhanuka Kirinde


Panel discussion

The panel discussion consisted of Cambodian Federation of Employers and Business Association Vice President Sandra D’Amico, HSBC Electronic Data Processing Lanka HR Head Lasantha Dassanayaka, JKH Holdings Finance Director Ronnie Peiris, Esquel Group Managing Director Edgar Tung and was moderated by EFC Former Director General Gotabaya Dassanayaka.

Q: How do we as HR managers make sure our voices are heard?

Ronnie Peiris: In JKH our HR department has a very powerful voice. For me the sad part is that we don’t value the people. Ultimately in Sri Lanka the leading factor for organisational productivity is people. We as technocrats spend a very limited time with people; we lock ourselves in cabins and distance ourselves from our human capital. We should change it to an open door policy and it should come from the top. You shouldn’t be cowardly; barge in and have your voice heard like a true professional.


Q: Do you think Sri Lanka should have a legislative safety net?

Lasantha Dassanayaka: Yes I think there should be a safety net. For me its translation into each enterprise would be different. In practical basis it’s difficult given the context of different levels of enterprises. The way the Government makes policies should be integrated depending on the sector they are in.

Sandra D’Amico: I don’t think any country including Sri Lanka can get away from the social safety net. It’s a global norm. The biggest challenge when it comes to the safety net is 50% of Sri Lanka’s workforce is in the informal sector. So the Government should look into ways of how they can innovatively expand the net to the informal sector so everyone can benefit from it.


Q: How can we manipulate affordability with the ever-increasing labour costs?

Edgar Tung: Always look at people as your capital than cost. This is why it’s called human capital management. 

Ronnie Peiris: The world is a very harsh place and sometimes we need to take very harsh decisions. If an organisation cannot afford to have the type of skill that you require to be competitive then you have to consider the economic reality.

You can’t always take shortcuts because it will lead to a domino effect. You will be the lowest cost denominator and be out of the league. Take hard decisions; don’t sugar-coat things because it won’t save your company in the long run.