TOTAL(LY) COST(LY) PACKAGES AND THE BUSINESS CASE

Yusuf Mahomedy (CA(SA), AdvTax) , founder of Worksucks – Make Work, Work

Contact: www.worksucks.co.za  & yusuf.mahomedy@gmail.com

With the majority of South African companies using a total cost package to remunerate their workforce and others planning to follow, sometimes on the advice of an overzealous reward consultant, it is appropriate to briefly revisit this package.

A total cost package is a method used by an employer to remunerate an employee based on a package, being the guaranteed sum of money the employer will spend on that position.  The guaranteed sum is allocated by the employee to earnings, benefits, allowances and company contributions subject to various regulations. 

The business case for converting or keeping a total cost package comes down to these drivers

·         Alignment to Organisational Values such as performance and integrity

·         Exciting Fresh & Innovative Model for remunerating talent

·         Attract and Retain high quality talent in a competitive market

·         Provide talent with more Flexibility and Choice

·         Provide talent with simple, easy to understand package

·         Link remuneration to the value added by the individual

·         Total Employment Cost Control

·         Transfer of Economic risk from employer to employee

·         Tax compliance for the employer and Tax Efficiency for the employee

·         Establish Internal Equity & eliminate discrimination

·         External Competitiveness & Benchmarking

·         Follow Best Practice & the latest Trends

Those employers that apply their minds and invest the time to analyse each of the above drivers, are likely to find:

·         Total Cost Packages were exciting and empowering…last century. As we enter the second decade, organisations need to provide truly innovative offerings to attract and retain talent.

·         Total Cost Packages are conceptually unsound from a reward position, promotes internal inequity and does little for external competitiveness. Not exactly the desired results.

·         Finding the best fit for your organisation is more valuable than following the best practice of the crowd.

·         An organisation that tells their workforce, “People are our most important asset” and then converts to a total cost package is leaving little doubt about their status as another overhead item.

·         A total cost packages does not in itself, mean compliance with the Income Tax Act. For talent, the package does not automatically provide greater tax benefits or take home pay than a traditional remuneration package.

·         While it looks good on paper, in practice total Cost Packages don’t deliver the benefits to talent:  flexibility, choice and understanding. This is due to organisational issues, limitations of the package and lack of a genuine benefit in the package components for the employee.

If your organisation currently has this package, it is worthwhile to undertake an independent total cost package review. The review should look at the business case, identify risks and provide recommendations. If your organisation is planning to convert to a total cost package, the business case for total cost packages is on thin ice!