Clement May Blogs

The Sub-Saharan Remuneration Conundrum

Major challenges for regional and global banks when starting operations in a new African country are manifold, and one of the toughest is how to structure remuneration packages for local new hires. Initially, Banks will typically insist on structuring offers for potential new recruits the way they have always done it in their own home market and they will usually face challenges when it comes to offer stage even if the offer represents a major rise. The more senior the role, the more challenges can be anticipated.

In South Africa most companies operate on a Cost to Company (CTC) basis, meaning the total amount the particular recruit would cost the company per year (not including discretionary bonuses and in some cases health insurance and pension contributions). This is widely the number used when negotiating remuneration packages for new hires.

In most Sub-Saharan countries companies have their own model for compensation, but all these different models usually have one thing in common: They are designed to show a low basic wage (for tax purposes) and in turn include an array of benefits and allowances, for example: Clothing allowance, petrol allowance, lunch allowance, car allowance or new car every 3 years, rent or mortgage, driver, phone line and broadband etc. The list is literally endless and is always designed for tax efficiency. These structures however, often results in a “being-taken-care-of” perception in employment culture (at executive level only of course). So when it comes to offer stage, in most of these countries it is the entire package and the construction of it that counts.

In the UK one generally refers to a gross basic annual salary in remuneration negotiations, and unless the particular case includes relocating someone internally to another branch elsewhere in the world, there is rarely talk of any benefits – as these are in most cases taxed in any case. Other European countries generally have similar cultures and rules and in America, one gross figure is generally the norm when an offer is extended to an executive.

Recruiting diaspora candidates or expats into existing franchises in most African countries is rarely a problem as these candidates will either be remunerated according to their home country’s system or at least have the understanding of the cultural differences between them and what to expect. The challenge arises when a “foreign” bank offers a CTC or Gross Base to an African banker who is accustomed to “being taken care of”. It can often take a lot of long and arduous discussions (mostly between candidate and recruitment agent) to arrive at a mutual understanding.

This situation is of course being challenged with every inter-African recruitment drive and every high-level executive appointment inside Africa, and over time the “foreign” banks will become more local in culture, and the local banks and corporates will in turn become more globally minded in terms of remuneration structures, along with their home country’s appetite and need for tax revenues.

Perhaps in ten years I will be able to write a story on how this harmonisation manifested itself, but until then, I believe it will be observable in the increased hiring activity that is inevitably going to take place.

Frank Behrendt

Managing Director, Africa

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