Safaricom - Compensation Practice in Cellular Network Provider in Kenya - Case Study Example

Compensation Practice Introduction Compensation refers to the total of all forms of payments and rewards handed to an employee to achieve organizational goals and objectives (Goel, 2002). It is generally viewed a process to provide adequate, equitable, rational and reasonably fair remuneration to employees. It is the reparation workers receive as restitution in return for their service value to an organization. Compensation is the wide-ranging that encompasses pay, incentives, benefits, allowances and other soft damages an employee receives, mostly in the form of monetary value. Compensation has many purposes. Compensation is absolutely necessary in ensuring equity, rewarding valued behavior, attracting talent, ensuring efficient administration, staff retention and motivation, job satisfaction, job fulfillment and employee productivity among other fundamental reasons (Henderson,2013). Case Focus The Cellular network provider in Kenya, Safaricom, is a publicly traded company in Kenya, co- owned by Britain’s Vodafone Group Plc. Having entered the Kenyan market in the year 2000, Safaricom has progressively developed to become the premier employees’ choice not only in the sub-Sahara region but also internationally. It has won a number of awards in terms of general mobile telephony services but most outstandingly through its revolutionary mobile money transfer and banking platform that was the first of its kind in the world. According to its CEO, Bob Collymore, Safaricom’s key to near monopoly status and international renown for its quality and innovative services lies squarely on its human resource (The Vodacom Group, 2014). To achieve this, the company, he says, owes its prestige and status to a long standing meticulously strategized and flawlessly executed compensation management. The company’s compensation management and full spectrum approach to employment engagement and continuously seeking a balanced solution with regards to matters pertaining to compensation management. Safaricom’s compensation strategy has a rather hand on pragmatic approach with regards to skill, market situation, individual contribution and group accomplishments. The strategy is basically based on a competitive performance driven foundation on various aspects of most importance to the company. This strategy generally seeks to reward the work done rather than the worker. There basically is no incentive to make workers work harder. Rather, they work hard to earn both the gratification of their and the incentive. Incentive is post issued rather than pre allocated. There are some best practices applied at Safaricom to ensure the employee input is commensurate to the stature of the company. To begin with, the organization has over time designed and consistently applied extremely competitive, performance driven compensation structures with a keen eye for quality and improved input and definite and guaranteed incentives upon the same. Secondly, there is an independent and effective oversight board that not only closely monitors all compensation activities, their merits, worthiness and contribution towards advancement of the general company objectives but also to regularly review compensation policies and practices. In addition, members of this board also offer necessary advice on issues of executive compensation and ensure adoption of the best possible and responsible compensation programs that comply with standards and regulations.It allows an advanced supervisory oversight of compensation, including corrective measures if necessary. The other important best practice with this company is the streamlining of compensation delivery through process and program optimization. This ensures that compensation program design is structured in a way that increases company standards and service quality, maximum employee involvement, job enrichment and a sense of satisfaction and accomplishment. The company therefore rises in standing with more gratified and properly appreciated workers besides an even greater urge to improve. Lastly, Safaricom has over the years considerably encouraged and enforced limitation of guaranteed bonuses. Unguaranteed bonuses have been a successful practice that has ensured a more vibrant and more inventive workforce.It has also stopped one of the worst sources of financial wastage by lazy and dishonest executives which has set a good precedent to junior officers as everybody earns in direct proportion to their input for the company. There are, however, certain challenges the company faces with respect to compensation. The most prominent and obviously evident one in this respect is lack of adequate communication and very little public disclosure and transparency of compensations. Lack of communication on matters touching on compensation can be a major cause of suspicion and disquiet for a large organization. Secondly, in as much as the system does ensure and sustain a vibrant and continuously refreshed and fast evolving especially in the dynamic industry it is in and the pressure from the company’s status, it can prove way too taxing and extremely demanding for an employee. The approach compensation strategy is also rather dramatic in the sense it does not give a new employee adequate time to fully adapt to the work place and requires instant results. This kind of environment is only suitable to individuals with incredible self-drive. Another challenge for the company is the lack of adequate monetary valuation based on skills which has negatively affected internal innovation initiatives within the company. This has caused the company to outsource most of its innovations. The final challenge Safaricom faces with respect to compensation is lack of compensation structure that encompasses the element of risk and risk alignment to outdoor employees who at times work under considerable amount of risk. Through the compensation practices, the company has by extension had a profound impact both to the company and its stakeholders in their application. There is a concerted effort to always ensure that customers get the full value for their money in terms of offering the best quality services possible. In addition, the company compensates its shareholders in a very definite and equitable way in terms of dividends depending on their number of shares. The company also has a good reputation of compensation to the society in the form of corporate social responsibility. This has created a considerably warm impression among its publics as it has availed quite a number of facilities and important social amenities. It has also sponsored a great deal of social functions of varied kinds. Safaricom also has a very rewarding mechanism in place for inventors of technology they outsource. Most individual inventors have found the company to be the most gratifying place to sell and have their innovations improved. The company has however had questions raised on its compensation policy towards casual and short term contract workers. For instance, the compensation for merchandise salesmen has been a reason for a court case which has seriously tainted the image of the company, leading to a serious loss in the company’s share prices. This created a fairly bad image for the company. Safaricom has had to make a myriad of changes and adjustments due to market related issues. To begin with was the situation in 2006, when the Kenyan economy grew by an incredible six percent. The number of Kenyans who acquired handsets grew tremendously by a staggering thirty percent. The demand for mobile services was at the record highest and the company made the largest profit in its history at the time. Very many job opportunities were availed during this time and the rates of compensation. Unfortunately for the company, the country experienced an ugly civil unrest towards the end of the year 2007 and early 2008. The country’s economy virtually collapsed and the demand for mobile cervices was at the lowest. The company was then forced to retrench and even the employees it was left with were made to accept a twenty percent pay cut. In 2011, the country, which almost entirely relies on hydro-electric power, was affected by a prolonged and persistent draught which caused acute shortage in power. The cost of oil was also very seriously affected by very many civil unrest in the oil producing middle east countries, causing a rise in oil prices in the country besides the shortages in the country. This combination of factors led to inadequacies and energy cost rises. The company had a very much inflated overhead costs. What resulted was another round of retrenchments and layoffs coupled with ten percent pay cuts across all departments. In 2012, Kenya’s currency, the Kenyan Shilling seriously lost value against the dollar. This spelt another hard time for a company that imports most of its products. The fall in the local currency rating against the dollar subsequently raised overheads for the company and another round of small salary cuts followed against the company’s employees.A planned recruitment of staff was also negatively affected and just a small percentage of the originally planned number of employees was introduced into the company. In April 2007, the company introduced a new and revolutionary product into the market. This was at the time a one and first of its kind in the world mobile money transfer from one subscriber to another. The ground-breaking and well publicized mobile application dubbed “M-Pesa” was a major market mover as many subscribers opted for the mobile company so as to access the very convenient application. Since it required agents to aid in the transfer, thousands of agents were recruited across the country. The company’s profits grew by very large margins and mass employment was undertaken to meet the demand and the almost virtual monopoly the company enjoyed through this new product. The rates of compensation for the company’s employees was very much high. So much that employees from developed countries applied to be employed at the company. Then another radicalmobile banking platform in 2013 called “M-Shwari” was introduced into the market. This came at a time when the company also cooperated with other banks to enable their access to consumers through the mobile platform. This also led to not only increased share prices and publicity to the company but also raised compensation to the employees of the company and more demand for the company’s services. Safaricom has also had confrontations with labor unions. In 2009, the company had a long altercation with the Kenyan umbrella labor unions body, the Coalition of Trade Unions. The union publicly confronted the company over contractual employment and lack of job guarantees for the lowest ranking workers. Another of the claims was that such lower officers were very much underpaid and the union also complained against commission based compensation. The confrontation was even more hurting to the company when the union alleged that it was actually a case of exploitation since these poorly paid workers were youths. The confrontation led to internal deliberations which then resulted in a deal with the union to an out of court settlement. A decision was then arrived at to put the lower employees on a partly basic salary and partly on commission as this would be the best way to ensure competence and meet the union demands on the employees’ welfare. There was also a dispute with a trade union with the company over the working conditions of its employees. The trade union alleged that many employees had complained to it about an abrasive working environment where they worked for much longer hours that went without compensation. There were also allegations that some top managers were resorting to withholding pay in entirety or partly. This caused quite a stir as the trade union insisted that the company was well aware of the situation despite denial by the executive members of the company. The company soon took steps to take control of the crisis. It was then decided to see to it that the affected workers are compensated and the company also paid for the damage caused to those employees. The company also went ahead to define the definite working hours and made clear compensations that the company would give for overtime hours of work for each category of workers. The company has faced few instances with the law with regards to compensation. Most of these have always had to do with compensation upon suspension by individual employees. There have also been a few legal showdowns on matters pertaining to compensation for patents. The most recent of this kind involves a doctor, Dedan Warui, seeking to have the Kenyan High Court to stop the mobile operator from offering medical consultation via video conferencing since he did not get proper compensation for it It is notable that the traditional compensation bases for pay is relatively ineffective since their compensation model is more is more individual input oriented. The top management however is compensated based on these traditional bases. This approach to compensation can be very effective since it offers a sense of security to an employee and is necessary for job security and job satisfaction. It however does not get the best out of an employee in the same way incentives do. It provides ground for laziness and reduces the vision and hunger for accomplishment needed by organization. The approach also inhibits, to an extent, innovation and introduction of new ideas as they would feel no need for the trouble as no one would notice and reward their effort (Balsam, 2013). Incentive based reward however is very much interactive and always poses a challenge to the employee. It creases the innovation and improvement by employees. Incentive based compensation is therefore far much effective especially in today’s dynamic world. References Henderson, R., (2003). Compensation Management in a Knowledge-Based World. Cornell: Prentice Hall Goel, D., (2008). Performance Appraisal and Compensation Management: A Modern Approach. London: PHI Learning Pvt. Ltd. Balsam, S., (2002). An Introduction To Executive Compensation. New York: Academic Press The Vodacom Group, (2014). Telecommunication Services Sector.14(2). Accessed 21 April 2014 Read More