Incentive schemes at many IT companies in SA need to be reviewed as they are ineffective and could result in inability to attract and retain scarce executive talent.
This is one of the findings of a recently published survey by consultancy LMO Executive Services.
Incentive schemes, commonly driven by the industry`s almost exclusive focus on share price and financial performance, also produce anomalies, says LMO chief operating officer Melanie Trollip.
The survey is a sequel to Data Services` CompITE salary report compiled by LMO as part of a series produced across the Mediterranean, Middle East and Africa region.
Trollip says a total of 75% of executives interviewed received some incentive in the past year.
"The market is very strongly driven by share price performance, putting pressure on companies - and executives - to achieve quarterly sales targets with competition at its highest levels.
"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."
She says as an example several executives received significant incentives as a result of currency fluctuations, something outside of their control. "In subsequent years they will, even at similar performance levels, not receive a fraction of what they did in the past year."
Others whose performance was exceptional received no incentive because of flaws in the incentive scheme design.
Trollip says although attracting and retaining leaders is an international imperative, it is more critical in SA where 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 the currency and a variety of lifestyle issues.
She says 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.
If some parts are inherently flawed in terms of design, it renders the whole reward strategy ineffective.
Melanie Trollip, COO, LMO Executive Services
"The impact of this consolidation phase can be seen in the quantum of actual incentives paid compared with 'on-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."
The survey also found that while IT industry rewards at higher middle management levels are similar to that of the national market, at the very senior level the IT leads the national market by more than 20% on guaranteed package.
The average age of executives interviewed was 41 years and the average length of time they 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 increase by 11% to 12% this year, the average anticipated pay increase budget in the IT sector is 9.3%.
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