Many EOH employees are angry. They have been told they will not receive their expected salary increases this month and that the issue will only be revisited in August.
This salary freeze followed salary cuts last year after President Cyril Ramaphosa announced a national lockdown. EOH also implemented a payday move where the pay date was shifted from 25 April to 30 April.
At the time, EOH CEO Stephen Van Coller said these stringent measures were needed to dramatically cut costs and manage liquidity at the company.
This was an easy sell for Van Coller. It fits in with his turnaround plan and it was a logical move to save jobs during challenging trading conditions.
EOH employees trusted their CEO and rallied behind him because of the great things he has done for the company – it is far more sustainable today than what it was when he took the reins.
The latest trading update showed EOH is expected to post an operating profit for the first six months of the financial year, and it has significantly reduced debt.
Van Coller said they have made great progress towards building a sustainable organisation and the business is now less complex with an improving cost and capital structure and positive cash generation.
It is clear that Van Coller is on track to save EOH. This will, in turn, protects jobs and increase shareholder value.
The market has given Van Coller the nod and the company’s share price doubled over the last year.
Considering what has been achieved at EOH and the sacrifices made by staff over the past two years, it raises the question of why the latest salary freeze has caused so much unhappiness among some staff members.
The main reason is a perceived injustice. At a time when EOH employees took salary cuts and had to forfeit increases, top executives received millions in bonuses.
It is not difficult to see why employees are unhappy. EOH’s 2020 annual reported reveals that CEO Stephen van Coller received a total salary package of R17.6 million over the last financial year.
Van Coller’s remuneration included a fixed salary of R8 million and bonuses (short-term and long-term incentives) of R10 million.
Other top EOH executives also earned millions. Finance director Megan Pydigadu received a salary package of R8.3 million while Chief Risk Officer Fatima Newman was paid R7.9 million.
For EOH employees to hear that they are not getting any salary increases as top executives pocket millions in bonuses is not easy.
To further rub salt in the wounds, the salary freezes are partly aimed at helping these executives to meet their targets, which will give them even more bonuses in future.
EOH’s latest annual report revealed that one of the KPIs for Van Coller and Pydigadu was to ensure “net debt is less than R1.5 billion at 31 July 2020”.
It is understood that similar KPIs are in place this year, which means it is in the interest of the EOH CEO and CFO to delay salary increases until after 31 July 2021 and use that money to reduce net debt.
The tough operating conditions over the last year impacted EOH’s financial forecasts and its execs therefore had to find the money to meet their targets.
Freezing salaries is an easy way to contain costs and meet financial targets by 31 July 2021. This is why salary increases will only be revisited in August.
Many EOH employees feel they have contributed to the success of the company and have made numerous sacrifices to turn it around. This includes working longer hours and taking salary cuts.
Instead of benefitting financially from this turnaround – like the company’s top executives – they are now hit with a salary freeze which will help the top execs to get even bigger bonuses.
The fact that there are stringent conditions attached to potential salary increases in August does not help.
It is hardly surprising that some employees are starting to lose trust in the system.
Top executives are cutting employees’ pay and freezing salaries to meet their own targets and get millions in bonuses. Ordinary staff must feel there is something very wrong with this.
This misalignment between the benefits of top management and employees – however hard it is to believe – is what is best for EOH.
Van Coller explained the key performance area (KPA) for top management is aimed at creating a sustainable company that benefits all stakeholders.
The large bonuses enjoyed by the C-level executives are therefore a sign that they have done an exceptional job at turning the company around and saving jobs.
There could have, for example, been a jobs bloodbath at EOH if the management team did not act quickly to implement cost-cutting measures during the lockdown.
Van Coller also revealed that he forfeited his R4-million bonus (short term incentive) last year as he felt it was inappropriate to take it when staff’s salaries were cut.
Pydigadu and Newman, however, took their bonuses. Van Coller said he insisted they take it because of their excellent performance.
Commenting on the salary freeze decision, the EOH CEO said it is a delicate balancing act to ensure the sustainability of the company and retain top talent.
Top managers, for example, must receive good salaries and bonuses to stop them from looking for other opportunities.
As part of this balancing act, 2,764 employees received thirteenth checks in February while 181 executives received on-target earnings (OTE) bonuses.
Saving EOH has placed Van Coller in an unenviable position. He has to make tough decisions that directly affect many employees’ livelihoods.
Unless he makes these tough decisions, however, the company’s future could be compromised, which will cause far bigger wealth destruction and heartache.
The only consolation for EOH staff who are now suffering financially will be if they benefit from Van Coller’s leadership in future. And that is a lot of responsibility on the EOH CEO’s shoulders.