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EE Serious Error in Amended Codes – EconoBEE Newsletter – 05 March 2014

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Dear [Name]

Bridging the Gap – plan of action for implementing the Amended Codes. The 1st of March for most companies represents not only a new financial year but the start of the rating period where they will use the Amended Codes for the first time.

The big question for these companies is therefore – where do I stand with regards to the Amended Codes and what do I need to do to achieve a score that my customers will be happy with?

Tips

  • Ownership – the priority element status is 10%. A 10% shareholder will ensure that you immediately gain a level, possibly even two since you will recover the one level from the priority element status and possibly gain additional points to push you over the next level.
  • Management – The targets haven’t changed substantially. Slightly less points are available. Target broad demographics of people – Coloured and Indian people are now more prominently represented.
  • Skills Development – learnerships (cat B, C and D) are now more essential than ever before. Start your qualification training courses early to get maximum benefit. Secondly target more bursaries, particularly with people who could in the future become your employee. Although there has been much talk of the massive increase in target spend, it is practical to earn 13 points without spending large sums of money.
  • Supplier and Enterprise Development – The link to Enterprise Development is far greater. Companies are required to spend up to 40% of their total procurement with black owned suppliers. The best way to do this is through Enterprise Development. Companies should invest in ED activities that result in the company becoming a supplier. This achieves more black owned suppliers and you also earn your ED spend.

Our Managed Service is an ideal solution for any business wanting to save time on implementing B-BBEE. Through a long term view we are able to continuously keep track of progress, advise on important changes as and when the changes happen and ensure success through every single transaction.

Visit our website or contact 011 493 1190 for more information on our Managed Service.

 

EE Serious Error in Amended Codes

We have tried to refrain from commenting too much on the serious, and critical errors in the codes, in the hope that the dti would issue a clarification or explanation. The Amended Codes were issued on 11th October 2013, and are due to come into effect in October 2014. It is now 4 months or more than a third of the year that has passed without any comments from the dti.

One of the more serious errors in the codes is the calculation of employment equity (senior, middle and junior) and skills development. The amended codes no longer use percentages of black (as defined) and adjustment for gender, but now refer to population groups.

The codes state: “In determining a Measured Entity’s score, the targets should be further broken down into specific criteria according to the different race subgroups within the definition of black in accordance with the Employment Equity Act on an equitable representation and weighted accordingly.“

What they want is for us to use the percentages of African black, coloured and Indian people in each management category. Previously we would look at the percentage of black people in, e.g senior management. If there were 10 senior managers, and 5 were black then we would use the percentage of 50% (then adjust for gender) and calculate the points earned.

The new codes do not want us to look at black as a percentage of all in management. We need to break the percentage down to the “different race sub-groups”.

In other words we need to look at the percentage of African black men, then the percentage of African black women, then Coloured men, Coloured women, Indian men and finally Indian women.
 
The Codes give the following formula for calculating EE:
 EE Calculation
Where:
AM = % African Males
CM = % Coloured Males
IM = % Indian Males
AF = African Females
CF = Coloured Females
IF = Indian Females
And
C is the compliance target as per the Regulations of Employment Equity Act and Commission on Employment Equity Report for that measurement sub-category.

Note how the codes refer to “C” as being a compliance target for each measurement sub-category. It means that there are 6 compliance targets – African Males, African Females, Coloured Males, Coloured Females, Indian Males and Indian Females.

The target is not a straight forward percentage. For each group we need to compare the percentage of people in that group to population statistics as issued by the Commission for Employment Equity. For example, the percentage of African males is 40.7%, and Indian female is 1.1%.

EAP Stats 
The codes want our businesses to be reflective of these statistics. Therefore the average business should have close to 40.7% black males in senior management, 5.8% Coloured males, through to 1.1% Indian female.

Let us assume we have the following statistics

 Your BusinessEAP StatsPercentage Reached
African Male38.0%40.7%93.4%
Coloured Male3.0%5.8%51.7%
Indian Male4.0%1.9%210.5%
African Female
12.0%34.2%35.1%
Coloured Female17.0%5.0%340.0%
Indian Female2.0%1.1%181.8%

The Critical Error:
The codes want us to average the above percentages to get our “percentage black”. Based on the number above our average percentage is 152.1%.  This is because we exceeded the target for Coloured Females and Indian Males and Females. The codes cannot be expecting us to make up points on the smallest population groups. (The actual percentage required for senior management is only 60%).

Some commentators have suggested that it does not make sense to allow a percentage of greater than 100% for any one group – in our example for Indian Males, Female or Coloured females. ie limit the percentages to 100% at maximum. However even if this was a limitation included in the codes (which it is not), it would have some unintended consequences:
Using the above data, an entity will try to maximize its points in the easiest possible way. The actual number of black females to employ to increase from 12% to 34.2% is far more than increasing coloured males to its targets. The strategy that any company would adopt to increase its EE points would be to concentrate on the smallest population groups because the lowest number of new employees would be needed.

This cannot be what the codes intended, never mind that they do not place a limit of 100% on EAP stats. To take an extreme example 6% of a company’s senior management could be Indian females and it would reach targets.

Another critical error occurs when one realizes that the average company has less than 10 senior managers. Just one person makes up 10% of the category. It is impossible therefore to ever employ people in the percentages suggested. How do you have 1.9% of all senior managers to be Indian Males if you only have 10 senior managers? It becomes impossible to achieve targets unless you try to play games of statistics – which is not in line with the intention of the Act, the BEE Strategy or the Codes.

There is another critical error. For the purposes of the codes Chinese have been defined as Coloured. When we analyse a company’s population group breakdown, Chinese would be included in the number of Coloureds in order to reach the Coloured EAP stats of 5.8. However we know that the Commission for Employment Equity uses the EEA2 and EEA4 returns as the basis of its analysis. EEA2 included Chinese as Asian, and therefore the Indian EAP percentages will be skewed upwards and Coloured downwards.

We may suggest the intention of the codes was to allocate points, and not percentages. Maybe the codes should allocate not 2 points to black senior managers as a percentage of all senior managers but the exact number of points as per the EAP stats. In other words, there would be far more indicators, ie. African Black senior managers as a percentage of all senior managers, with a target of 60% of the EAP stats and a weighting of 0.814 (based on 40.7% EAP) . Similarly with each of the other groups and indicators. (This last paragraph is written firmly with tongue-in-cheek as it would make the calculation and process impossibly complicated. The minister’s aim has been to simplify compliance, not make it so complicated that no one knows how to comply.)

There is only one course of action – to scrap the population group calculation and use the standard black percentage as with the old codes, and include, but fix up, the adjustment for gender error. It is impossible to even try to comply when the codes are written in such a confusing way. We call on the minister to issue statements sorting out this problem as soon as possible.
© 2014

 

 

 

 

 

 

 

 


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EconoBEE Newsletter
 05 March 2014

In this issue

  • EE Serious Error in Amended Codes

In other news

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Executive summary of B-BBEE

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