The New Targets Conundrum

Original publish date – Fri, 13 Jan 2012 11:13:24 +0000, Keith

The BEE Codes of Good Practice sets variable targets for employment equity and procurement. For all other elements, there is a fixed target e.g 3% of NPAT for enterprise development.

Employment equity and procurement have target that state “Years 0 to 5” and “6 to 10”. The 6 to 10 target are higher than the 0 to 5. eg. senior management targets for 0 to 5 are 43% and 6 to 10 are 60%.

Since the codes came out there have been debate about when the new targets kick in. It was presumed that codes have a duration of 10 years as per paragraph 13.2 of code 000 and the new targets apply half-way through. The wording has been ambiguous enough for people to came up with various interpretations.

1) New targets apply for all verifications as from 9th February 2012
2) New targets apply for all verification as from 9th February 2013
3) New targets apply after the 5th verification that a company undergoes.
4) New targets apply for companies whose rating period ends after 9th February 2012.

In May 2011 we wrote to the dti asking for clarity and pointing out that if the minister were to issue a new interpretation, it may have be issued in terms of 9(5) of the act giving the public 60 days to comment before the final gazette would be issued well before 9th February 2012. This is no longer possible.

The new targets will have a very serious effecton your scorecard – there can be up to 15 points difference if you use the old targets.

Latest news from the dti is they are looking at option (4) above as their understanding on the codes. This means if your rating period ends after 9th February 2012, then you will use the the new targets. A rating period generally refers to your financial period, or financial year. So, a company that has a financial year that ends in December 2011 will be rated on the old targets, even if the actual verification takes place in October 2012. A company whose financial year ends on 28th February 2012, and uses that as their rating period will be verified on the new targets, even if that verification takes place in June 2012.

Measurement period:
Key principle 2.3 of the codes state:
The basis for measuring B-BBEE initiatives under the Codes is the B-BBEE compliance of the measured entities at the time of measurement.

There has been much debate over the concept of the time of measurement period or rating period. Is it the date on which you are being verified, or the period during which your scorecard is being calculated?  Financials form a large part of the BEE scorecard so companies generally use their annual financials as the basis for measurement. It does happen that due to delays a company will submit its 2010 financials for verification in 2012 because its 2011 financials are delayed. In this case the old targets would be used. A more diligent company that produces its financials on time will have to use the new/higher targets.

Another issue is many verification agencies do not respect the rating period for their EE, management and ownership calculations. Your measurement period may be 2010 to 2011, but the agency will insist on measuring you on EE, management and ownership as at the date of verification. Under these circumstances we wonder which target the verification agency will use?

The solution is for the minister to issue a gazette or regulation outlining exactly how the new targets will work. It would have to encompass better interpretations around the measurement period.

 

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