MIDDLE MANAGEMENT SERVICE (Salary levels 11 and 12) Inclusive flexible remuneration package dispensation: Effective from 1 July 2005 May 2005

2 CONTENTS (1)  Introduction  Current remuneration system  What is an inclusive remuneration package system and advantages?  What does the new dispensation entail?  Who is affected?  Composition of the remuneration scale  Structure of the package  Allowances/benefits to structure the flexible portion

3 CONTENTS (2)  Part-time/contract/casual/other members  Calculation of allowances/payments  Incentive Policy Framework  Contract/casual members  Translation to new dispensation  Financing of new dispensation/communication with members  Assistance to members to structure their packages

4 OUTCOMES TO BE ACHIEVED WITH PRESENTATION  To provide an overview of the new dispensation to HR managers and practitioners, and especially the important choices to be exercised and the implications thereof on the individual MMS members  A separate workshop will be conducted per province/for national departments which will focus in detail on the new dispensation

5 INTRODUCTION (1)  DPSA conducted investigation into remuneration of members on salary levels 11 and 12  Proposals to convert current remuneration system to package system tabled in PSCBC (April 2003)  Deadlock declared in PSCBC (September 2003)  Conciliation failed (February 2004)

6 INTRODUCTION (2)  Subsequent bilateral discussions with unions failed  MPSA decided to implement new dispensation unilaterally in terms of PSA (section 5(4)) – effective from 1 July 2005

7 CURRENT REMUNERATION SYSTEM (1)  Current system comprises of the following elements:  Basic salary (notch)  Service bonus  Employer’s contribution to GEPF  Employer’s contribution to registered medical aid scheme  HOA

8 CURRENT REMUNERATION SYSTEM (2)  Other allowances such as Danger allowance, employees working in EAs offices, acting allowance - payable depending on certain criteria  Participation in the SMTS (A- and B- scheme)

9 WHAT IS AN INCLUSIVE REMUNERATION PACKAGE SYSTEM & ADVANTAGES? (1)  Single package  Consists of two broad components  Pension related (basic salary and Employer contribution to GEPF)  Non-pensionable component (Flexible portion)  Allows member to decide on the component mix (basic salary and flexible portion)

10 WHAT IS AN INCLUSIVE REMUNERATION PACKAGE SYSTEM & ADVANTAGES? (2)  Choice must be exercised on the basic (pensionable) salary (within certain parameters)  Flexible portion may either be-  An all cash flexible portion; or  An all “benefit” portion; or  A combination of both  Allows member, therefore, to personalize the package

11 WHAT IS AN INCLUSIVE REMUNERATION PACKAGE SYSTEM & ADVANTAGES? (3)  Facilitates transparent budgeting and planning  Allows greater flexibility in remunerating members with scarce skills  Realizing principle of “EQUAL PAY FOR WORK OF EQUAL VALUE”

12 WHAT DOES THE NEW DISPENSATION ENTAIL? (1) Transforming of the current remuneration system into an inclusive flexible remuneration package system by including all existing macro financial benefits into a package, which provides flexibility to employees to structure the package within certain parameters

13 WHAT DOES THE NEW DISPENSATION ENTAIL? (2)  Conversion of salary (notch) and following macro benefits/allowance into a total package:  Salary notch (Salary levels 11 & 12)  Employer’s contribution to GEPF – 15% (last offer in the PSCBC)  Service bonus  Employer’s maximum contribution to medical aid (R – annual amount)  HOA (R8 508) – last offer in the PSCBC

14 WHAT DOES THE NEW DISPENSATION ENTAIL? (3)  Maximum amounts for medical and HOA – amounts contained in the employer’s last proposal tabled in PSCBC  Provides a choice to set the pensionable basic salary in package at certain levels (within certain parameters) – 2 options per level  Provides to structure package for certain allowances and/or benefits (within certain parameters)  SMTS not included in new MMS dispensation

15 WHO IS AFFECTED? (1)  New dispensation applicable with effect from 1 July 2005  Apply to all members on salary levels 11 & 12 in service on 30 June 2005 as well as all new appointees (including promotion) to these levels on 1 July 2005 and thereafter  Details contained in DPSA Circular 2 of 2005 – sent to departments and can be accessed from DPSA website

16 WHO IS AFFECTED? (2)  Members are not negatively affected on transition (translation) to the new dispensation – will be possible to structure package for same items (with at least same monetary values) that have prevailed in pre-revised dispensation  All members are translated, irrespective of performance agreements and/or performance

17 COMPOSITION OF THE REMUNERATION SCALE (1)  Separate scales (Grades/Remuneration Bands) for-  MMS Level 11  MMS Level 12  Each remuneration band consists of 16 remuneration packages  Existing JE weights linked to salary levels 11 and 12 remain  Remuneration scales and packages (and translation keys) will be provided once the annual cost-of-living adjustment for level 1 to 12 has been concluded

18 STRUCTURE OF THE PACKAGE (1)  Package for a member admitted to the GEPF consists of:  Basic salary (pensionable)  Employer’s contribution to pension fund (pension related)  Flexible portion (non-pensionable)

19 STRUCTURE OF THE PACKAGE (2) (Basic salary)  Two sets of basic salary apply  MMS Level 11  SET % of total package  SET 2 – 70% of total package  MMS Level 12  SET % of total package  SET 2 – 70% of total package  Member has once-off choice between sets of basic salary

20 STRUCTURE OF THE PACKAGE (3) (Basic salary)  Implications of different Sets within each level  Set 1 (75% & 76% respectively)  Allows member to set the basic salary, on which the employer’s and member’s contributions to the GEPF are calculated, at least on the levels that have prevailed before translation to the dispensation – therefore the pensionable income is not reduced on translation.  “Limits” the flexible portion of the package

21 STRUCTURE OF THE PACKAGE (4) (Basic salary)  Set 2 (70% in both levels)  Allows member to set the basic salary, on which the employer’s and member’s contributions to the GEPF are calculated, at levels lower that have prevailed before translation to the dispensation – therefore a reduction in pensionable income on translation.  Increases the flexible portion

22 STRUCTURE OF THE PACKAGE (5) (Basic salary)  Members must exercise the choice either to be awarded Set 1 or 2 on translation  Members may exercise the choice only once - it may not be changed in any way or at any time - not even with promotion from level 11 to 12 or with the awarding of a higher package - while the member is remunerated in terms of this dispensation

23 STRUCTURE OF THE PACKAGE (6) (Basic salary)  Extremely important choice as it affects members’ pensionable position in future (effect on retirement and resignation benefits).  If member fails to exercise choice within period specified – SET 1 will be awarded as default  Due to implications and to ensure a smooth transition, a transitional provision (grace period) applies for 6 months, commencing on 1 July 2005, to change the decision on Set 2 to Set 1

24 STRUCTURE OF THE PACKAGE (7)  Flexible portion  Remaining portion of the package  Member afforded the opportunity to structure this portion  Structuring may not exceed amount available in the flexible portion

25 STRUCTURE OF THE PACKAGE (8)  Members not admitted to GEPF  Package does not consists of these components  Total package may be structured - normal structuring rules apply

26 EXAMPLE – EFFECT OF SET 1 AND 2 ON MMS LEVEL 11 Set 1 (75%)Set 2 (70%) ` PackageR PackageR Basic salaryR Basic salaryR GEPFR24 375GEPFR Flexible portionR38 125Flexible portionR52 250

27 EXAMPLE – EFFECT OF SET 1 AND 2 ON MMS LEVEL 12 Set 1 (76%)Set 2 (70%) ` PackageR PackageR Basic salaryR Basic salaryR GEPFR29 640GEPFR Flexible portionR42 360Flexible portionR62 700

28 ALLOWANCES/BENEFITS TO STRUCTURE  Car allowance (max 25% of package)  13 th Cheque (1/12 of basic salary) (excluding members not admitted to the GEPF)  Medical assistance (employer’s contribution to medical aid scheme)  Housing allowance (amount to be decided by member)  Non-pensionable cash allowance (any remaining portion of the flexible portion)  Not obliged to structure for all these allowances/benefits

29 PART-TIME/OTHER MEMBERS  A member employed in a part-time capacity (5/8 th or 6/8 th basis) or an employee on salary level 10 or lower who is awarded a package that fall within the range of MMS Levels 11 & 12 may structure package  The same provisions/measures applicable to full- time members apply

30 CALCULATION OF ALLOWANCES/ PAYMENTS (1)  Allowances/payments that used to be calculated as % of member’s actual notch or a notch of a particular salary level – now calculated as % of the component basic salary of appropriate package  SET 1 of the component basic salary must be utilised for this purpose, irrespective whether individual member’s basic salary is set at SET 1 or 2  This means that all members on the same package who meet the qualifying criteria for a particular allowance will be compensated equally

31 CALCULATION OF ALLOWANCES/ PAYMENTS (2)  Acting allowance for members who act in a higher (vacant and funded) SMS position - calculated as the difference in the acting member’s total package and the minimum package attached to the higher SMS post.  Acting allowances for employees on salary levels 1 to 10 who act in a MMS Level 11 or 12 position - calculated as the difference between member’s salary notch and the basic salary ito Set 1 (75% or 76%) of the minimum package of the higher vacant post

32 INCENTIVE POLICY FRAMEWORK  Members qualify for pay progression in terms of the Incentive Policy Framework, as contained in DPSA letter 1/7/1/4/1 dated 27 January 2003  Performance awards/bonuses (merit awards) payable in terms of departmental performance schemes, as provided for in said DPSA letter, are limited to a maximum 14% of total package  Departments should align their departmental policies accordingly

33 CONTRACT/CASUAL MEMBERS  Remuneration of a contract member (with a fixed term) - equal to the total package of an equivalent permanent member, derived from-  evaluation of the job (PSR), or  remuneration package of a similar existing position  Clause 36 of PSCBC Resolution 3 of 1999 – payment of 30% of basic salary in lieu of benefits - is not applicable to MMS members  Remuneration of casual (hourly, weekly or monthly basis) - set proportional to the total package of an equally graded full-time member

34 TRANSLATION TO NEW DISPENSATION  Members to be translated to appropriate bands (scales) and packages ito of translation keys  Separate translation processes to apply for members-  on standard salary notches  not on standard (identifiable) notches  Members must be informed in writing that errors (over/under payments) would be rectified

35 TRANSLATION OF MEMBERS ON STANDARD NOTCHES  Translation to scales and packages and structuring of package - to be done at departmental level – not “automatic” on PERSAL  Each member must be informed in writing of new band (scale) and package  Each member to structure package - must be confirmed in writing before department may implement on PERSAL  Member’s package cannot be “implemented” on PERSAL without the opportunity to structure it

36 TRANSLATION OF MEMBERS NOT ON STANDARD NOTCHES  Translation of any member that cannot be effected ito of the translation keys – to be submitted to the DPSA for an appropriate translation key.  Once DPSA has provided the translation key – the same process for “members on standard notches” must be followed.

37 FINANCING OF NEW DISPENSATION/ COMMUNICATION WITH MEMBERS  Expenditure must be defrayed from departmental budgets and, where necessary, requests for additional funds should be included in departments’ adjusted estimates for the 2005/06 financial year  DPSA addressed a communiqué to each member – departments to ensure that each affected members receives it  New dispensation, and implications of members’ choices in terms thereof, spelt out in communiqué

38 ASSISTANCE TO MEMBERS TO STRUCTURE THEIR PACKAGES (1)  DPSA provides an Excel spreadsheet (MMS Model) to assist members to structure packages  Calculations in Model may differ from PERSAL  Model can be accessed from DPSA website ( (follow links to Document Archive/Circulars/Remunerationwww.dpsa.gov.za  Members are encouraged to make use of services of private experts

39 SUMMARY OF KEY ELEMENTS (1)  Two separate scales for levels 11 and 12  Existing job weights retained  Each scale – 16 packages  Pay progression still applicable  Performance bonuses still payable in terms of departmental performance management systems

40 SUMMARY (2) Package  Admitted to GEPF  Basic salary  Level 11 – 75%/70%  Level 12 – 76%/70%  Employer contribution to GEPF  Flexible portion  Not admitted to GEPF  No components  Total package “constitutes flexible portion”  To structure for same allowances and benefits (excl 13 th Cheque)

41 SUMMARY (3) Flexible portion  Car allowance (max 25% of package)  13 Cheque (1/12 of basic salary) (excluding members not admitted to the GEPF)  Medical assistance (employer’s contribution to medical aid scheme)  Housing allowance (amount to be decided by member)  Non-pensionable cash allowance (any remaining portion of the flexible portion)

42 FUTURE PRESENTATIONS  DPSA to conduct a detailed follow-up session on the MMS dispensation and implementation thereof  Focus will be on-  Mechanics of dispensation – the do’s and do not’s  Tax implications  Practical examples (case studies)  Practical demonstration of DPSA MMS Model (Excel spreadsheet)