If your organisation opted for the latter, then perhaps the news of the imminent increase in the employment equity targets from 2013 will not come as a shock.
The Codes of Good Practice on Black Economic Empowerment, published in 2007, were designed to apply for a 10-year period with a review at the end of that period. The first category (2007 to 2012) was intended to encourage achievement of initial targets, which would then ramp up over the subsequent five years.
Large enterprises, defined as companies with a turnover of over R35 million per annum, are assessed on seven elements:
- Ownership
- Management Control
- Employment Equity (EE)
- Skills Development
- Preferential Procurement (PP)
- Enterprise Development
- Corporate Social Investment.
Under the generic scorecard, the revision in targets will affect only EE and PP. The points allocated to each of these elements will not change but the targets will increase, affecting the points obtained for each of those elements. For some organisations, Industry Sector Charters may also reflect target increases in other elements.
The sub-minimum rule applied to the EE Scorecard is often forgotten by companies. The rule implies that if an entity has not achieved a minimum of 40% of the target for an individual scorecard sub-category element (ie, disabled persons, senior management, middle management and junior management), then the entity will score no points for that indicator.
As such, a fair compliance level under the old targets could fall under the sub-minimum under the new targets. It is also important to note that an organisation’s black representation is compared to the sub-minimum, after the application of the adjusted recognition for gender.
The ramifications really depend on your organisation’s current scorecard. Keeping all things equal, on a company achieving a fair score for EE (six out of 15 points) and PP (12 out of 20 points), there was a total of a nine-point decrease in the company’s scorecard once the targets were increased. Unless you are already scoring sufficient points to fall at the upper end of a level, a nine-point decrease would almost certainly result in a drop of one level in your rating. A drop from level four to level five would result in a 20% loss in procurement recognition. If your company is currently rated level six, it could drop two levels, resulting in a 50% loss in procurement recognition. For level eight contributors, a nine-point decrease would take you off the B-BBEE Scorecard completely and you would be regarded as a non-compliant contributor.
This may seem like a worst case scenario, and it is. However, bear in mind the multiplier effect of all suppliers dropping nine points on their scorecards. The same impact of the increases would be felt to a greater or lesser extent throughout the supply chain, as each supplier that your organisation has is a potential contributor to your PP scorecard. If they all drop several rating levels, the combined effect would impact your PP compliance causing a further loss in, ultimately, your B-BBEE contribution recognition.
Businesses should start preparing now so that when these increases do occur they can be proactively managed. Redesign your EE plan to see what actions you need to take. Prepare for the increases by working on attraction and retention strategies for your employees. Act now to empower suppliers ahead of the increase in targets, so that they do the same in their own organisations.
B-BBEE is about sustainable development. Early preparation will ensure that no panic or disgruntlement is felt when these increases occur.