Salary increment should be based on performance

Kenya: COTU boss Francis Atwoli may be hilarious, but he was right on Labour Day in saying that workers deserve a raise since the cost of living has gone up. An employer tagging salary increment on performance or even the level of production is a worry for most workers as some employers are tax evaders. 

Could we have salaries increased every year at a fixed rate without considering what the companies are getting as a return? Is this model really sustainable in the tourism industry? Those who engage in productive activities have to factor in the cost of labour when determining prices. It is thus imperative that every time the cost of labour goes up, the firms can only recoup this cost by increasing prices or cutting on other factors so that the price goes up or marginally remains at the same point. At the risk of reducing their revenue, firms have to consider increase in price so as to meet rising costs in the factors of production.

When he rose to address the gathering, President Kenyatta did not want to be left out on this debate when he gave the analogy of a Kimbo manufacturer. If you are making 10 pieces of Kimbo in a month as a worker and one managed to increase that to 20 pieces a month, a consideration for a salary increase would be merited. Right there, the president had made a critical point on the level of performance when salary increase is being considered. I doubt, however, that many workers noticed the weight of his position.

For a long time, our trade union movement has advocated for blanket increase on salaries which if firms implemented would lead to bloated costs in just 5 years. Take the modest example of a 10% annual increase in salaries. In just 5 years, the whole salary cost would have gone up by 61% since we have to factor in the incremental increases too. I am certain power bills, raw material and other input costs would also be going up at the same rate if not higher.  This, in effect, would require that prices are increased so that firms can keep up with production costs that would be spiralling up. This would lead to serious inflation. The economy would be subject to a lot of stress and other economic indicators like interest rates would spiral out of control.

I pity hotel investors in times like these. You cannot increase prices and must even reduce your contracted rate with international tour operators to attract customers. You will have to improve the product to maintain standards and upgrades do not come cheap. You still have new entrants competing at cheaper prices with newer products to deal with. Even if you had local tourists all filling in, all the hotels will not attract enough business to maintain their turnover at a reasonable level.

Thus, no one should act surprised when hotels start closing down. In Malindi, this is already happening and I know most South Coast hotels are suffering immensely. Those that are still open for business are keeping hope alive in order to maintain jobs for their employees. If we have trade unions exerting pressure for salary increment, many hotels will be struggling to comply.  If we do not go the President’s way, many firms will close down as hotel room charges will need to go up at the same rate if workers are to get salaries, let alone raises.

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While I know that the matter of salary increment is an important one, it is high time we explored other payment models that would correspond to our level of economic development.  Many countries subsidize the hotel industry in such areas as international marketing, cost of power, capital acquisition, Value Added Tax (VAT) waiver, reduced licensing fees, garbage collection, visa costs for tourists, infrastructural development, etc.

The state of roads inside and outside national parks, maintenance of airstrips within parks, upgrade of the road leading to Moi Airport in Mombasa, making the Mombasa-Malindi road a dual-carriage highway, improvement of the Mara-Narok road, increased funding to established State bodies for international marketing are just but a few areas that would give this ailing sector a new lease of life.  Tourism has been low due to insecurity but doing nothing is not an option.

The writer is the Financial Controller at Sarova Whitesands Beach Resort & Spa in Mombasa. The views expressed here are his own. ([email protected] )