Telkom CEO Serame Taukobong announced that there would be no increases and bonuses to staff as the company had not performed well.
Telkom’s annual results for the year ended 31 March 2023 revealed a poor performance with a big decline in EBITDA and profit.
The company’s free cash flow decreased by 30.9% in the period to negative R2,722 million – a R644 million swing.
Telkom’s poor performance means that shareholders will not receive a dividend despite the operator promising it previously.
“While we are committed to returning cash to shareholders in the medium term, we consider it prudent to first strengthen our cash position,” Telkom said.
Taukobong has now added that their staff will not receive increases and bonuses before the company starts performing.
He said it is a tough decision but necessary to create a performance culture in the company to drive growth.
“We need to earn and make sure that delivery, and focus on delivery, is what we pay for,” the Telkom CEO said.
“It is a tough decision that we had to make, but it highlights that at the new Telkom, execution is first above everything.”
Telkom staff cuts
Telkom announced a restructuring process in February 2023 and extended voluntary early retirement packages (VERP) and voluntary severance packages (VSP) to all employees.
More than 1,700 employees were affected, and as a result, restructuring costs of R1,065 million were recorded during the last financial year.
1,165 employees accepted VSP and VERP offers, and 577 were retrenched as part of a Section 189 process on 31 May 2023.
Telkom’s latest staff cuts and retrenchments followed numerous similar processes over the last two decades.
The operator reduced the number of employees from over 61,000 in 1999 to 11,624 fourteen years later.
It is set to reduce further in the next financial year as the latest staff cuts will only be recorded in the next financial results.
Telkom death spiral risk
While it makes sense for Telkom to reduce its headcount and become more efficient, it risks a death spiral if it loses the most productive employees.
The importance of highly productive employees in a company is often underestimated and is illustrated by the generalised version of Price’s Law.
The square root of the number of employees in a company do 50% of the work.Price’s law
If this law is even moderately accurate in Telkom’s case, it means that less than 110 people at Telkom do around half of the productive work.
Identifying and retaining these core staff members is crucial in any staff-reduction process, and it is unclear if Telkom has measures to do this.
To sort through thousands of employees and, on merit, rank them is a very difficult and time-consuming task.
With the added pressure from unions about job cuts, it is much easier and politically safe to design a “fair” process which will cause the least friction.
This, unfortunately, can result in the most competent staff members leaving the company.
The reason is simple – the top employees are in demand and will often leave a struggling company for one where they have more growth opportunities.
The loss of skills can then impact the company’s growth further, creating the need for further job cuts.
This “death spiral” can be very difficult to stop, even by the most competent executive team.