Strategic objective 4: Creating a high-performance culture
To survive we need to produce world-class steel products at world-class prices. To do this we need world-class people who value safety, teamwork, innovation, productivity, quality – and each other
Why this is important
In some quarters our company has been perceived to be structurally inefficient, a giant which had become so accustomed to its own dominance that it had succumbed to complacency, had disregarded the interests of society and even those of its customers, and had failed to invest in its own processes and people.
It is true that many of our plants and equipment are ageing and that they need rejuvenating. As much as this year we committed to investing almost R4.6 billion in upgrading and improving our facilities, we believe that only highly skilled, highly motivated individuals and teams can extract the maximum value from these investments. Only a pervasive, deep-rooted culture of high performance can change ArcelorMittal South Africa for the better, for the benefit of our shareholders, our customers and our communities.
Three-year key performance indicators
||Total cost of employment measure (TCOE): TCOE/hot rolled tonne of liquid steel (USD)*|
|* In 2015 this KPI changed, from USD to ZAR. From 2017 we will report accordingly.|
||Management control performance (under B-BBEE codes)|
|December 2014||December 2015||December 2016|
||Execution of Future Leaders Programme (FLP)|
Our most material high-performance issues in 2016
- Workplace safety
- Training for a new operating reality
- Transforming our culture
- Implemented an integrated performance management system (IPMS)
- Invested R184 million in skills development and training
- Drove restructuring of operations, giving business units greater autonomy
- Gave all employees a larger ownership stake in the company
- Improved our management control and employment equity performance
- Rolled out a skills development framework pyramid, aligning training to National Qualifications Framework (NQF) outcomes
Transforming our culture for a new operating reality
In just two successive years, despite the extremely challenging financial realities facing our business, ArcelorMittal South Africa has succeeded in investing almost half a billion rand in upskilling and empowering its workforce.
In 2015 we increased our training and leadership development spend by a third to R202 million. In 2016, despite the many and growing demands on our limited financial capital, we succeeded in allocating R184 million towards learning and development. This was, we believe, a most considerable achievement under the circumstances, one that demonstrates our commitment to changing and even transforming our culture and empowering our people. Unfortunately this year our efforts at culture change were not reflected in our voluntary employee turnover rate, which increased substantially.
It is our new reality that our investments in human capital must translate into the sustainable creation of financial capital. After six years of headline losses, it is imperative that we deliver satisfactory returns to our shareholders while adding value to all of the capitals. Our empowered, skilled people must utilise our manufactured capital (our plants and equipment) to produce quality products that meet our customers’ needs at prices which allow them to sustain their businesses and the jobs they create.
We must consistently lower our cost of production to the point that we can state without fear of contradiction that our efficiencies are such that we can compete with the best, most efficient steel producers in the world.
Delivering performance on strategic objectives
That our investments in creating a high-performance culture are paying off was borne out this year by our key indicator of TCOE per tonne of liquid steel produced (TCOE/t) again declining, from USD95/t in 2014 and USD77/t in 2015 to USD72/t.
At present, we are not able to measure how much of this productivity improvement derived from capital and operating expenditure and how much was contributed by improvements in our people’s skills levels and our work culture. Currently we also do not have in place formal measures of employee engagement, although senior grades are formally engaged every two years as per ArcelorMittal group guidelines.
This year we employed 9 056 people of whom 5 749 were African, coloured and Indian. In 2016 our voluntary employee turnover rate rose substantially from 2015’s 3% to 5.3%. In a context of low economic and employment growth, this clearly reflected employees’ continuing uncertainty about the company’s prospects and the effect that financial constraints had on our ability to use remuneration to retain scarce skills. Most notably, turnover was high in specialist areas including finance and accounting, engineering, logistics and senior management.
|ArcelorMittal South Africa voluntary turnover – year to date December 2016 (%)|
From the end of 2015 a bespoke SAP Success Factors performance and goals module was implemented. The system enables objectives to be cascaded down from the chief executive officer and executive committee to individual employees, thus enabling managers and employees to focus on those behaviours and outcomes that are important to drive a high-performance culture. This system supports the strategic objective of effective people management through standardisation, integration and simplification. In addition, it aims to simplify the performance and objectives management process. This online system will, we believe, increase efficiency and continuously manage employee performance by:
- Aligning individual objectives to business strategy
- Streamlining the performance review, feedback and coaching process
- Enabling the identification of talents and building effective teams
The fully automated system uses real-time dashboards and readily accessible drill-down data to show how every level of manager, supervisor and team has performed against specific metrics in terms of delivering on our strategic objectives. Measured tasks can be monitored and amended on a weekly basis, providing not only greater insight into overall functional performance but better informing variable remuneration – the key financial incentives that reward high-performing individuals and teams.
This R2.3 million system was successfully implemented by local third-party consultants within 16 weeks and below budget.
A particularly important shift in our appreciation and use of the powerful performance tools we have at our disposal was that these are now considered essential, core business tools, not human resources tools. Additional modules including the learner management system and succession and development will be implemented in 2017 to ensure that people management processes are fully integrated and automated.
Changing our corporate culture
A Barrett culture survey conducted in 2013 disclosed a “command” corporate culture in which there was little scope for individual or team initiative, a culture in which individuals were not inclined to take their safety or that of their colleagues and team members seriously. This landmark survey resulted in the implementation of new ArcelorMittal South Africa values: safety, caring, customer focus and commitment. To embed a values-driven culture, management pacts and action plans were implemented. In addition, a Future Leaders Programme (FLP) targeting management was rolled out and was underpinned by a values-driven leadership style. In 2016 there was a renewed focus on driving our culture transformation journey with an emphasis on embedding the values and associated behaviours to support a high-performance culture.
We acknowledge that our demographic profile, at all levels but particularly at the management (B to D) levels, requires sizeable and decisive intervention, especially the recruitment and fast-tracking of African, coloured and Indian (ACI) talent. For information on our B-BBEE management control performance in 2016, click here.
As much as the use of the Success Factors system will largely address this situation, a cultural step-change towards values-based leadership is needed. In cultivating a new set of shared values, the allocation this year of an effective 5.1% shareholding to an employee empowerment share trust will be of considerable benefit. Today employees and managers own a total 6.6% of the company.
In 2015 an employee share ownership plan gave more than 9 200 full-time employees a 4.7% stake in the business. However, this was diluted to 1.9% following our successful rights issue undertaken in February 2016. The new shares will vest for 10 years with at least 60% of shares benefiting ACI employees.
Giving employees a more substantive financial interest in the fortunes of the company will sharpen our focus on creating a culture in which all employees believe they can contribute to our sustainability and success (click here).
We endeavour to constantly meet the ArcelorMittal group sustainability outcome of providing a workplace in which every individual is developed to their full potential. Our sizeable training spend this year (and that of 2015) was aimed not just at equipping employees, including executives and managers, with practical, high-performance workplace skills but was also aimed at cultural change.
A recent standout success has been FLP which was developed and implemented from 2015, in association with Duke University. As stated in the previous integrated annual report, FLP aims to transform and align leadership values with the desired values of ArcelorMittal South Africa and to strive for operational excellence. Delivering learning through experience and application, FLP seeks to entrench a culture of strong, principled leadership.
This year the cost of FLP amounted to R9 million (2015: R6.7 million) with 269 employees taking part (2015: 226).
Delivered over five days, FLP consists of three modules:
Module 1 deals with personal insight and alignment with group values and includes an equine immersive experience making individuals aware of their personal values and how these relate to desired company values.
Module 2 deals with operational excellence, providing the latest thought leadership to empower leaders in the execution of their duties and to instil discipline within their teams.
Module 3 addresses leading and implementing change with two immersive experiences. The first utilises a motor-racing pit-crew experience to focus on team excellence. The second addresses leading change with a simulated courtroom experience in which teams are formally “charged” and act as prosecution, defence and judiciary with proceedings being overseen by an actual judge.
Between modules, participants work in “cohorts” of five or six colleagues, taking part in action learning projects (ALPs) which harness diverse groups working on specific topics to improve particular aspects of our business.
As in 2015, this year 35 ALPs were undertaken. Twenty-nine of these resulted in technical, mostly process enhancements which have already been implemented in the workplace. In addition to technical projects, the focus of ALPs was on so-called people activities, in particular:
- Strategy and values
- Employee value proposition (EVP)
- High-performance teams
Each ALP was required to focus on an aspect of the ArcelorMittal South Africa EVP. In the recent past we had intended to roll out a succinct EVP to our workforce but doing so would be symptomatic of a top-down mentality, which we intended to move away from. Instead, ALPs sought to obtain as much input from as wide a variety of the workforce as possible so that a company EVP would be meaningful to and reflective of the values of all employees. It is hoped to disseminate a new EVP throughout the company in 2017.
In addition to FLP (269 candidates), in 2016 a comprehensive skills development framework pyramid was instituted throughout the company. In terms of the pyramid model, 548 individuals were enrolled in “leadership” programmes; 27 senior managers in “Summit”, 93 middle managers in “Alpine”, 87 employees in “Base Camp” and 341 in first-line management programmes. In total, 817 candidates were engaged in all leadership programmes. Courses were aligned throughout with defined NQF outcomes, the total skills development (SD) outlay of R184 million contributing to ArcelorMittal South Africa claiming 21.42 points (out of a possible 25) in the SD component of the B-BBEE Codes of Good Practice (2015: 24.63). This was a performance that was matched by few other large companies.
In recent years our B-BBEE SD scores have been negatively impacted by our low spend on qualifying African women. This underperformance related to the demographics of our workforce; as at 31 December 2016 we had only 417 African women employees, of whom just 145 were in bands A to G. In 2015 amendments to legislation governing B-BBEE negatively impacted us because of the low number of qualifying African women employed. However, this provided an opportunity to develop unemployed African women from our local communities through an entrepreneurship programme. In 2016, 212 African women benefited from this company-funded training, at an NQF Level 4, representing the creation of R12 million of social capital.
We are committed to building a strong pipeline of talented scientists and engineers for tomorrow. Despite the many financial challenges, in 2016 our development pipeline – to address our need for technical skills (engineers, technicians, artisans and production staff) – remained positive, numbers enrolled increasing by 3.4% to 1 346 candidates. The various pipelines are developed over six-year cycles (workforce plans) and are essential to address and rejuvenate the ageing workforce.
Compared to 2015, there was a decrease in the training hours for bargaining unit employees although this year the number of hours still equalled the average of the past five years. This training takes place on the job and is based on peer-to-peer training addressing the skills required to operate machinery and produce steel. Also included in this training are legal aspects relating to mobile and lifting equipment and fatality prevention standards. In contrast to the bargaining unit, the number of training hours of the package employees increased due to the focus on managerial and leadership training during 2016.
Skills development pyramid
The development of our junior or first-line managers is critical for business performance as 80% of the time of first-line managers is spent dealing with people issues. To provide desired behaviours and business acumen, the junior management programme (JMP) or supervisor development programme was originally introduced with a 2016 cadre of 341 candidates. This programme essentially forms the entry or gateway to further development of these managers through the managerial staircase/framework.
The successes of the leadership programmes, which are co-designed and facilitated on site by Duke University Corporate Education, include uplifting the overall competency levels of our management teams while having a direct impact on the successes and productivity of our plant operations. This year the programme afforded an opportunity for Summit delegates to visit India and the United States where they were exposed, through immersive experiences, to innovation and client centricity.
Another achievement is the implementation of the young talent programme, also presented on site by Duke University, which commenced this year. The aim of this programme is to develop differently-abled employees on an NQF Level 5. At year-end 22 differently-abled candidates were registered on this programme.
This year skills development spend decreased by 8.9% to R184 million (2015: R202 million).
|Training expenditure (Rm)||184||202||151.4||138.1||136.7|
|Training hours – bargaining unit employees||378 778||488 079||231 732||196 890||443 942|
|Training hours – package employees||133 794||93 216||78 775||33 296||40 187|
Individuals directly impacted by skills development
|Production learners||416||422||374||813||1 126|
|University and technikon bursars||115||111||107||137||151|
|Graduates in training||30||35||17||18||22|
|Total development pipeline||1 346||1 301||1 148||1 822||2 385|
|Pipeline: employment equity|
|Graduates in training||30||16||11||0||1||1||1||0||0||17||13||100|
|Total||1 346+||917||156||69||12||52||17||101||22||1 139||207||91|
Directing our drive towards high performance
The general manager: human resources and transformation, reporting to the chief executive officer (CEO), is a member of the executive committee and regularly briefs fellow executives on employment, recruitment, skills development and transformation issues. The board’s remuneration, social and ethics committee is addressed by the general manager at its quarterly meetings regarding the delivery of the human resources agenda.
Through this agenda we are committed to the fair, equitable and non-discriminatory treatment of all employees including equal remuneration for men and women, and to building an inclusive and diverse workforce. We align our people management strategy with our business goals, to drive cost competitiveness and sustainable productivity, and develop and sustain a skilled and capable organisation.
We are directed by a group-wide health and safety policy, which includes our safety principles and highlights the imperative of shared responsibility for the safety of employees and contractors. Within ArcelorMittal South Africa we also have a safety, health and wellness policy, and comply with relevant local occupational health and safety legislation including the Occupational Health and Safety Act (1993).
The CEO is ultimately responsible for the health and safety of employees. The group manager: safety, health and wellness, reports to the CEO and manages day-to-day health and safety issues. This function also reports to the safety, health and wellness committee which meets on a monthly basis and is chaired by the CEO. The committee comprises the group manager: safety, health and wellness, the chief technical officer, the general managers of each operational site and union representatives. [X-ref to SO 1]
In 2016 the labour relations climate was stable, the two largest unions, the National Union of Metalworkers of SA (Numsa) and Solidarity, having signed two and three-year wage agreements in 2015. Numsa is the largest union at ArcelorMittal South Africa, its members comprising 62% of bargaining unit employees, Solidarity members 37% and members of the United Association of South Africa (Uasa) 1%. In total, 69% of all employees are unionised.
For 2016 and 2017, for Numsa and Solidarity members (and 2018 in the case of members of the latter union), the formula applicable to the agreement will be CPI +1% but not less than 7% as a minimum guaranteed increase across the board including a medical aid cap. A floor of 4.5% and a ceiling of 6.5% will be applicable. This applies to all allowances, excluding protected allowances.
This year 44 employees at Vereeniging Works took voluntary severance packages and 64 took voluntary early retirement in terms of a so-called section 189 process initiated in September 2015 and carried out with facilitation by the Commission for Conciliation, Mediation and Arbitration. An initial 249 employees were affected by the process which succeeded in avoiding enforced retrenchments (as per an undertaking made by the company) through measures including redeployment and the freezing of vacancies.
Membership of a retirement fund is a condition of employment for all permanent full-time employees. At Saldanha Works, employees become members of the Saldanha Steel Retirement Fund while all other employees may choose to become members of either the ArcelorMittal SA Selector pension and provident funds or the Iscor Employees Umbrella Provident Fund.
Employees contribute 7% of pensionable salary and the employer 10%, this latter amount being included in employees’ total cost to company for package category employees.
Retirement funds are independent legal entities, existing separately from their beneficiaries and are capable by law of suing and being sued of acquiring, holding and alienating movable and immovable property, and acquiring rights and obligations. They are managed by boards of trustees which are constituted by employer-appointed and member-elected trustees.
The company’s retirement funding obligations towards current employees are all in terms of defined contribution. Defined benefit obligations towards a number of company pensioners were funded from general company resources. However, towards the end of 2015, the trustees of the major defined benefit fund and the employer succeeded in terminating the balance sheet liability of the major fund, which had assets of R8 billion. The other smaller defined benefit fund, the Iscor Retirement Fund, was outsourced to an insurance company in December 2016.
Membership of a medical aid is compulsory for all full-time permanent employees unless employees are covered by their spouse’s medical aid. This year 96.8% of all employees were on company-provided medical aid.
The company furthermore offers family funeral benefits to employees and their dependants. These benefits are insured through an external provider and are fully funded by the company.
A policy extending support to those injured or killed while on duty but who are not permanent employees was introduced this year, in line with board direction to further materialise the company’s duty of care. As well as permanent employees, support will now be extended to those injured (or the families of the deceased) where the person concerned is a fixed-term contract employee or temporary employee, an expatriate, production learner or apprentice (ie not in possession of a letter of appointment or permanent employment contract).
Stipulations in the policy do not influence the application of guaranteed benefits that would normally apply under these circumstances, such as company death cover/disability benefits and/or provisions under the Compensation for Occupational Injuries and Diseases Act.
In 2016 just one case of noise-induced hearing loss was recorded (2015: eight). Most cases were derived from testing of ageing or retiring employees. No cases of pneumoconiosis, silicosis or asbestosis were recorded in 2016.
The company’s occupational disease frequency rate was 0.023 (2015: 0.19).
Outlook for 2017
In 2017 the company’s people strategy will focus strongly on translating the substantial recent investments made in leadership and skills development into productivity gains on the ground.
We will continue to focus on transformation, driving the employment equity agenda, in particular the management control element of the B-BBEE scorecard while seeking to ensure sound labour relations through ongoing, constructive dialogue with trade unions to drive profitability for the benefit of all stakeholders.
In addition, we will deliver an employee value proposition that will reflect the high-performance, values-based culture which we believe is now taking root at ArcelorMittal South Africa and which will enable us to recruit and retain high-performing individuals, a particular concern given the high voluntary turnover rate recorded in 2016.