UGN Consulting Services Ltd May 2020
ETHICAL DILEMMA OF THE NIGERIAN EMPLOYER IN THE COVID-19 PANDEMIC
1. INTRODUCTION
Employment in the Nigerian economy, like in any other economy, is driven by the private sector, comprised of multinational companies, Small and Medium Enterprises (SMEs) and the informal private sector. The private sector accounts for more than 60% of the employed labour force of the country.
The dawn of 2020 ushered in a new decade and an optimistic private sector anticipating a better year with the early appropriation of the 2020 budget, the encouraging provisions of the amended Finance Act and the International Monetary Fund (IMF) forecast 2.5% growth for the Nigerian economy. Unfortunately, the first quarter of the year witnessed a downturn in economic activities well below the projected growth rate, as government grappled with the implementation of the 2020 budget.
By March 2020, in the unanticipated twist of events, the economy was brought to a standstill with the onslaught of the COVID-19 virus in Nigeria which shut down the economy for five weeks and counting. This last straw hit both the public and private sector; COVID-19 could not have come at a worse time. Nobody was prepared for this!
Most employers, particularly in the private sector were almost brought to their knees with little to no recourse. Budgets veered off tangent, while aggressive cost savings and sustainability strategies came to the fore. Employee cost became a major target for cost savings and a formidable ethical dilemma for employers in the face of the COVID-19 lockdown. Employee cost, a reflection of the welfare/compensation of employees, is a cost that must not be trivialized due to its far-reaching implications on the employer and the economy at large.
1.1 The Employee and the Economy
Employees are the backbone of every organization, they drive productivity. They are also the major drivers of consumer spending in any economy and hence economic growth. Therefore, employers cannot afford decisions or actions that can drive a wedge between them and their employees, neither can the government turn a blind eye to situations that jeopardize the welfare of employees.
2. THE ETHICAL DILEMMA
Unfortunately, the COVID-19 pandemic and the consequent lockdown, amongst other things, has brought to light the abysmal state of welfare security for the Nigerian employee. Nigerian employers including the federal government, were completely ill prepared for the ensuing dilemma: employee welfare vs. economic/business survival.
UGN Consulting Services carried out a survey to find out the standpoint of various Nigerian employers and employees to this dilemma and identified five alternative courses of action that an employer affected by the lockdown could take to resolve and address the dilemma.
i. Pay full salary to employee for the period of the lockdown
26% of respondents chose this option. This course of action makes for maximal employee welfare but with serious implications to the employers’ bottom line. It resonates well with big organizations who have accumulated high reserves over the years and who recognize and appreciate the importance of their employees in the big picture. Though an ethical decision, it is obviously not popular with employers as shown from our survey findings.
ii. Give pay cuts to employees for the period of the lockdown
63.5% of respondents chose this option. This option is a compromise for both the employee and the employer, hinged on the principle of fairness. It acknowledges the reality on ground and seeks to strike a balance between the survival of the business and that of its employees. However, it begs the question: how fair is fair? Any pay cut above 50% may be considered unfair.
Notwithstanding, in line with the law of contract, an employer must seek the consent or engage its employee before implementing a pay cut.
iii. Lay off some staff due to the lockdown
None of the respondents chose this option. This is not surprising as it is a highly unethical approach for any Nigerian employer (who has not made any reasonable adjustments to ensure continued employment/availability of work, or who is not bankrupt) given that Nigeria has no employment insurance or unemployment benefit schemes that can carter for employees in this situation. Little wonder the public outrage against Access Bank Plc over the alleged lay off of staff due to the COVID-19 pandemic lockdown.
iv. Defer payment of salary till after the lockdown and when feasible
4.2% of respondents chose this option. This is not considered a sound decision both from an ethical and financial view point as the welfare of the staff during the lockdown is not considered neither is it guaranteed in arrears. Though the option may make some ‘cash flow management sense’, the gains may become immaterial in the long run. Notwithstanding, an employer must engage its staff and communicate necessary details well in advance before implementing this option.
v. Pay no salary to staff for the period of the lockdown
6.3% of respondents chose this option. Without the consent of the employee this will be considered an unethical decision and can give rise to high employee demotivation or even turnover after the lockdown.
In summary we used the Tucker’s Five Question model for ethical decision making to assess the above courses of action within the Nigerian context.
The best option is pay full salary to employee subject to capability of the organization; or give pay cuts to employee.
3. SHOULD THIS HAVE BEEN A DILEMMA?
No! The realities of the COVID-19 pandemic lockdown on employee welfare and business finances should not have been an ethical dilemma for Nigerian employers nor its government if they had carried out proper business risk assessment and management, and put in place proper social welfare and enabling interventions, respectively, as obtains in other developed economies like the US, Canada and the UK.
For instance, the Canadian government for 75 years has had an Employment Insurance programme for its residents that provides temporary financial assistance to individuals who lose their jobs through no fault of theirs, who are available for and able to work but cannot find a job. The Employment Insurance (EI) program is overseen by the Canada Employee Insurance Commission (CEIC) that sets annual EI premium rate.
An employee or self-employed person registered with the CEIC pays an annual premium of 1.58% (for 2020) of his/her insurable earnings. Employers are required to pay 1.4 times the premium rate of the employees; that is, 2.21% (for 2020) of the employee’s insurable earnings. So a registered employee/self-employed person who has been out of work through no fault of his/hers, such as due to the COVID-19 lockdown, and is without pay for at least seven days is entitled to receive 55% of his/her average weekly earnings up to a maximum amount Of $543 per week for a period of 14 weeks up to a maximum of 45weeks (Reuters 4 May 2020). The EI also provides special benefits for maternity, sickness and compassionate care situations.
Again, in April 6, 2020, the Canadian government launched the Canada Emergency Response Benefit (CERB) to support Canadian residents facing unemployment due to COVID-19 pandemic. It provides taxable benefits of up to CA$2,000.00 per month, for up to four months to both self-employed and employed individuals facing unemployment. (Government of Canada (www.canada.ca),)
The above shows the preparedness and proactiveness of a government and its people to effectively face and manage risks and uncertainties that may significantly impact its economy. An employer operating under such a government faces no ethical dilemma as policies and structures are well in place and operating effectively to contain as much as possible the impact of unforeseen events on its business without jeopardizing the welfare of its employees. Hence, decision-making is made easy.
Thus, a Canadian employer in the COVID-19 pandemic lockdown scenario can simply decide to lay off staff temporarily (referred to as furlough), or even permanently without any ethical, legal nor financial pressures since it has insured its employees adequately. Consequently, the risk to the business/employer, employee and the economy is greatly reduced.
Another example in the private sector is Wimbledon, the all England lawn tennis association, its novel foresight and phenomenal risk management decision in purchasing a pandemic insurance policy 17 years ago, of about $1.9million in premiums annually (Insurancejournal.com) is noteworthy. With the COVID-19 pandemic breakout, Wimbledon is set to receive an insurance payout of about $142m for this year’s cancelled tournament. This cut its losses as it saved about $38.7million in prize money and more on staff wages
4. LESSONS FOR NIGERIA
The Nigerian employer and most especially the Nigerian government have a lot to learn from the above cases in point.
4.1. The Government
Effective social welfare schemes and pro-active preparedness for unforeseen disruptions of the economy are vital lessons to be learnt from the Employment Insurance initiative of the Canadian government. It is one product that aids government achieve part of its fundamental responsibilities of social welfare and risk management of the economy.
The Employment insurance ran by the CEIC of Canada is fairly similar to Nigeria’s Employee compensation scheme ran by the Nigeria Social Insurance Trust Fund (NSITF). However, the NSITF is in dire need of rejigging to achieve robustness and effectiveness like the CEIC.
NSITF is the institution of the Federal government of Nigeria that carters for the welfare of employees in the event of employment related accidents and injuries. It oversees the implementation of the Employees’ Compensation Act 2010 (ECA 2010). Over the past 50 years the NSITF has evolved from a Provident fund scheme to a social insurance scheme and presently to the employees’ compensation scheme in 2010.(nsitf.gov.ng)
Now in line with the ECA 2010, the NSITF provides compensation to insured employees who suffer from occupational diseases, sustain injuries or disabilities from accidents at the workplace or in the course of employment. The ECA 2010 applies to all employers and employees in the public and private sectors (ECA 2010 section 2.1) except for members of the armed forces. Employers are required to pay 1% of their total monthly payroll cost to the fund.
Our review of the ECA 2010, the NSITF and public opinion in the light of its counterparts in other countries and the COVID-19 pandemic revealed the following gaps:
i. Inadequate coverage of employees’ risks
The ECA 2010 does not cover employees for loss of employment due to no fault of theirs such as pan demics, natural disasters and mass layoff (as result of mergers & acquisition or industry disruptions and the like). The current COVID-19 lockdown has brought to the fore the overwhelming need for the employee compensation in the event of loss of employment. Imagine the relief that employees, employers and even the government would have had if such was covered already by the Act!
ii. Poor levels of enrollment/compliance
According to the Corporate Affairs Commission (CAC), as at March 2019, there are 3.1million registered companies in Nigeria (Dailytrust.com 29 March 2019), whereas only about 100,000 employers are registered with the NSITF (Guardian.ng 17 Dec.2019)
This shows a very poor compliance rate of below 3% (as the CAC figures do not include public sector organizations) and by extension poor coverage.
This abysmal rate of non-compliance is largely attributable to the lack of confidence of the private sector in the NSITF and its mandate due to the alleged corruption and governance scandals that have rocked the institution over the years. Also, inadequate public awareness and education on the objectives, workings and benefits of the scheme, contributes to the poor enrollment levels witnessed. Registration with NSITF would have soared if the scheme covered loss of employment due to pandemics and claims promptly paid to insured employees for the period of this lockdown!
iii. Absence of specific policy/provisions for the self-employed and informal sector
The Employees’ Compensation Act 2010 has no provision for the self-employed. Also, the NSITF are yet to come up with strategies and structures for covering the employees in the informal sector. Making provisions for this category of employees will significantly boost the social welfare efforts of the government and build up the economy in times like this.
iv. Prohibition of employees from contribution
According to section 14 of the ECA 2010, contribution by employees to the fund is prohibited. This prohibition may be a major limiting factor in reaching and catering for the informal sector employees as well as the self-employed, many of whom are working in outfits not registered with CAC nor the Federal Inland Revenue Service / State Internal Revenue Services. Compliance and consequently the fund would be shored up if employees are allowed to contribute to the fund.
Our survey showed that most employers and even employees in the private sector will be willing to contribute to an employment insurance scheme of the government. Only 9.4% of respondents will be unwilling to contribute.
4.1.1. Recommendations
We hereby recommend that:
i. the ECA 2010 be amended to include compensation for insured employees who lose their jobs through no fault of theirs, in the event of pandemics like COVID-19, natural disasters, mass layoff (caused by industrial disruptions or mergers and acquisitions) for a pre-stated period of time. Clear eligibility guidelines should be spelt out as well;
ii. the ECA 2010 be amended to specifically and clearly include the self-employed as insurable persons under the scheme and hence beneficiaries. Specific guidelines and provisions on eligibility, contribution rates and the like should be clearly spelt out;
iii. the ECA 2010 be amended to allow employees contribute to the fund. This could be made mandatory or optional. Therefore, section 14 of the Act should be repealed and re-enacted accordingly;
iv. the NSITF come up with clear guidelines and implement procedures that will make for direct registration by employees with the fund. This will go a long way to harness the informal private sector and inspire greater compliance in the organized private sector.
v. the NSITF to come up with guidelines for the setup and operation of third party agents (Employment compensation agencies) that will be regulated by the fund. These agencies are to act like intermediaries of the NSITF to provide enlightenment campaigns, enrollment, collection of contributions, review of claim applications and advisory to employers and employees all over the country. Collections made by these agencies will be remitted to the fund on behalf of employers and employees. This will make for better and faster reach and coverage of employees in the country.
vi. amendment of the ECA 2010 to include the establishment of an audit committee as a mandatory board committee. All members of this committee should be non-executive directors who are financially literate with some, experts in accounting and financial management. Majority of the members of this committee should be independent non-executive directors. This will enhance good corporate governance especially in the area of internal controls and financial reporting.
vii. the federal government and NSITF’s management take necessary measures to secure the confidence of the public in NSITF’s ability to deliver on its mandates by implementing good corporate governance for greater transparency and strict adherence to ethical business conduct. Even if the ECA 2010 is amended and greater enforcement powers granted the NSITF, compliance rates will still be low if the public has no trust nor confidence in the system and management of the fund.
4.2. Private sector
There are lessons to be learnt also by the private sector employer. The need for ethical governance that amongst other things translate to quality risk management and decision making are not to be underestimated.
Most organizations may not have the resources like Wimbledon to take out a niche pandemic insurance, however they should have the foresight it displayed in its risk assessment and management measures. Employers should negotiate and or revise relevant insurance policies with their insurers to cover events such as disruption of business operations due to pandemics like COVID-19. This will make for optimal management of such high impact uncertainties without eroding the cost vs. benefit of insuring such risks. Hence reducing the risk of financial losses and employee deprivation.
Insurance companies should be proactive by coming up with insurance products that incorporate insurance cover against business disruptions due to pandemics at affordable premiums. As our survey findings revealed that employers and even employees are ready to buy into such insurance products, in the event of no government interventions.
5. CONCLUSION
The COVID-19 pandemic is one crisis that is set to bring about a great turning point for good in families, organizations and government all over the world. We at UGN Consulting Services will not fold our arms nor close our eyes to the fundamental lessons on ethical thinking, robust risk management and employee welfare management. We call on Nigerian employers and the Federal government to arise to their responsibilities, embrace these lessons and brace up for the future for the sustenance and security of our people, institutions and the economy at large.
Written by Mrs. Obichukwu I. Nwazota B.Sc., ACCA, Managing Consultant at UGN Consulting Services Ltd.