B-BBEE Basics: Racial Demographics and your B-BBEE scorecard
It’s interesting hearing questions regarding B-BBEE around a weekend braai and the perceptions of the general public around how it works, as well as the inevitable discussion that ensues with comments about whether it does or doesn’t. What is most interesting is the perception of a hierarchy of South Africa’s racial groups and the corresponding points they score in terms of B-BBEE, accompanied by questions like “Does an African female score more points than a Coloured male?” The intent of the BEE Act has always been to promote the achievement of the constitutional right of equality; to increase the broad-based participation of all black (previously disadvantaged) people in the economy for a higher growth rate, and to achieve more equitable income distribution. In the implementation of this intent, the B-BBEE Act and Codes of Good Practice sought to address the biggest gaps of inequality to encourage their correction, specifically for black people, but with additional emphasis for the advancement of black women (through additional opportunities for points on B-BBEE scorecards), having faced significantly more inequality in the past, and being severely under-represented in management positions in the past. In this way only can you say that black women receive more points than black men in terms of B-BBEE.
Further to the equality agenda and considering the racial demographic split of our country, it made sense to government to equalise opportunities in a way that was more representative of our total population’s makeup. For several years there were talks about using the country’s racial demographics as targets under the Employment Equity Act, but these were cemented on 1 May 2015, via the amendments to the BEE Codes of Good Practice where the Management Control and Skills Development elements of the Generic Entity B-BBEE Scorecards were mandated to include the use of racial demographics of the Economically Active Population (EAP) as targets for select indicators.
EAP ratio statistics, published by the Commission for Employment Equity into the employment equity annual report. It breaks down employment in detail, industry, race, gender, disability amongst other things. It was initially unclear as to whether the national or provincial EAP targets should be used, but there has since been clarity provided. Firms that have a national footprint in more than one location will be measured using national EAP targets, whereas regionally based firms would have those province’s EAP targets applied to their Management Control and Skills Development indicators. This matters because, for example, “coloured” people make up 52% of the EAP in the Western Cape, but only 11% of the national EAP thereby affecting the way firms should be employing in their management positions if they would like to score optimally for B-BBEE. Similarly, Indians make up 11% of the EAP in KwaZulu-Natal, but only 3% of the national one. In practice Indian representation could exceed the Indian share (3%) of the national economically active population.
Here we unpack the Management Control Element in detail to provide insight into the calculations to consider when planning for your B-BBEE Verification and subsequent considerations under your Employment Equity strategy. When calculating the points for Management Control and Skills Development, refer to Government Gazette No.38765 for the detailed breakdown of each calculation.
The above extract shows the Management Control Scorecards for Generic Entities. When calculating the score for indicators 2.3, 2.4 and 2.5 the calculations are broken down according to the relevant economic active population (EAP) of the specific province demographics that are applicable to the measured entity.
These demographic calculations are not applicable to QSE entities or indicators 2.1, 2.2 and 2.6.
The demographics of each province is reported on in the following groups: African Male (AM), African Female (AF), Coloured Male (CM), Coloured Female (CF), Indian Male (IM), Indian Female (IF), White Male (WM) and White Female (WF).
Before it is possible to calculate the score, it is necessary to remove the white demographics from the calculations, referred to as the Adjusted EAP. This is done with the following formula:
As seen, the Adjusted EAP is calculated for each demographic group, thus completing the calculation 6 times. This means the relevant compliance target and weighting points for each relevant indicator should be split in proportion to the Adjusted EAP statistics. This is then referred to as the Split Compliance Target (SCT) and Maximum Allowable Points (MAP) for a race group.
The formula used to calculate the total points scored for indicators 2.3.1, 2.4.1 and 2.5.1 on the Management Control scorecard is as follows:
The %Black (AM/AF/CM/CF/IM/IF) portion of the formula refers to the percentage equivalency of the specific race group within the specific management level employed by the measured entity. This is calculated by dividing the number of race group employees in the management level being calculated with all employees of all race groups within the management level being measured.
The SCT (AM/AF/CM/CF/IM/IF) portion of the formula refers to the Split Compliance Target of each race group. To calculate this, the Compliance Target percentage is to be multiplied by the Adjusted EAP percentage of each race group.
The EAP(Sum) now refers to only the female black race groups, where it was previously all black race groups. This calculation will need to be repeated three times so as to include the Adjusted EAP for African Females, Coloured Females and Indian Females.
Just as seen with indicators 2.3.1, 2.4.1 and 2.5.1, the split compliance target and maximum allowable points are to be calculated for indicators 2.3.2, 2.4.2 and 2.5.2.
The formula used to calculate the total points scored for indicators 2.3.2, 2.4.2 and 2.5.2 on the Management Control scorecard is the same as above, with the difference being that the calculation is only limited to the black female race groups of the specific management level.
The %Black (AF/CF/IF) portion of the formula also refers to the percentage equivalency of the specific race group within the specific management level employed by the measured entity, however, it is now limited to the black female race groups. The formula below illustrates that the calculation works similarly as above:
The SCT (AF/CF/IF) portion of the formula refers to the Split Compliance Target of each female race group. To calculate this, the same formula is used as described above. With the difference, once again, being the limitation to only include the black female race groups.
The MAP (AM/AF/CM/CF/IM/IF) portion of the formula refers to the Maximum Allowable Points to be scored for each black female race group. The formula below shows has this is similarly calculated:
To obtain the score for indicators 2.3.2, 2.4.2 and 2.5.2, all 3 totals of the above formula is to be added together, keeping in mind the maximum allowable points for each race group.
It is vital that the breakdown of the different targets is clear and understood, not only by the person in charge of transformation within an organisation, but by the company’s key decision-makers. As companies become more mindful about employing and spending according to EAP targets, we will come closer to achieving meaningful transformation in the ways intended for by the B-BBEE Act.