Court case spotlights complex and obscure remuneration structure

06 Aug 2017

On account of being African Alliance employees, Don Gaetsaloe as CEO and Moarabi Mariri as Senior Sales Executive were also members of the company’s Sentlhaga Pension Fund (SPF) to which they made a monthly contribution of 9 percent from their salaries. Both have left the company and now find that they can’t get back the money they have paid into the Fund and at the centre of the matter is a less known remuneration structure called cost-to-company (CTC). The parties involved have not been able to agree on their interpretation of this structure and the outcome is in the form of two separate cases before as many judges at the Lobatse High Court.

SPF rules state that it is a condition of employment for all African Alliance employees to become members of the Fund. While the company doesn’t contribute to the Fund, employees do: 9 percent of pensionable salary on a monthly basis. Before joining the company in 2014, Mariri received an offer letter of employment from Gaetsaloe that stated the following: “You are obliged to join Sentlhaga Pension Fund. Details of the scheme are available on request. A level of 9 percent of your total cost to company contribution will be paid on your behalf by the company, and the administrative costs (payable to AON) are set at 0.95 percent (ninety-five basis points).” Such rules applied to Gaetsaloe himself.

Both men have since left African Alliance’s employ and expect to recoup their SPF contributions. However, the company refused and referred them to its CTC remuneration structure. CTC (or “cafeteria”) refers the total amount that an employer will cost the company in a year and includes all benefits. Some components of CTC pay may not translate into actual take-home cash. Largely an innovation of Indian and South African origins, CTC was motivated by desire (on the part of employers) to structure pay packages in a tax-efficient manner.

In the particular case of South Africa, once upon a time fringe benefits (company car, medical, pension, housing benefits) were exempt from taxation and employers could easily lavish such benefits through what is known as “cost-plus-benefits” remuneration. Over time however, the government introduced tax on the benefits, hitting beneficiaries hard in the pocket. Employers had to compensate employees to offset monetary benefit lost to tax and it soon became expensive to pay benefits. To balance the scale, employers came up with CTC. (Mariri’s lawyers have questioned the legal standing of CTC in Botswana.) 

“Your total cost to company included contributions to the Fund,” the new African Alliance CEO, Sean Rasebotsa, wrote to Mariri after the latter had left the company and wanted his severance benefits.

When the two parties stalemated on the issue, Mariri had his lawyers, S. G. Mariri Attorneys, intercede on his behalf. In a letter to Rasebotsa, Attorney Merapelo Mariri took issue with African Alliance’s application of the CTC which “has not been stipulated in our statutes as such approach must be in compliance with the Employment Act, Retirement Fund Act and the Income Tax Act.”

She rejected “the insinuation that by virtue of remunerating our client on cost to company approach includes the employer’s contribution” and asserted that the company cannot claim what doesn’t belong to it.

“We advise that as our client was contributing 9 percent of his income towards the mandatory pension fund without the contribution of the employer, surely our client was the sole contributor to the pension fund. It cannot be said that the employer was contributing on the basis that our client was being remunerated on cost to company approach. In terms of the benefit statement of Sentlhaga Pension Fund, a copy enclosed herewith indicates that the employer’s contribution is nil,” wrote Attorney Mariri further quoting a statement from the Botswana Unified Revenue Services which reflected the amount of tax that was deducted from her client while he was working at African Alliance.

In his letter to the latter, Rasebotsa had explained that total cost includes “both the so-called employer and employee contributions to benefit funds.” Attorney Mariri pushed back by challenging Rasebotsa to state the percentage that African Alliance had contributed to the Fund.

“Surely such contribution will be deductible under Section 41(d) of the Income Tax Act,” the lawyer wrote, declaring a few sentences later that since African Alliance had “failed” to contribute to SPF “then our client is surely entitled to severance benefit.” 

In response to the lawyer’s letter, Rasebotsa would state that “the law does not require an employer contribution to be made.”

Gaetsaloe found himself fighting the same battle when he left African Alliance. Unable to get on the same page on the issue, the three parties are now at the High Court – Gaetsaloe’s case is before Justice Abednico Tafa and Mariri’s is before Justice Jennifer Dube. African Alliance maintains that both men are not entitled to severance payment in terms of the Employment Act because the pay-out at the termination of their employment was more than their contribution to the pension fund and that the CTC payment structure “means that the employers’ contribution to the pension fund is included in the total cost of the employee to the employer.” Rasebotsa, who has deposed to an affidavit on behalf of African Alliance, makes the additional point that payments to the Fund were done in accordance with its rules.

Having adjudged the two cases to be similar, Armstrongs law firm, which is representing African Alliance, has proposed that they be consolidated and dealt with by one judge.

“We are concerned of the possibility of having two conflicting decisions emanating from two High Court judges and we believe this risk may be managed by consolidating the two actions,” wrote Simon Bathusi of Armstrongs to S. G. Mariri Attorneys and Bayford & Associates who are representing Gaetsaloe.

African Alliance is a consortium of citizen investors who include former Permanent Secretary in the Ministry of Finance and Development Planning, Serwalo Tumelo. The company has over P5 billion in assets under management.