Global and Local Remuneration Global and Local Remuneration TrendsTrends
13 May 201013 May 2010
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Growt_ & P_ofitThe world’s most successful companies have this
one figured out
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Top 15 Reward TrendsTop 15 Reward Trends1. Employee Engagement
2. Total Reward Approach
3. Retention Trends
4. Linking Pay to Performance
5. New Long Term Incentives
6. Non-Financial Rewards
7. Globalisation
8. Governance
9. More Flexibility and Reward preferences
10. Setting Non-Executive Director (NED) Pay
11. Rewards for Creativity
12. Dual Career Paths and Flat Structures (Broadbanding)
13. Media Scrutiny
14. HR, Reward and the Bottom line
15. Branding and EVP
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1. Employee Engagement1. Employee Engagement
EngagementEngagement
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Six Categories Drive Employee Six Categories Drive Employee EngagementEngagement
EngagementEngagementEngagementEngagement
People• Senior Leadership• Manager• Coworkers• People Focus• Customers
Total Rewards• Pay• Benefits• Recognition
Company Practices• People/HR Practices• Managing Performance• Brand Alignment• Organization Reputation
• Work Tasks• Sense of Accomplishment• Resources• Work Processes
Work
Opportunities
• Career Opportunities• Learning and Development
Quality of Life• Work/Life Balance• Physical Work Environment
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Employee Engagement (cont.)Employee Engagement (cont.)The Big 5:The Big 5:
Employee Engagement
1. Recognise and reward superior performance
2. Establish a learning environment
3. Create knowledge sharing
4. Manage the culture of change
5. Provide opportunities to grow and develop
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30% - 150% of annual salaryAccountant = R250,000 (median annual salary 2009)
=R250,000 x R30%=R75,000
Engagement and the Bottom Line Engagement and the Bottom Line
10 – 6 – 2
10 : 9
Every 10% improvement in commitment can increase an employee’s effort level by 6%, which can improve an employee’s performance by 2% (10-6-2 rule).
Every 10% improvement in commitment can decrease an employee’s probability of departure by 9% Source: Corporate Leadership Council,
Driving Employee Performance and Retention through Engagement.
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TOTAL REWARDS STRATEGY
Remuneration
Benefits
Work-Life
Performance & Recognition
Development & Career Opportunities
Attract
Motivate
Retain
Employee
Satisfaction & Engagement
Business
Performance& Results
BusinessStrategy
HumanResourceStrategy
OrganisationalCulture
2. Total Reward Approach2. Total Reward Approach
REF: W@W 2008
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Remuneration Definitions and Terminology
Base / Basic Salary
+ Long-term Incentive
+ Short-term Incentive
Total Earnings / Total Cost
to Company
+ Car Benefit
+ Other Benefits
+ Cost of employee benefits Guaranteed Package /
Total Guaranteed
Package
Variable Pay
Base / Basic Salary
Fixed
Pay
Total Remuneration/ Total Cost of Employment
Rolling Incentive
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Total Packages concept continues to be a trend
There are few tax reasons for going this route, but
many other advantages of doing so
Total Package ApproachTotal Package Approach
Main Reason
Employer Employee
Cost containment Flexibility
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3. Retention Trends3. Retention Trends
Retention of critical skills and top executives is a top driver of
remuneration policy and strategy
People join companies and leave bosses
It is all about engaging top talent
Once all the hygiene factors are sorted out, then one can turn to
remuneration
Remuneration is 25% of the stay decision
BUT, remuneration is the ticket to the game – it has to be right
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Retention – Remuneration OptionsRetention – Remuneration Options
Market Stance
Restraint of trade payment
Sign-on bonuses/Retention bonus
Sign-on Loans
Rolling or banking of bonus incentives earned
Flexibility
Post retirement benefits
Long-term incentives (LTI)
Short-term incentives (STI)
Deferred compensation
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4. Linking Pay to Performance4. Linking Pay to Performance
Movement away from discretionary bonus plans
(determined by the Board after the fact) to target
based plans (where specific performance
requirements and contingent reward outcomes are
set in advance)
Targets are both quantitative and qualitative
Not just what was paid – how did you earn it?
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Short Term Target and Stretch Targets Short Term Target and Stretch Targets Percentages by LevelPercentages by Level
Short-term incentive payment trends as a % of guaranteed package
Title Performance Lower quartile Median quartile
Upper quartile
90th quartile
CEO On target 30% 50% 70% 200%
Stretch 50% 75% 100% 500%
Top Executive – Reporting level 1
On target 20% 35% 60% 100%
Stretch 35% 60% 80% 200%
Senior Management – Reporting level 2
On target 15% 25% 50% 75%
Stretch 25% 50% 70% 100%
Middle Management – Reporting level 3
On target 10% 20% 35% 50%
Stretch 17% 30% 60% 75%
Advance Operational On target 5% 10% 15% 20%
Stretch 10% 15% 25% 35%
Operational & Primary On target 5% 8.3% 10% 15%
Stretch 8.3% 10% 15% 20%
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5. New Long Term Incentives5. New Long Term Incentives
With the introduction of AC 139/IFRS2, companies need to evaluate
different share valuation models and select one that is most appropriate
to their circumstances
Although AC139/IFRS2 does not prescribe share valuation models (nor
offer more than cursory guidelines as to their application), the onus
regarding fair valuation rests squarely on the shoulders of the external
auditor as part of the fiduciary responsibility to certify the fairness of
the company’s financial statements
Section 8C of the Income Tax Act
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Allocation Multiples for Employee Share Allocation Multiples for Employee Share Participation SchemesParticipation Schemes
Decision making level
Paterson Grade
Roles Options as a multiple of guaranteed package
Lower quartile
Median Upper quartile
Strategic Intent
F Upper Group CEO 4X 6X 8X
F Lower Top Executive – Reporting level 1
2X 4X 7X
Strategic Execution
E Upper General Manager – Reporting level 2
1.5X 3X 5X
E Lower Senior Management – Reporting level 3
1X 2X 3X
Middle Management
E Upper Reporting level 4 0.5X 1X 2X
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Options/Share as a Percentage of PackageOptions/Share as a Percentage of Package
Decision making Eligibility Paterson Grade
Roles Options as a multiple guaranteed package
Lower quartile
Median quartile
Upper quartile
Top Management, Strategic Intent
90% F Upper Group CEO 56% 83% 111%
85% F Lower Top Executive - Reporting level 1
28% 56% 97%
General Management, Strategic Execution
80% E Upper General Management – Reporting level 2
21% 42% 69%
Senior Management , Strategic Execution
70% E Lower Senior Management – Reporting level 3
14% 28% 42%
Middle Management, professionally qualified and experience specialists
40% D Upper Reporting level 4
7% 14% 28%
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6. Non-Financial Rewards6. Non-Financial Rewards Recognition
Clearer career paths
Development opportunities
Job enrichment
Tuition of choice Mentoring and coaching
Internships
Rotation and Learning
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lternatives to lternatives to cashcash
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Your Total Rewards InventoryYour Total Rewards InventoryWork-Life Work-Life
Workplace Flexibility Paid and Unpaid Time off
Community Involvement
Flex-Time Maternity/Paternity Leave
Community Volunteer Programmes
Telecommuting Adoption Leave Matching Gift Programmes
Alternative Work Sites Sabbaticals Shared Leave Programmes
Compressed Work Week
Disaster Relief Plans
Job Sharing Sponsorship Grants
Part-Time Employment
In-Kind Donations
Seasonable Schedules
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Your Total Reward Inventory Your Total Reward Inventory Work-Life (cont)Work-Life (cont)Caring for dependents
Dependent Care Reimbursement Accounts
Dependent Care Reimbursement Travel-Related Expense
Dependent Care Referral and Resources Services
Dependent Care Discount Programmes or Vouchers
Emergency Dependent Care Services Childcare Subsidies
On-Site Caregiver Support Groups On-Site Dependent Care
Adoption Assistance Service After-School Care Programmes
Scholarship Information Scholarships
Privacy Rooms Holiday Camps & Activities
Special Needs Childcare Disabled Adult Care
Geriatric Counselling In-Home Assessments for Eldercare
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Your Total Reward Inventory Your Total Reward Inventory Work-Life (cont.)Work-Life (cont.)
Health and Wellness
Employee Assistance Programmes Onsite-Fitness Facilities
Discounted Fitness Club Rates Weight Management Programmes
Smoking Cessation Assistance On-Site Massages
Stress Management Programmes Voluntary Immunisation Clinics
Health Screenings Nutritional Counselling
On-Site Nurse Business Travel Health Services
Disability Management Return to Work Programmes
Reproductive Health/Pregnancy Programmes
24-Hour Nurse Line
On-Site Work-Life Seminarse.g. Stress-Reduction, Parenting, etc.
Health Advocate
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Your Total Reward InventoryYour Total Reward InventoryWork-Life (cont.)Work-Life (cont.)
Financial Support Voluntary Benefits Culture Change Initiatives
Financial Planning Long Term Care Work Redesign
Adoption Reimbursement Auto/Home Insurance Team Effectiveness
Transit Subsidies Pet Insurance Diversity/Inclusion Initiatives
Legal Insurance Woman’s Advancement Initiatives
Identity Theft Insurance Work Environment Initiatives
Employee Discounts Multigenerational Initiatives
Concierge Services
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Your Total Reward Inventory Your Total Reward Inventory Performance and RecognitionPerformance and Recognition
Performance Recognition
1 on 1 Meetings Service Awards
Performance Reviews Retirement Awards
Project Completion/Team Evaluations Peer Recognition Rewards
Performance Planning/Goal Setting Spot Awards
Managerial Recognition Programmes
Organisation-wide Recognition Rewards
Exceeding Performance Rewards
Employee of the month/year Rewards
Appreciation Luncheons, Outings, Formal Events
Goal-Specific Awards i.e. quality, cost-saving
Employee Suggestion Programmes
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Your Total Reward InventoryYour Total Reward InventoryDevelopment and Career OpportunitiesDevelopment and Career Opportunities
Learning Opportunities Coaching/Mentoring Advancement Opportunities
Tuition Reimbursement Leadership Training Internships
Tuition Discounts Exposure to Resident Experts
Apprenticeships
Corporate Universities Access to Information Networks
Overseas Assignments
New Technology Training Formal/Informal Mentoring Programmes
Job Advancement/Promotion
On-the-Job Training Internal Job Postings
Seminars and Conferences Career Ladders and Pathways
Virtual learning Succession Planning
On/Off Ramps through Career Lifecycles
Job Rotations
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Remuneration
Trends
7. Globalisation7. Globalisation
Act local Think Global
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Glopats want to know that:Glopats want to know that:
Their pay is competitive
They will not be worse off (and that hardship is taken into account)
Living standards are upheld
Their purchasing power parity (PPP) index is upheld
Sufficient and adequate pension arrangements are made
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8. Governance8. Governance
More focus on independence of NED’s
Learning to strike the balance between good
governance and being too transparent
The question being asked is: “If we disclose all our
remuneration data, schemes and how they operate,
we are giving our competitive advantage away”
King III implemented
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9. More Flexibility and Reward 9. More Flexibility and Reward Preferences Preferences
More flexible working arrangements for employees
and the organisation
Five year contracts with handsome “completion”
bonuses are increasingly popular in South
Africa, and this approach serves several goals
Reward preferences by Life Cycle, MBTI
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GenerationsGenerations, now , now life cyclelife cycle and Reward and Reward
Generations Veterans (born before 1940
Baby Boomers (1940-1960)
Generation X (1960-1980)
Generation Y (1980-2000)
Reward practice – what each generation values from an organisation
Extra days leave
Sponsor education programs
Recognition schemes
Services for staff
Challenging projects
Flexibility
Fun Workplaces
Good Guaranteed packages and short-term incentives
Non-financial incentives
Reward
Meaningful work
“Grand Celebrations”
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Why do we call the last long generation Y. I did not know, but a caricaturist explains it eloquently below...Learned something new!
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Personality type and reward preferencePersonality type and reward preference
Nienaber & Bussin, 2009
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Reward categories influencing attraction, Reward categories influencing attraction, motivation and retention of employeesmotivation and retention of employees
Attract Retain Motivate
Monthly Salary/guaranteed remuneration
73.5% 19.7% 9.8%
Variable Pay 5.4% 22.1% 29.7%
Benefits 3.1% 7.0% 1.8%
Performance & career management
8.9% 27.0% 34.3%
Quality of work environment 1.8% 3.3% 6.2%
Work/home integration 7.3% 20.9% 18.1%
100% 100% 100%
Nienaber & Bussin, 2009
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10. Setting Non Executive Director 10. Setting Non Executive Director (NED) Pay(NED) Pay
Should they all earn the same
Should they get shares to align with agency theory?
Should they get an incentive bonus to reward great
decisions?
The trend will be to differentiate NED pay
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A typical NED Pay ModelA typical NED Pay Model
Organisation size, complexity, impact, strategic level
Lower quartile/P25
Median quartile/P50
Upper quartile/P75
90th quartile/P90
A R 900 000 R 1000 000 R 1100 000 R1200 000
B R 700 000 R 800 000 R 900 000 R 1000 000
C R 500 000 R 600 000 R 700 000 R 800 000
D R 300 000 R 400 000 R 500 000 R 600 000
E R 100 000 R 200 000 R300 000 R 400 000
Knowledge Experience Track Record Reputation
Executive Factors
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11. Rewards for Creativity11. Rewards for Creativity
If people bother to put forward suggestions, they
should be recognised for this effort
If everyone gets into the habit of making a creative
effort then, there will be valuable ideas
It is at least as important to motivate people who do
not see themselves as creative to become creative,
as it is just to choose already creative people
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Paying for ThisPaying for This
There is a wide range of payment plans ranging from:
A pharmaceutical company is paying a maximum of
R 10 000 per idea
An FMCG pays R 500 000 for the best idea of the
year
A consultancy lets you choose your own reward
A bank pays R1m for the best idea
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12. Dual Career Paths and Flat 12. Dual Career Paths and Flat Structures (Broadbanding)Structures (Broadbanding)
Broadbanding is hugely seductive to organisations
who want to become HPO’s (High performing
organisations).
The reason is that the million of hours spent doing
job grading and fighting about miniscule changes in
the job description leading to non-value-add-
upgrades can now be spent on performance.
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SST - Dual Career Path ApproachSST - Dual Career Path Approach PATERSON SST LINE Specialist
F 5
E 4
D 3
C Upper 2
C Lower 1
B 1
A 1
TOP MANAGEMENT
SNR. MNGTGROUP /
FUNCTIONAL / ADVISOR
MIDDLE MNGT PROFESSIONALS/ SPECIALIST
FIRST LINE SUPERVISORS
TECHNICIAN / PRACTITIONER
ADVANCED OPERATIONAL
OPERATIONAL SKILLS
PRIMARY SKILLS
DESCRIPTIONS
SI - Corporate strategic direction and policy sign-off
SE - Translation of corporate direction into organisation planning & management
MP - Translation of organisation plans into functional plans and best practice systems
SP - Optimizing a given system to achieve plans
AO - Solving a range of technical problems within a recognized technical discipline through the appropriate use of tools
O - Routine application of industry specific tools and equipment which require training but not discipline apprenticeship
P - Routine task orientation using simple tools and equipment normally of a manual nature
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Retention - Skill CategoriesRetention - Skill CategoriesCritical Skills: Skills critical to sustain its business objectives. It
is essential that these skills are in place to ensure business continuity
Scarce Skills: Determined by the demand and supply of a particular skill in the market. The situation changes over time when the skill pipeline facilitates more people acquiring this level of skill
High Fliers: Consistently high performers as per performance standards
Core Staff: Employees who work in the operational areas
Support Staff: Employees who work in non-core or support areas
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PATERSON BAND
DESCRIPTER
F Top management
EUGeneral Management
EL
Senior management / Specialist
DU
Middle management / Senior Professional
DLManagement / Professional
CU
Supervisory / Advanced Operational
CLTechnical / operational
BUAdministrators/Operational
BL Clerical
A Basic skills
Gen
eral
/ M
anag
er
Sp
ecia
list
s P
rofe
ssio
nal
“Phd”Engineer
Principal Engineer
Senior Engineer
Engineer
Graduate Engineer(Trainee)
Res
ou
rce/
Tec
hn
ical
M
anag
emen
t
EngineeringManagement
TraditionalManagement
Critical SkillsCritical Skills
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P50
MAX
MID
MIN
Scarce Skills Scarce Skills cont. . . cont. . .
Employee A
Employee B
Employee C
10% Scarce Skills Allowance
Employees A, B and C all get an allowance calculated from the MIDPOINT of the salary scale irrespective of where they are paid relative to their peers
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Executive Pay – too much or too Executive Pay – too much or too little?little?
13. Media Scrutiny13. Media Scrutiny
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Most Common Determinants of PayMost Common Determinants of Pay
Organisation Size - turnover, number of employees, value of assets
Organisation Performance - profitability, return on investment, value added
Executive Specific Factors - Age, experience, tenure, career path
Organisation Structure - Holding, subsidiary or single unit company, capital or labour intensive
Job or Position Specific Factors - level of decision making, consequence of error, organisation level
Job Complexity
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Considerations when choosing market Considerations when choosing market comparators:comparators:
Holding, subsidiary or single unit organisation Private, public or state owned enterprise Monopoly or many competitors Complexity of industry or market Listed or not Local listing only (JSE) or overseas listing e.g. LSE,
NYSE or both Organisation size in terms of turnover, budget, profit,
assets, market cap, number of employees
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Considerations when choosing market Considerations when choosing market comparators (cont.):comparators (cont.):
Job content, not just position title Job size – not all CEO job sizes are the same Performance of organization in terms of financials,
shareholder return, strategic vision, people
management practices Geographic footprint Ownership structure Extent of regulation
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14. HR, Reward and the Bottom 14. HR, Reward and the Bottom lineline
Ref: Watson Wyatt
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The higher the company’s HCI score, the higher The higher the company’s HCI score, the higher the TSRthe TSR
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The Watson Wyatt HCI “Global Truths” The Watson Wyatt HCI “Global Truths”
Companies with superior human capital practices can create more than double the shareholder value than companies with average human capital practices
Companies have better TSR if they have: Clear Rewards and Accountability – delivering a
16.5 to 21.5% Excellence in Recruitment and Retention –
delivering a 5.4 to 14.6% A Collegial, Flexible Workplace – delivering a 9.0
to 21.5%
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The Watson Wyatt HCI “Global Truths” (cont.)The Watson Wyatt HCI “Global Truths” (cont.)
Communication Integrity – delivering a 2.6 to 7.1% Focused HR Technology – delivering a 4.2 to 6.5% Prudent Use of Resources – potentially draining
shareholder value by as much as 14.5 to 33.9%
The Bottom line:
Great people management equals great shareholder value
Great people management is universal Great HR can be a true source of competitive
advantage
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15. Branding / EVP15. Branding / EVP
Branding
Is there a remuneration discount when you work here?
How much?
THANK YOUTHANK YOUfor this opportunity
to be with you