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