mercer bdb doing_business_in_australia_27_apr
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Breaking Down Borders Doing business in Australia Ben Walsh, Melbourne Michael Hill, Melbourne Georgina Harley, Sydney
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Today’s speakers
Ben Walsh Partner & Asia Pacific Regional Market Development Leader
Michael Hill Partner, Mergers & Acquisition, Australia and New Zealand
Georgina Harley Principal, Information Product Services, Australia and New Zealand
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Topics of discussion
Setting the scene
Governance: Key employment considerations
Moving critical staff into Australia
Ensuring the success of your expansion
Conclusion and Q&A
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Setting the scene Australia
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Setting the scene - The Australian story
Over the past 5 years inward FDI has increased on average 5.8% p.a.
Democratic and politically stable
Strong economic growth, combined with low inflation, provides a stable economic environment for business….for 6 of the last 8 years Australia’s economy has been found to be the most resilient in the world1
Business friendly regulatory environment with favourable concessions such as GST subsidies
Robust banking sector; among the strongest in the world.
Commodities rich in resources and land
Australia is on the doorstep of one of the fastest growing regions
But, presents challenges regarding labour demand and supply
1. Source: Ibid
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Strong and stable economic growth Annual gross domestic product
Annual GDP Trend
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Global Financial Crisis
Based on Australian Bureau of Statistics data
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Introduction of $1k “Baby Bonus” Increased to $4k
Governance: key employment considerations
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Summary of Australian employment issues A few things to key in mind…
LABOUR LAWS
TOTAL REWARDS
Severance payments
Restructuring costs
Reward harmonization
At-risk compensation
Compliance with statutory requirements
Superannuation plan and projected costs/ liabilities
Limited employer-sponsored healthcare plans
Scope of benefits and employee choice
Benefits harmonization/ integration on providers/ administration, if any
HEALTH & BENEFITS
Transmission of business
Union negotiations, if any
Executive remuneration and retention
Work lifestyle
RETIREMENT (PENSIONS)
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Navigating the Australian labor law landscape
Employment contracts:
Common contracts for most managerial/ professional staff.
Non-managerial employees are covered by employment conditions in the form of a Collective Enterprise/ Bargaining Agreement.
The Fair Work (FW) Act 2009 regulates industrial and employment law in respect to all companies across Australia.
10 National employment standards :These standards provide a minimum set of entitlements for employees, including:
Maximum weekly hours
Entitlement to request flexible working arrangements
Parental leave and related entitlements
Annual leave (four weeks or 20 business days per year)
Personal/carer’s leave and compassionate leave
Community service leave
Long service leave
Public holidays
Notice of termination and redundancy pay
Provision of a Fair Work Information Statement
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Navigating the Australian labor law landscape
Collective agreements: unions or employee groups may wish to enter into a collective agreement with their employer. Good Faith Bargaining applies to all employers
Unfair dismissals: broad protection for employees in organisations with greater than 15 employees
Transfer of business: Changes to employment arrangements
Adverse action: Increased monitoring of employers
Sham contracting: multi-factor test for contractor relationships and monitoring of contractor arrangements
Redundancy and severance: An employee’s entitlement to severance benefits is based on their length of service. Typical severance benefits are based on ordinary time-rate and years of service. Notice periods also apply.
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Key issues
Unionisation: Representation is common for “blue collar” roles (generally paid wages as opposed to salaries), and more common for some industries (eg. manufacturing, health, retail, education etc.)
Diversity: Equal employment opportunity, equal pay for equal work and female representation in executive and board roles are current hot topics. Listed companies with >100 employees are now required to include in their annual reports how they are tracking against their policies on attracting and retaining women.
Executive pay and benefits: Under the Corporations Act, shareholders can now make a non-binding vote on Executive Pay proposals.
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Approach to ‘Total Rewards’
Common for Top executives
Common use of a ‘Total Rewards’ approach: recognises the ‘employee value proposition’ and includes employment cost (fixed and variable pay plus benefits), careers & development and work lifestyle
Pay levels: can be determined through job sizing or market pricing approaches, or based on classification structures based on job size that are linked to market practice (eg. specific industry pay practices)
Performance reward orientation: private sector and listed companies place a greater emphasis on variable reward and performance-based pay:
– Executive and senior management roles tend to be measured on organizational and individual performance
– Professional roles tend to be measured on individual and/or team performance
Use of short-term incentives: common for executives, senior management, and professional roles and are based on individual and organizational performance
Use of long-term incentives: common for executives, particularly for listed companies and can include complex arrangements linked to key organizational measures
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Approach to retirement
Statutory/Government provisions: All employers must provide retirement benefits to employees - 9% mandatory contribution to Superannuation Guarantee (SG – which will gradually increase to 12% by 1 July 2019. Means tested age pension at basic level.
Prevalence of defined benefit plans: Defined benefit funds or defined benefit guarantees are still present. Majority of DB plans are closed to new employees.
Prevalence of defined contributions plans: Likely to be universal covering at least some employees in every company.
Pre-funding requirements: None.
Employee contributions to defined benefit: Typically 5% of salary, with additional voluntary contributions possible.
Employee contributions to defined contribution: Generally not required; voluntary contributions are possible.
Non-discrimination tests: Unlikely to be an issue in DC plans. DB plans most likely have addressed this in the past.
Prevalence of executive plans: If DB plan, common to have higher benefit level. Uncommon in DC due to concessional tax limits on contributions.
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Approach to health & benefits
Statutory/government sponsored programs: Universal Government sponsored Medicare program; statutory Worker’s Compensation (mandatory employer benefits)
Most common benefits provided by employer:
- Death & Total Permanent Disability Insurance
- Salary Continuance Insurance (disability income benefit) – prevalence for both high, often through superannuation fund
- Private Health Insurance
-Higher prevalence in high-tech and mining/resources sectors. Low prevalence in market overall.
-Fringe benefits tax main deterrent in provision of employer subsidised medical cover
-Community rated (not risk rated). Cannot be placed in a multinational pool.
Employee choice / Flex : Not common due to Fringe benefits tax
Retiree medical benefits: Provided by government program – Medicare.
Wellness programs: over 50% of employers offer some form of wellness program/initiatives.
Moving critical staff to Australia
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1. United States2. China (mainland)3. United Kingdom4. Germany5. Singapore6. Japan7. Hong Kong8. France9. Switzerland10. India11. Thailand12. Australia13. Netherlands
14. Brazil15. Mexico16. Belgium17. United Arab Emirates18. Canada19. South Korea20. Taiwan21. Malaysia22. Russia23. Italy24. Spain25. Indonesia
Source: 2010 Mercer/ORC Worldwide International Compensation Services
Moving critical staff to Australia Australia in the top 25 destination countries for expatriates
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Moving critical staff to Australia The cost and quality of living in Sydney is similar to Singapore…
Source: Mercer Cost of Living Calculator, Mar 2010
Source: Mercer Quality of Living Calculator, Mar 2010
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IslamabadHanoi
MumbaiColombo
JakartaManilaBeijing
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TaipeiSeoul
Kuala LumpurHong Kong
TokyoBase City Singapore
WellingtonSydney
Quality of Living - Base City Singapore
Cost of Living - Base City Singapore
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Financial Controller Benchmark Job
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Moving critical staff to Australia …as are actual pay levels
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Effective Income Tax Rates
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Controller Benchmark Job, Family Size of 4
Moving critical staff to Australia However, Australia has one of the highest effective income tax rates…
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Moving critical staff to Australia …and a relatively small, but highly skilled labour force
Workforce demographic profile– Highly skilled– Highly educated– Diverse & multilingual– Multi-generational
Labour force– Relatively small labour force (11.5M) – low participation rate (65.8%) – low unemployment of (4.9%)
Skills shortage (job vacancy rate is increasing) – The domestic labour market will remain tight as long as the investment
boom gathers momentum, particularly within the resources sector– Attraction and retention of key talent is a major focus and requires deep
understanding of workforce
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Moving critical staff to Australia What’s the trend with expatriate remuneration packages?
Model 2: ‘Localized’ packagesAustralian market rate (including superannuation, bonus, other benefits)
Possible “plus” components + housing assistance at lesser benefit + relocation allowance
Model 1: ‘Traditional expat package / balance sheet’Base salary & bonus of the home country
+ cost of living allowance + mobility premium (depending on policy) + housing benefit + tax equalization + dependents’ education + annual home leave + relocation allowances
Items that are not typically made available as part of the remuneration package however are worth considering in order to be competitive include: house hold storage support for dual-income families
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Moving critical staff to Australia Items to consider when developing a staff mobility plan
What is the nature of the transfer?– Limited term secondment– Indefinite/permanent relocation
Visa requirements (457)– Employer responsibilities– Market rate clause
High income tax rates– Highest top marginal tax bracket (similar to China)– Gross salaries alone shouldn’t be compared when offering a localized package– Traditional packages require tax equalisation; localized packages may require
delivering equivalent net compensation
Pension arrangements– Mandatory contribution
Health insurance– Employer must provide private health insurance for all sponsored temporary workers
Ensuring the success of your expansion
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What’s driving this activity Common deal drivers in Australia
Notes: Deal Volume chart includes deals with unannounced deal values, which may not be reflected in the Deal Value chart; Data only for deals with at least 30% stake; Deals denote either target/seller OR bidder (as opposed to target/seller AND bidder) within each specified geography; by announcement date; 2010 YTD refers to 1 Jan 2010 – 30 Jun 2010.
Source: MergerMarket; Mercer Analysis
Deal Value & Volume 2006-10YTD
Mil.USD # of Deals
Deal Drivers in Australia
Resurgence in M&A activity, following Australia’s quick recovery from the global financial crisis.
2010 deal volume in Australia for 2011 are anticipated to exceed 08, 09 expectations.
Major transactions as a result of industry consolidation in the financial, resources and consumer staples sectors.
Continued interest from Asian-based investors in Australia’s resources sector.
Some of the key sectors that have been active include Resources and Financial Services.
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2006 2007 2008 2009 2010-YTD
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Indicative characteristics of Australian national culture
Individualism - Collectivism
Power Distance – dealing with authority
Time orientation
Femininity- Masculinity
Uncertainty Avoidance
Small
IndividualCollective
Short-term
Collaborative & Consensus
Uncertainty is a given
Large
Long-term
Competition & Strength
Uncertainty is avoided
Source: Hofstede, R. M. (2001). Culture's Consequences: Comparing Values, Behaviours, Institutions and Organizations Across Nations, Thousand Oaks, California: Sage Publications.
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Acquiring in Australia: Deal-specific HR actions
Build the HR Transition Plan– Collect and review input documents such as sales and purchase agreement, due diligence
report, transition services agreements, any integration planning already undertaken, business structure of the Australian operation
– Identify specific HR issues that need to be considered unique to Australia
Conduct rapid due diligence on HR matters to supplement the commercial due diligence. This will be key to building a comprehensive HR transition plan.
Employee Transfer (if required)– Design transition process– Clarify legal obligations contained in employment contracts and industrial awards– Draft offer / transfer letters (if required)– Manage the transition process
Industrial relations
Rewards and Benefits– Policy and remuneration philosophy harmonisation– Executive benefits– LTI, STI and stock
Retention of key staff– Identify key staff segments: executives, business-critical roles, high-potentials – Develop retention strategies as appropriate
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Acquiring in Australia: Deal-specific HR actions
Performance management harmonisation – including systems– Business performance goals cascaded to individuals
Cultural integration– Induction– Working for a US/ European/ Asian company– Expectations– Leadership team defining culture recognising company values
HR policies harmonisation
Payroll and related processes– Including data migration
HR staffing– During the integration– Ongoing operations
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Conclusion
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In summary
Australia has a strong and resilient economy, and has been an active market for M&A, with a number of recent deals in the resource, technology and services sectors
Balancing supply and demand is a critical business issue
Keeping pace with minimum statutory requirements from a people perspective will not differentiate you in a competitive labor demand market place
Organizations continue to review and invest in their:– Total Rewards philosophy– Compelling employee value proposition
Attention to communication, engagement and culture is critical for success.
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Questions & answers
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For more information on regional strategies, risks and opportunities
Visit our Breaking Down Borders website to access articles, points of view, podcasts and more information on investing in Australia.
Access recordings of past webcasts on: – Doing business in India– Doing business in Japan– Doing business in China– Doing business in Korea– Doing business in Indonesia
www.mercer.com/breakingdownborders
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Speaker contacts details
Ben Walsh Partner & Asia Pacific Regional Market Development Leader
Michael Hill Partner, Mergers & Acquisition, Australia and New Zealand
Georgina Harley Principal, Information Product Services, Australia and New Zealand
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