Global and Local Remuneration
Trends
13 May 2010
2
Growt_ & P_ofit
The world’s most successful companies have this
one figured out
3
Top 15 Reward Trends
1.
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
4
1. Employee Engagement
...
Advocacy
Commitment
Motivation
Satisfaction
Engagement
5
Six Categories Drive Employee
Engagement
Work
People
• Work Tasks
• Sense of Accomplishment
• Resources
• Work Processes
• Senior Leadership
• Manager
• Coworkers
• People Focus
• Customers
Total Rewards
• Pay
• Benefits
• Recognition
Company Practices
• People/HR Practices
• Managing Performance
• Brand Alignment
• Organization Reputation
Engagement
Opportunities
• Career Opportunities
• Learning and
Development
Quality of Life
• Work/Life Balance
• Physical Work Environment
6
Employee Engagement (cont.)
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
7
Engagement and the Bottom Line
30% - 150% of annual salary
Accountant = R250,000 (median annual salary 2009)
=R250,000 x R30%
=R75,000
10 – 6 – 2
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).
10 : 9
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.
8
2. Total Reward Approach
Organisational
Culture
Business
Strategy
TOTAL REWARDS
STRATEGY
Remuneration
Benefits
Work-Life
Performance & Recognition
Human
Resource
Strategy
REF: W@W 2008
Development & Career
Opportunities
Attract
Employee
Business
Satisfaction &
Engagement
Performance
& Results
Motivate
Retain
9
Remuneration Definitions and Terminology
+ Long-term Incentive
Variable
Pay
+ Short-term Incentive
+ Car Benefit
+ Other Benefits
+ Cost of employee benefits
Fixed
Base /
Basic
Salary
Pay
Guaranteed
Package /
Total
Guaranteed
Package
Total
Remuneration
/ Total Cost of
Employment
Total
Earnings /
Total Cost
to
Company
Base / Basic Salary
Rolling
Incentive
10
Total Package Approach
Total
Packages concept continues to be a trend
There
are few tax reasons for going this route, but
many other advantages of doing so
Main Reason
Employer
Employee
Cost containment
Flexibility
11
3. 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
12
Retention – 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
13
4. 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?
14
Short Term Target and Stretch Targets
Percentages by Level
Short-term incentive payment trends as a % of guaranteed
package
Performance
CEO
On target
30%
50%
70%
200%
Stretch
50%
75%
100%
500%
On target
20%
35%
60%
100%
Stretch
35%
60%
80%
200%
On target
15%
25%
50%
75%
Stretch
25%
50%
70%
100%
On target
10%
20%
35%
50%
Stretch
17%
30%
60%
75%
5%
10%
15%
20%
10%
15%
25%
35%
5%
8.3%
10%
15%
8.3%
10%
15%
20%
Top Executive – Reporting
level 1
Senior Management –
Reporting level 2
Middle Management –
Reporting level 3
Advance Operational
On target
Stretch
Operational & Primary
On target
Stretch
Lower quartile
Median
quartile
Upper
quartile
90th quartile
Title
15
5. 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
16
Allocation Multiples for Employee Share
Participation Schemes
Decision
making level
Paterson
Grade
Roles
Options as a multiple of guaranteed package
Lower quartile
Strategic
Intent
Strategic
Execution
Middle
Management
Median
Upper quartile
F Upper
Group CEO
4X
6X
8X
F Lower
Top Executive –
Reporting level 1
2X
4X
7X
E Upper
General Manager
– Reporting level
2
1.5X
3X
5X
E Lower
Senior
Management –
Reporting level 3
1X
2X
3X
E Upper
Reporting level 4
0.5X
1X
2X
17
Options/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%
18
6. Non-Financial Rewards

Recognition

Clearer career paths

Development opportunities

Job enrichment


Tuition of choice
Mentoring and coaching

Internships

Rotation and Learning
19
lternatives to
cash
20
Your Total Rewards Inventory
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
21
Your Total Reward Inventory
Work-Life (cont)
Caring for dependents
 Dependent Care Reimbursement
Accounts
 Dependent Care Reimbursement TravelRelated 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
22
Your Total Reward Inventory
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 Seminars
e.g. Stress-Reduction, Parenting, etc.
Health Advocate
23
Your Total Reward Inventory
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
24
Your Total Reward Inventory
Performance 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, costsaving
Employee Suggestion Programmes
25
Your Total Reward Inventory
Development 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
26
7. Globalisation
Remuneration
Trends
Act local
Think Global
27
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
28
8. 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
29
9. More Flexibility and Reward
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
30
Generations,
now life
cycle 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
Recognition
schemes
Flexibility
Non-financial
incentives
Sponsor
education
programs
Services for
staff
Challenging
projects
Fun
Workplaces
Good
Guaranteed
packages and
short-term
incentives
Reward
Meaningful
work
“Grand
Celebrations”
31
Why do we call the last long generation Y. I did not know, but a
caricaturist explains it eloquently below...
Learned something new!
32
Personality type and reward preference
Nienaber & Bussin, 2009
33
Reward categories influencing attraction,
motivation 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
34
10. Setting Non Executive Director
(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
35
A 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
36
37
11. 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
38
Paying 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
39
12. Dual Career Paths and Flat
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.
40
SST - Dual Career Path Approach
PATERSON
SST
LINE
Specialist
DESCRIPTIONS
TOP MANAGEMENT
F
5
E
4
D
3
MIDDLE MNGT
2
FIRST LINE
SUPERVISORS
C Upper
C Lower
1
B
1
A
1
SNR. MNGT
SI - Corporate strategic direction and policy signoff
GROUP /
FUNCTIONAL /
ADVISOR
SE - Translation of corporate direction into
organisation planning & management
PROFESSIONALS
/ SPECIALIST
MP - Translation of organisation plans into
functional plans and best practice systems
TECHNICIAN /
PRACTITIONER
SP - Optimizing a given system to achieve plans
ADVANCED OPERATIONAL
OPERATIONAL SKILLS
PRIMARY SKILLS
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
41
Retention - Skill Categories
 Critical
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:
 Support
areas
Employees who work in the operational areas
Staff:
Employees who work in non-core or support
42
Specialists
Professional
Resource/Technical
Management
Traditional
Management
General/
Manager
Critical Skills
Engineering
Management
PATERSON
BAND
DESCRIPTER
F
Top management
EU
“Phd”
Engineer
Principal
Engineer
Senior
Engineer
EL
DU
DL
Engineer
CU
Graduate
Engineer
(Trainee)
General
Management
Senior
management /
Specialist
Middle
management /
Senior
Professional
Management /
Professional
Supervisory /
Advanced
Operational
CL
Technical /
operational
BU
Administrators/
Operational
BL
Clerical
A
Basic skills
43
Scarce Skills
cont. . .
Employee A
MAX
10% Scarce
Skills
Allowance
Employee B
MID
Employee C
MIN
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
P50
44
13. Media Scrutiny
Executive Pay – too much or too
little?
45
Most 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

46
Considerations when choosing market
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
47
Considerations when choosing market
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
48
14. HR, Reward and the Bottom
line
Ref: Watson Wyatt
49
The higher the company’s HCI score, the higher
the TSR
50
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%
51
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

52
15. Branding / EVP
Branding
Is there a remuneration discount when you work here?
How much?
THANK YOU
for this opportunity
to be with you