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    Mercer bdb doing_business_in_australia_27_apr Mercer bdb doing_business_in_australia_27_apr Presentation Transcript

    • Breaking Down BordersDoing business in AustraliaBen Walsh, MelbourneMichael Hill, MelbourneGeorgina Harley, Sydney www.mercer.com
    • Today’s speakersBen Walsh Michael Hill Georgina HarleyPartner & Asia Pacific Partner, Mergers & Principal, InformationRegional Market Acquisition, Australia and Product Services, AustraliaDevelopment Leader New Zealand and New ZealandMercer 1Mercer 1
    • Topics of discussion 1  Setting the scene 2  Governance: Key employment considerations 3  Moving critical staff into Australia 4  Ensuring the success of your expansion 5  Conclusion and Q&AMercer 2Mercer 2
    • Setting the sceneAustralia
    • 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 supply1. Source: IbidMercer 4Mercer 4
    • Strong and stable economic growthAnnual gross domestic product Annual GDP Trend 6.0 Global Financial Crisis 5.0 4.0 3.0 2.0 1.0 0.0 Dot-com crash -1.0 Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Sep-91 Sep-92 Sep-93 Sep-94 Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Percentage Change Annual Population Movement Annual Net Overseas Migration Annual Natural Increase 500 Quarterly Population Change (x1000) 450 400 350 300 250 200 150 100 50 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Introduction of $1k “Baby Bonus” Increased to $4k Based on Australian Bureau of Statistics dataMercer 5Mercer 5
    • Governance: key employment considerations
    • Summary of Australian employment issuesA few things to key in mind… LABOUR LAWS  Severance payments  Transmission of business  Restructuring costs  Union negotiations, if any TOTAL REWARDS  Reward harmonization  Executive remuneration and retention  At-risk compensation  Work lifestyle RETIREMENT (PENSIONS)  Compliance with statutory requirements  Superannuation plan and projected costs/ liabilities HEALTH & BENEFITS  Limited employer-sponsored healthcare plans  Scope of benefits and employee choice  Benefits harmonization/ integration on providers/ administration, if anyMercer 7Mercer 7
    • Navigating the Australian labor law landscapeEmployment 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 StatementMercer 8Mercer 8
    • 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.Mercer 9Mercer 9
    • 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.Mercer 10Mercer 10
    • Approach to ‘Total Rewards’ 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 Common for Top executives – 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 measuresMercer 11Mercer 11
    • 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.Mercer 12Mercer 12
    • 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.Mercer 13Mercer 13
    • Moving critical staff to Australia
    • Moving critical staff to AustraliaAustralia in the top 25 destination countries for expatriates1. United States 14. Brazil2. China (mainland) 15. Mexico3. United Kingdom 16. Belgium4. Germany 17. United Arab Emirates5. Singapore 18. Canada6. Japan 19. South Korea7. Hong Kong 20. Taiwan8. France 21. Malaysia9. Switzerland 22. Russia10. India 23. Italy11. Thailand 24. Spain12. Australia 25. Indonesia13. NetherlandsSource: 2010 Mercer/ORC Worldwide International Compensation ServicesMercer 15Mercer 15
    • Moving critical staff to Australia The cost and quality of living in Sydney is similar to Singapore… Cost of Living - Base City Singapore 140 118 120 96 96 98 100 100 94 89 86 76 77 77 78 79Ranking 80 70 67 67 68 60 Quality of Living - Base City Singapore 40 20 Sydney 103 Wellington 102 Base City Singapore 100 0 Shanghai Sydney Hanoi Hong Kong Seoul 98 Wellington Kuala Lumpur Taipei Tokyo Dhaka Mumbai Bangkok Manila Beijing Jakarta Tokyo Base city Singapore Colombo Hong Kong 92 Kuala Lumpur 87 Seoul 85 Taipei 84 Shanghai 79 Source: Mercer Cost of Living Calculator, Mar 2010 Bangkok 72 Beijing 72 Manila 68 Jakarta 63 Colombo 62 Mumbai 62 60 Hanoi Islamabad 50 0 20 40 60 80 100 120 Rank Source: Mercer Quality of Living Calculator, Mar 2010 Mercer 16 Mercer 16
    • Moving critical staff to Australia…as are actual pay levels Financial Controller Benchmark Job Avg Annual Total Fixed Cash Remuneration (US$) 250,000 200,000 150,000 100,000 50,000 0 an nd na ng n e sia a lia sia s or pa re ne iw i la Ko ra ne Ch ap ay Ko Ja pi ai Ta st do i li p al ng ng Th Au h M In ut Si Ho Ph SoMercer 17Mercer 17
    • Moving critical staff to AustraliaHowever, Australia has one of the highest effective income tax rates… 30 Effective Income Tax Rates Controller Benchmark Job, Family Size of 4 25 20 % of Income 15 10 5 0 ng s a a a e lia a an na n nd ne si si re or di pa Ko ra iw hi la ne ay In Ko ap pi Ja st C ai Ta il ip al do g ng Au Th h on M In ut Ph Si H SoMercer 18Mercer 18
    • 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 workforceMercer 19Mercer 19
    • Moving critical staff to AustraliaWhat’s the trend with expatriate remuneration packages? Model 1: ‘Traditional expat Model 2: ‘Localized’ package / balance sheet’ packages Base salary & bonus of the home Australian market rate (including country superannuation, bonus, other benefits) + cost of living allowance + mobility premium (depending on Possible “plus” components policy) + housing assistance at lesser benefit + housing benefit + relocation allowance + 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 familiesMercer 20Mercer 20
    • Moving critical staff to AustraliaItems 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 workersMercer 21Mercer 21
    • Ensuring the success of your expansion
    • What’s driving this activityCommon deal drivers in Australia Deal Value & Volume 2006-10YTD Deal Drivers in Australia  Resurgence in M&A activity, following Mil.USD # of Deals Australia’s quick recovery from the global financial crisis. 250,000 800 700  2010 deal volume in Australia for 2011 are 200,000 anticipated to exceed 08, 09 expectations. 600 500  Major transactions as a result of industry 150,000 consolidation in the financial, resources 400 and consumer staples sectors. 100,000 300 200  Continued interest from Asian-based 50,000 investors in Australia’s resources sector. 100 - -  Some of the key sectors that have been active include Resources and Financial 2006 2007 2008 2009 2010- Services. YTDNotes: 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 AnalysisMercer 23Mercer 23
    • Indicative characteristics of Australian national culture Individualism - Collectivism Collective Individual Power Distance – dealing with authority Small Large Time orientation Short-term Long-term Femininity- Masculinity Collaborative Competition & Consensus & Strength Uncertainty Avoidance Uncertainty is Uncertainty is a given avoidedSource: Hofstede, R. M. (2001). Cultures Consequences: Comparing Values, Behaviours, Institutions and Organizations Across Nations, ThousandOaks, California: Sage Publications.Mercer 24Mercer 24
    • 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 Mercer 25 Mercer 25
    • 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 Mercer 26 Mercer 26
    • Conclusion
    • 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.Mercer 28Mercer 28
    • Questions & answers Click on the question mark to submit a question Please use the Q&A panel on the bottom right hand of your screen to type your question To ask a question while in full screen mode, click on the question mark button on the floating panel at the bottom right hand side of your screen. If there is not enough time to answer your question during the Q&A period, we will send you’re an answer by email.Mercer 29Mercer 29
    • For more information on regional strategies, risks and opportunitiesVisit our Breaking Down Borders website toaccess articles, points of view, podcasts andmore information on investing in Australia.www.mercer.com/breakingdownbordersAccess recordings of past webcasts on: – Doing business in India – Doing business in Japan – Doing business in China – Doing business in Korea – Doing business in IndonesiaMercer 30Mercer 30
    • Speaker contacts detailsBen Walsh Michael Hill Georgina HarleyPartner & Asia Pacific Partner, Mergers & Principal, Information ProductRegional Market Acquisition, Australia and Services, Australia and NewDevelopment Leader New Zealand Zealandben.walsh@mercer.com michael.f.hill@mercer.com georgina.harley@mercer.comMercer 31Mercer 31
    • www.mercer.com