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The importance of benchmarking your total reward package

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Presentation used at the Secondsight HR masterclass 23/05/12, presented by Adam Burden of Hay Group.

Presentation used at the Secondsight HR masterclass 23/05/12, presented by Adam Burden of Hay Group.

Published in: Business, Economy & Finance

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  • 1. Why only look at part of the picture?The importance of benchmarking your total packageWednesday 23 May 2012 Adam Burden
  • 2. Agenda 1. What is total remuneration (TR) and why consider it? 2. A global view of benefits 3. Different approaches for understanding the competitiveness of your total package© 2012 Hay Group. All rights reserved 2
  • 3. 01What is total remuneration andwhy consider it?
  • 4. “Total remuneration isthe value of your totaltangible rewardoffering”
  • 5. What is total remuneration (TR)? In detailInternal valueor motivation Common examples Reward elements Definitions Intangible  Career development  Work-life balance Non-financial rewards Total reward  Non-financial recognition  Social security Total Statutory benefits remuneration plusmonetary value can be assigned Retirement provisionRewards to which an objective   Death / disability / medical Total Non-statutory benefits remuneration  Cars  Benefit allowances / loans Tangible  Executive share options Total  Restricted / performance shares Long term incentives direct compensation  Long term cash plan  Sales commission  Annual bonus Annual variable  Annual incentive Total  Basic salary cash  Fixed payments Guaranteed cash  Near-cash allowances© 2012 Hay Group. All rights reserved 5
  • 6. An effective approach to reward Companies who have a clear view of their total remuneration position can manage costs, ensure competitiveness and communicate the real value of reward to employees. Are you getting the best value from your reward spend?  Assess the real value of your reward offer by benchmarking TR and benefits as well as base salary  Looking at the total picture can give you clarity on the cost implications of your reward decisions Working internationally?  Centrally managed reward needs to consider the competiveness and effectiveness of local reward practices  Companies need to consider the local picture to ensure business decisions have the right effect© 2012 Hay Group. All rights reserved 6
  • 7. An effective approach to reward, continued Using reward to drive performance?  Clearer employer value propositions and reward programmes can help keep employees engaged and performing in challenging markets Ensuring a competitive future  Equip yourself to make informed decisions on all aspects of your reward practices to support your employer brand and compete for the talent you need.© 2012 Hay Group. All rights reserved 7
  • 8. Some case studies The following companies all consider themselves median payers: Company A benchmarks only base salary and bonus against it’s competitors. It only considered market data for benefits eight years ago. Company B benchmarks at the market median for each of it’s compensation elements in isolation (e.g. median base salary, median bonus, median pension etc) Company C benchmarks at the median for total remuneration, it balances the package it offers according to the needs of it’s employees.© 2012 Hay Group. All rights reserved 8
  • 9. So how do you thinkthey all look whenbenchmarked at totalremuneration?
  • 10. Graph showing case study companies benchmarked against their peer group‟s median 120% 115% 110% Comparison ratio Company A 105% Company B 100% Company C 95% 90% 85% Base salary Total cash Total remuneration Compensation element© 2012 Hay Group. All rights reserved 10
  • 11. Clear picture of Total Remuneration gives you the total picture For companies managing reward across borders, and for those looking to balance cost with competitiveness – a clear picture of Total Remuneration is crucial.  Research by Hay Group shows benefits can make up between 12% - 53% of the total package  Yet many companies fail to, benchmark, manage or communicate the benefits they provide© 2012 Hay Group. All rights reserved 11
  • 12. Some examples of those who do… Being able to have a full view of the TR package made it possible to invest in valued benefits when allocating resources to pay was not an option. International Insurance company The successful harmonisation of reward packages after acquiring a new business was possible in great part because of being able to understand the full scope of the TR package in both organisations. Global Retailer Huge savings were made on total remuneration spend in Mexico once the central reward team understood they were providing a lot more benefits than their competition, many of which were not valued by employees. Global Chemicals company© 2012 Hay Group. All rights reserved 12
  • 13. 02A global picture
  • 14. Global Benefits Index Key findings  Huge variation in the emphasis of benefits versus cash  The results highlight the importance of understanding the full remuneration picture  Analysis of salary and bonuses can give a very different picture of reward programmes around the world  A significant portion of the reward package is hidden in benefits© 2012 Hay Group. All rights reserved 14
  • 15. Global Benefits Index Five countries placing the greatest emphasis on benefits Benefits as a % of TR 60 50 40 30 20 10 0 India Indonesia Vietnam Ukraine Brazil UK Results from Hay Groups „Global Total Remuneration‟ Report 2011 Report looks at the average worker – equivalent to Hay Group reference level 12© 2012 Hay Group. All rights reserved 15
  • 16. Global Benefits Index Five countries placing the least emphasis on benefits Benefits as a % of TR 18 16 14 12 10 8 6 4 2 0 New Zealand Finland Hong Kong Luxembourg Chile Results from Hay Groups „Global Total Remuneration‟ Report 2011 Report looks at the average worker – equivalent to Hay Group reference level 12© 2012 Hay Group. All rights reserved 16
  • 17. Global Benefits Index Mixed picture:  Many developing economies seem to place the greatest emphasis on benefits India, Indonesia, Vietnam and Ukraine almost paying the same in benefits as they do in salaries  However, some mature markets – France and Sweden appear near the top  The answers lie in understanding the factors that drive benefit payments and the types of benefits paid© 2012 Hay Group. All rights reserved 17
  • 18. TR packages around the world© 2012 Hay Group. All rights reserved 18
  • 19. Global Total Remuneration Index – highest packages Results from Hay Group‟s „Global Total Remuneration‟ Report 2011 Average total remuneration for skilled worker p.a. (USD) 120,000 100,000 80,000 60,000 40,000 20,000 0 Report looks at the average worker – equivalent to Hay Group reference level 12© 2012 Hay Group. All rights reserved 19
  • 20. Global Total Remuneration Index – lowest packages Results from Hay Group‟s „Global Total Remuneration‟ Report 2011 Average total remuneration package for skilled worker p.a. (USD) 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0© 2012 Hay Group. All rights reserved 20
  • 21. Global Total Remuneration Index Key findings  Developed nations dominate the top of the Index  Swiss skilled employees are best remunerated – median total remuneration US$104,100  Indian employees are the lowest paid at US$8,900© 2012 Hay Group. All rights reserved 21
  • 22. Global Total Remuneration Index Some surprises:  The US, the UK – fall outside the top 10 These markets have a reputation for being expensive places to source labor – but average skilled worker receives less than other mature markets.  Notable high growth markets – India and China at the bottom of the rankings  Brazil is mid-table Strong employment figures and robust growth in key sectors means skilled workers are in demand, and relatively high inflation rate is putting pressure on employers to increase wages© 2012 Hay Group. All rights reserved 22
  • 23. 03Different approaches forbenchmarking benefits
  • 24. The approaches we will be discussing 1. Looking at prevalence information 2. The actuarial approach 3. Our approach© 2012 Hay Group. All rights reserved 24
  • 25. Prevalence information Approach 1 – look at prevalence information  Advantages Easy to access and reasonably priced. With more detailed prevalence data, you can understand exactly how competitive each component of your benefit policy is  Disadvantage A qualitative exercise – not giving a clear and quantifiable picture of competitiveness. For example, your car benefit is better than market, but your pension benefit is worse – what does that mean for overall package competitiveness?© 2012 Hay Group. All rights reserved 25
  • 26. The „actuarial‟ approach Approach 2 – value total package and individual benefits  Advantages Dealing in numbers, so giving a very clear and quantifiable picture of being above or below market. Tells you how competitive each benefit is and gives you explanations why they are / aren‟t competitive  Disadvantage Complexity (of often bespoke valuation methodologies), level of technical understanding needed (actuaries are usually required), and cost.© 2012 Hay Group. All rights reserved 26
  • 27. Our approach Approach 3 – Standard cost of employment  Advantages Relatively straightforward to use Tells you how competitive each of your benefits and your total remuneration values are against your chosen peer group both by incumbent and grade  Disadvantage Currently Reward Pinpoint does not tell you why each benefit is or isn‟t competitive – but we‟re working on that!© 2012 Hay Group. All rights reserved 27
  • 28. Any questions?