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Reward workshop - Aon Hewitt

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  • 1. Aon Hewitt | March 2012Reward Planning WorkshopPlanning the reward agenda for the year ahead
  • 2. Agenda for todayIntroductions and workshop structureHeadline trends update• 2012 economic environment• 2012 HR environment• Effectiveness of and changes to reward programmes• Top 10 HR priorities for 2012-2014Break-out sessions• Fresh thinking and new practices in pay / negotiation strategies• Line managers and their impact• Improving the relationship with the CEO and raising HR to board level importancePlenary feedbackAny other Qs and wrap-upWe hope you enjoy the morning! 1
  • 3. The 2012 economic environment Aon Hewitt’s 2011/12 Salary Increase Survey reported actual median increases of 3.2% and 2012 projections of 3.2%. Despite recent falls, inflation has been eating into these modest salary increases for some time: – A major challenge for many organisations continues to be balancing the management of employees pay expectations while preventing fixed costs from spiralling out of control. Over the course of 2011 GDP increased by only 0.9%, much slower than the 2.1% growth seen in 2010 (ONS): – Economic output shrank by 0.2% in the Q4 of 2011, representing a significant decline from the 0.6% growth in the previous quarter. – Another quarter of negative growth would officially put the UK economy back into recession. 54% of respondents to Aon Hewitt’s 7th European HR Barometer expect a significant impact on business results from the economic slowdown (23% in 2011): – 65% believe their organisation has responded to short term market conditions without impacting on long term business objectives. – 43% believe more than half of the measures undertaken to cope up with the slowdown have been successful, 25% believe all have been successful.Data sources: Aon Hewitt 7th European HR Barometer Trends and Perspectives 2012-2014 Aon Hewitt 2011 / 2012 Salary Increase Survey 2
  • 4. The 2012 HR environment Ambitious ‘people plans’ remain in place despite economic uncertainty. The pressure on cost reduction ranked as the factor most influencing HR policies and practices by 38% of respondents (1st or 2nd): • 87% view the tough economic environment as an opportunity, rather than a threat, to show the added value and efficiency of HR to support the business • 81% of HR are happy in their current role and have no wish to change employer • 33% expect a significant impact on HR programmes (21% in 2011) The top 3 performing HR activities (on or above target): • Employee data privacy policy implementation (81%) • Industrial relations (79%) • Overall HR strategy (77%) The bottom 3 performing HR activities (below target): • Work-life balance programmes (71%) • Mapping and management of competencies (66%) • HR metrics (65%)Data source: Aon Hewitt 7th European HR Barometer Trends and Perspectives 2012-2014 3
  • 5. Effectiveness of reward programmes • Significant improvement in programmes being considered as ‘fully fit for purpose’ since 2007 • Tactical implementation and effective delivery of plans are the areas of concern. 60% 2007 All Respondents In Need of Revision 2011 All Respondents In Need of Revision 54% 53% 2007 All Respondents Fully Fit for Purpose 51% 2011 All Respondents Fully Fit for Purpose 50% 47% 45% 42% 41% 40% 40% 34%% of respondents 33% 30% 29% 27% 27% 24% 24% 24% 24% 24% 21% 20% 20% 19% 18% 18% 18% 15%15% 15% 15% 11% 11% 10% 0% 0% 0% Broad based long-term Succession planning Talent identification Job Evaluation Broad employee bonus Performance Market Pay data Employee incentives (e.g all management process plans (e.g. profit Management process management Relation/Union employee share plans) sharing) EnvironmentData source: Aon Hewitt Reward Fundamentals study 4
  • 6. Changes to reward programmes Variable pay: Extension of and introduction of new bonus plans, changing plan measures and increasing bonus opportunities. Pay and grading: Changes to the number of grades, the width of pay bands, and greater use of job family concepts in reward. Pensions and benefits: Due to a combination of regulatory and demographic changes, increased focus on cost management and improving the motivational impact of benefits programmes.Data source: Aon Hewitt Reward Fundamentals study 5
  • 7. The Top 10 HR priorities for 2012-2014 60% 54% 2012 2011 50% 50% 46% 44% 40% 38% 37% % of respondents 30% 27% 23% 19% 20% 17% 13% 12% 12% 12% 12% 10% 10% 10% 0% 0% 0% 0% Build a pipeline Improve Improve talent Better Implement an Workforce Improve Prepare the Transform HR Develop one of leaders for employee retention at measuring and integrated HR planning to assessment of organisation to to overcome its coherent HR the future engagement every level of rewarding IT system better anticipate what HR does face possible fragmented policy and satisfaction the organisation employee throughout the business needs and how it adds recession organisation by framework for performance organisation value to the activity the entire business organisationData source: Aon Hewitt 7th European HR Barometer Trends and Perspectives 2012–2014 6
  • 8. Break-out sessionsGroup SubjectA Fresh thinking and new practices in pay / negotiation strategiesB Line Managers and their impactC Raising HR to board level importance 7
  • 9. Break-out Group AFresh thinking and new practices in pay / negotiation strategies inthe current ER and engagement climate
  • 10. Business context and emerging reward themes Organisational change – declining Pay for contribution & market – Reward themesBusiness drivers markets; strategic shifts; innovation renewed focus and re-skilling; re-targeted growth (with a firm lid on Opex) Prioritising – key talent Quality and customer care – Success-sharing – all employees understanding the value drivers Global standards and consistency Efficiencies – smarter, more flexible working in the face of continuing price Focus on Total Package competition Seizing opportunities – changing Changed engagement landscape – employee landscape; economy ‘flat on its multi-generational; declining DB back’: reshape the employment deal? pension populations; out-dated and strained ER / IR frameworks; is the Segmentation – specific talent pools / goodwill starting to fragment? sector skills Legislative / regulatory changes – Increasing choice – even if a little big HR implications 9
  • 11. Fresh thinking and new practices? Our experienceKeeping a lid on base pay escalation:• Broadening the focus away from salary and inflation• Improving the ROI (‘give and take’)• Closer market alignment (reigning back over market pay, use of job families etc)Properly differentiated (and more use of) variable pay:• More for the best, possibly less for on-target performance, higher thresholds• Measures more closely aligned to ‘where I work’Optimising benefits programmes for employers as well as employees:• More flexibility / choice• Greater harmonisation / addressing protections• Co-ordinated campaigns to fill the communications and engagement vacuum on pay 10
  • 12. Break-out Group BLine managers and their impact – how do we ensure we aregetting the best out of line manager involvement in reward andperformance
  • 13. Line managers and their impactLine managers are under pressure• Expected to interpret key messages to their teams about strategic direction, vision, values and hard targets AND transmit these to employees so they are clear about what they need to do, motivated and inspired.• They need to do this in a constantly changing and challenging environment.• Low or zero pay increases make the pay/performance conversation even harder. Mergers & Market uncertainty acquisitions Making sense of corporate messages Line Manager Influencing consequences Customer Regulatory confidence changes 12
  • 14. Line managers and their impact Research* drawn from 4,500 managers, including 300 CEOs and 550 HR managers found: • Over four in ten managers (43%) consider their line managers to be ineffective. • 39% of managers in low performing business thought their line managers were effective – 80% in high performing organisations. • The average expenditure on management training per manager was £1,275 pa for low performing organisations – £1,738 pa for high performing organisations. • Accredited learning and qualifications such as MBA’s were rated as having the best impact on management performance – However the majority of organisations relied on short courses and on-the-job experience as their main training method. In the UK only 1 in 5 managers has had any form of formal management training.* Chartered Management Institute / Henley Business School 13
  • 15. Line managers and their impact: our experience of what makes a differenceOrganisations who are ‘good’ at this:1. Invest significant effort in manager specific training – And make managers invested in the outcome2. Have a strong company message and clear ‘branding’ of reward – Not just a one off “initiative” – reward and performance conversations need to be part of the fabric of the organisation3. Have strong and highly cooperative HR/Manager relationships – Access to ongoing support and guidance is critical4. Provide sufficient resources and tools – But do not overload with ‘process’5. Communicate to manager community regularly – Make managers feel ‘special’ 14
  • 16. Break-out Group CHow reward can support HR to improve the relationship with theCEO and raise HR to board level importance
  • 17. Raising HR to board level importance 24% ranked the level of cooperation between the CEO and HR Director ‘very high’ (1st or 2nd), the highest proportion. The top 4 reported HR needs for 2012 all relate to the relationship between HR and senior leadership: • Greater and timely HR involvement in strategic business decisions (46%) • Increased business related experience (35%) • Improved execution of activities (35%) • Attracting new talent within HR (31%) ‘Improving the assessment of what HR does and how it adds value to the business’ is: • Considered the second most important issue in terms of the HR ‘delivery gap’ (37%) • A top priority for less than a fifth (13%) 58% disagreed that HR has a limited margin of manoeuvre to influence the business agenda • 37% agreedData source: Aon Hewitt 7th European HR Barometer Trends and Perspectives 2012–2014 16
  • 18. Raising HR to board level importance: strategic thinking Commercial Focus Strategic Alignment Does the HR function truly understand business plan To what extent is the changes and how they are Reward agenda aligned to perceived across the your business strategy? organisation? Service Excellence The CEO ‘Radar’ Is the HR function sufficiently How successfully does the skilled to understand and HR function act as an early provide the right balance warning system, proactively between process-driven and managing regulatory risk? proactive activities? 17
  • 19. Raising HR to board level importance: influencing corporate culture Trust Capability to implement What is the perception of HR within your organisation? Are How successfully does you considered “process your business manage police”? reward and performance? HR Support Workforce trends How successfully does To what extent do your your Reward agenda reflect current HR policies, processes changes in business, and practices support your demographics and Reward agenda? workforce trends? 18
  • 20. Raising HR to board level importance Strategic thinking • The Reward agenda should be aligned to the organisation’s business strategy. • HR should be on top of any changes to business plans and how they are being accepted across the organisation. • HR needs to move away from purely ‘process driven’ HR (eg) MI reporting must be proactive, robust and relevant. Skilled specialist (C&B) teams are essential. • HR departments that stay abreast of an ever-changing regulatory environment (employment practices), can be the CEO’s early warning system. Proactively managing regulatory risk means the potential for harm to the company, and therefore the CEO, can be minimised. Influencing corporate culture • HR’s ability to instill trust at all levels is key. The influence begins to decline when HR become “process police”. • The effective management of reward and performance should be sound. • HR policies, processes and practices should be set up to support the reward agenda. • Succession planning is key to ensure an effective system to pinpoint high-potential talent and probable successors.‘Why HR and the CEO Should Be Joined at the Hip’ – John Bell 06/09/2012 (http://www.weknownext.com/blog/why-hr-and-the-ceo-should-be-joined-at-the-hip?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+weknownext+%28Next%29) 19HR Advocate 16/09/2011 (http://hradvocate.biz/2011/09/16/no-surprises/)
  • 21. More informationAon Hewitt makes a significant ongoing investment in reward, performance, talent and employee engagement research.We regularly publish research reports, white papers and articles that we make available to our clients.Our compensation database covers 180 countries, over 680 globally consistent positions and over 6 million incumbents.That’s more than any other compensation data provider worldwide.Mike Curtis Related research:Principal Consultant | Performance, Reward & Talent Sales Incentive Survey+44 (0)207 086 9037 Total Compensation Measurement™ Salary Increase SurveyJackie WallerPrincipal Consultant | Performance, Reward & Talent Reward Fundamentals+44 (0)172 788 8394 Aon Hewitt worldwideSteve Munday Join us on:Senior Consultant | Performance, Reward & Talent+ 44 (0) 207 086 9213 20
  • 22. Copyright © 2012 Aon Hewitt Limited. All rights reserved.Aon Hewitt Limited, 8 Devonshire Square London EC2M 4PL Registered in England & Wales No. 4396810To protect the confidential and proprietary information included in this material, it may not be disclosed or provided toany third parties without the prior written consent of Aon Hewitt Limited.Aon Hewitt Limited does not accept or assume any responsibility for any consequences arising from any person, otherthan the intended recipient, using or relying on this material.Authorised and regulated by the Financial Services Authority.