Employee Reward and Recognition in China

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Beijing Foreign Enterprise Human Resources Service Co., Ltd.

Employee Reward & Recognition in China

EMPLOYEE REWARD

and RECOGNITION in CHINA

A research report commissioned by the Beijing Foreign Enterprise Human

Resources Service Co., Ltd. (FESCO)

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About the Beijing Foreign Enterprise Human Resources

Service Co., Ltd (FESCO)

Beijing Foreign Enterprise Human Resources Service Co., Ltd. (FESCO, www.fesco.com.cn) is the leading provider of Employee Benefits processing and Human Resource Services in the People Republic China. Formed in 1979 under the supervision of the Beijing Municipal Government, FESCO has grown into a top 500 Chinese company. FESCO provides service to over 10,000 customers from hundreds of countries and regions as well as 800,000 domestic and overseas employees working for these institutions. The customer base include a large number of leading multinational companies, exclusively owned foreign enterprises, joint ventures of Chinese companies and foreign companies, and state-owned enterprises. FESCO has established over 110 investment companies and branches across China and formed a service network reaching out to 300 cities and 31 provinces and autonomous regions from its two centers in Beijing and Shanghai. At the end of 2010, FESCO joined hands with Adecco to establish FESCO Adecco, a joint venture in Shanghai .

Contact:

Beijing Foreign Enterprise Human Resources Service Co., Ltd. (FESCO) No.14, Chaoyangmen Nandajie Chaoyang District, Beijing 100020 +86-10-85692930

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Introduction and Methodology

This report summarizes the results of a December 2013 survey of FESCO customers to gather information about the state of Employee Reward and Recognition in China. We hope to better understand HR professionals’ perception of Reward and Recognition programs and their current capabilities. On December 08, 2013, surveys were sent electronically to 800 Human Resource professionals in China. Participants were selected based on their job titles and only those with the tile of HR Manager or HR Director were targeted. The survey closed with 121 responses, about a 15% response rate. This is the first survey of its kind in China. The intention is to both expand the scope and the sample size of the survey next year based on feedback from the HR community and readers of this report. For the study, we asked separate questions regarding Reward programs and Recognition programs. This reflects the fact that today in China, these programs are frequently run separately.

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Table of Figures

Employee Rewards ........................................................................................................... 9

Figure 1: Does you company offer Non-Cash rewards? .................................................... 9

Figure 2: Type of Non-Cash Rewards Offered ................................................................... 9

Figure 3: Type of Reward Programs Offered ................................................................... 10

Figure 4: Type of Rewards Offered by Company Size ..................................................... 10

Figure 5: Type of Reward Programs Offered by Company Size ....................................... 10

Figure 6: Advantages of Non-Cash Rewards ................................................................... 11

Figure 7: Effectiveness of Reward Program ..................................................................... 11

Employee Recognition .................................................................................................... 12

Figure 8: Recognition is Important to the Success of our Business .................................. 12

Figure 9: Type of Recognition Programs Offered ............................................................. 12

Figure 10: How effective is your recognition program? ....................................................... 13

Reward and Recognition Program Information ........................................................... 14

Figure 11: Do you have a written strategy document? ...................................................... 14

Figure 12: Number of Reward and Recognition Programs ................................................ 14

Figure 13: Number of Reward and Recognition Programs by Company Size ................... 14

Figure 14: Geographic Coverage of Reward and Recognition Program ............................ 15

Figure 15: Coverage of Reward and Recognition Program by Company Size .................. 15

IT Assessment ................................................................................................................ 16

Figure 16: Does your Reward and Recognition Program run on software or SaaS? ......... 16

Figure 17: Can data be mined from your software platform? ............................................. 16

Figure 18: What data points are available in your software platform? ............................... 16

Figure 19: Interest in a Reward and Recognition Software Solution .................................. 17

Figure 20: Interest in a Reward and Recognition Software Solution by Company Size ..... 17

Figure 21: Intent to Implement a Reward or Recognition Software Solution ..................... 17

Figure 22: Intent to Implement by Company Size .............................................................. 17

Survey Demographics..................................................................................................... 18

Figure 23: Number of People in Your Organization .......................................................... 18

Figure 24: Description of Your Industry ............................................................................ 18

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Executive Summary and Key Findings

Background

In China, the idea of providing substantial non-cash rewards and benefits to employees is not new. For much of China’s modern history, large State Owned Companies dominated the economic landscape. These companies were often viewed as communities who provided their workers and families with the services to lead productive and healthy lives. The term “iron rice bowl” is a Chinese idiom used to refer employment in this type of organization. These jobs were characterized by job security, a good rate of pay, benefits, and various other perks. In present day, large State Owned Enterprises still dominate, but they are modernizing and have moved away from the “iron rice bowl”. Despite this, certain characteristics remain hard to shake. Chinese companies are still required to provide generous mandatory benefits. For example, “Housing Fund” contributions are made by employers to help employees purchase their first home. Looking at our survey, the most common Non-cash Reward Program is “Holiday Gifts”, which are given to employees at different Chinese traditional festivals like the Spring Festival (Chinese New Year). These Non-cash Rewards are not viewed as a bonus or a performance incentive, and are sometimes described as employee “welfare”.

Prevalence of Non-Cash Rewards Indicate a Large, Growing Market

Against this background, we found large numbers of companies providing Non-cash Rewards to their employees. In our survey, 88% of companies provide some type of Non-cash Reward. This fact, combined with the growing salaries of Chinese workers and the increasingly competitive war for talent have created a very large market for Employee Rewards. A conservative estimate puts spending on Non-Cash Rewards at 8 billion per year and rising.

Attitudes Towards Recognition Have Evolved

To date, the accepted narrative regarding treatment

of workers in China has not been positive. Stories

of low wages and mistreatment of workers dominate

the media. The fact is, China has seen tremendous

improvements in working conditions and opportunity

in the last 20 years. Workers now have an

unprecedented amount of choice when it comes to

their employers. Our survey shows HR leaders at

Chinese companies have taken notice and realize

how important Recognition is to retaining their

employees and motivating them to achieve higher

levels of performance.

Recognition is important to the success of our business

Does your company offer Non-Cash Rewards?

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Lack of Innovation Despite the Shift in Attitude

Despite the stated importance of Recognition, most corporate programs are not evolving to reflect this new reality. The majority of companies are running very few programs and these typically are not aligned with strategic goals. The most common programs are basic “Employee of the Month/Year” or “Holiday Gift” programs.

The primary reason for this discrepancy is the absence of software infrastructure to build and manage programs. In our survey, only 15% of companies were running software for Recognition programs and 12% for Rewards programs. This lack of software has also created a lack of data to evaluate program performance, which is further impeding change.

HR Professionals Poised to Upgrade Their Programs

Our survey clearly showed HR leaders are ready to innovate. Of the respondents, 87% expressed

“Interest” or “High Interest” in a software solution to manage their programs and 74% intend to

implement a software solution in the immediate future. By improving their capabilities, HR

professionals are looking to a future where Reward and Recognition programs play a central role in

building and retaining an engaged, motivated workforce.

Does your Reward or Recognition program run on software or SaaS?

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Non-cash Rewards are a fixture at the vast majority Chinese companies, with 88% offering them to employees. As competition for talent increases and employees become more valuable, Non-cash Rewards should only gain importance in the coming years. Regarding “Types of Rewards” (Figure 2), the survey showed “Merch” was the most popular. This category includes seasonal as well as general merchandise. Gift cards were the second most prevalent. It is important to note gift cards, like the ZeHeXin and Carrefour cards, have been frequently used as a cash compensation substitute (in addition to their use as a Reward), because of the tax benefits. Points are only offered by 10% of companies. As mentioned previously, very few companies are running software which can generate and track points. There is a trend, however, towards “Reward Choice” and points-based catalogues, so an increase in this

category is expected in the near future.

Figure 1: Does your company offer Non-Cash Rewards?

Figure 2: Type of Non-Cash Rewards Offered

EMPLOYEE REWARDS

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The range of Reward Programs offered in Chinese companies is narrower than more developed countries. Holiday Gifts, (seasonal items given to employees around large Chinese festivals like Chinese New Year) is the most popular program and is offered to all employees regardless of performance or seniority. Peer to Peer programs are rare, primarily due to the lack of technology to manage such a program and the cultural differences in largely hierarchical Chinese companies.

Figure 3: Type of Reward Programs Offered

The survey showed Chinese companies both large and small offer similar types of rewards. The exception was a higher frequency of travel rewards and points programs in larger companies. Not reflected in the survey is the lack of digital rewards specifically music, movies or iTunes gift cards. Digital music and movies are largely available for free online (pirated) and therefore have little value. Further, Chinese tastes in reward programs tend to the practical or seasonal. Holiday Gift programs and Performance Incentives are much more prevalent in large companies. This is partly due to the legacy of the “iron rice bowl”. The higher level of Performance Incentives in these larger organizations indicates a more strategic use of Non-cash Reward programs.

Figures 4 & 5: Type of Rewards and Programs Offered by Company Size

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Figure 6 shows HR professionals in China have a sophisticated understanding of the value of Non-Cash Rewards with “flexibility” the most cited advantage. Interesting to note is the category of “Reasonable Tax Avoidance”. In China, Non-Cash Rewards are used as a salary supplement, because in some cases they are non-taxable. This increases the prevalence of Non-Cash Rewards and also raises their level of importance. Figure 7 illustrates HR professionals’ ambivalence with the performance of their programs. A lack of data to evaluate program performance and the software infrastructure to collect and analyze this data are the primary reasons.

Figure 6: Advantages of Non-Cash Rewards

Figure 7: How effective is your Reward Program?

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Figure 8 illustrates the most important finding in our study. It clearly shows HR leaders in China believe Recognition is a strategic imperative and signals Chinese companies are adopting a new attitude towards Recognition programs. HR professionals have expressed a desire to manifest these ideas by improving their Recognition programs. Figure 9 shows that despite this attitude, most companies have not moved beyond basic Recognition programs such as Length of Service. Only 28% of companies have implemented Peer to Peer programs.

Figure 8: Recognition is important to the success of our business.

Figure 9: Types of Recognition Programs Offered

EMPLOYEE RECOGNITION

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Figure 10: How effective is your Recognition Program?

A minority of HR professionals believe their Recognition programs are effective across a number of measures. Besides better tools and data, HR leaders have identified building support for Recognition programs with other departments in the organization as essential to program improvement.

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While a majority of companies have a strategy in place for Rewards and Recognition, there is a surprisingly low number of programs being run in these companies. Based on feedback from the HR community, this is primarily due to rudimentary program mechanics which make program management difficult. Recognition program honorees are typically nominated and determined by Managers. Nominations are based on more subjective opinions rather than data, and typically do not include input from peers.

Figure 11: Do you have a written strategy document?

Figure 12: Number of Reward & Recognition Programs

REWARD & RECOGNITION PROGRAM INFORMATION

Figure 13 shows there are a low number of programs at large and small companies alike. This reinforces the point that larger companies lack an adequate software infrastructure to manage multiple Reward and Recognition programs and to apply these programs strategically throughout the business.

Figure 13: Number of Reward & Recognition Programs by Company Size

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The majority of survey respondents were multi-national companies operating in China. Despite this, 90% of companies surveyed are running “China only” programs. This highlights for vendors the importance of local capability to design and deliver programs for China operations of global companies as well as large local companies. Figure 15 further emphasizes the local nature of China’s Reward and Recognition market. Only 6% of companies with over 1000 employees are offering “Global Only”* programs. This compares to 40% of smaller companies (most likely smaller branches of Multinational companies). These findings clearly show “China-only” programs are a very large and most likely the largest segment of the market. *Global only” is a program which is an extension of a centrally sponsored corporate program run across all countries of operation

Figure 14: Geographic Coverage of Reward & Recognition Programs

Figure 15: Geographic Coverage of Reward & Recognition Programs by Company Size

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Figure 16 illustrates the biggest opportunity for HR professionals and vendors alike. Only 12% of companies are running Reward programs and only 15% are running Recognition programs on a software platform. This lack of software infrastructure is negatively impacting Reward and Recognition programs in a number of ways. It is affecting the overall number of programs, the applications for these programs, and the data that can be mined on these programs. Most importantly, it is affecting HR’s ability to demonstrate program effectiveness to other C-level executives.

Figure 16: Does your Reward or Recognition program run on software or SaaS?

Figure 17: Can data be mined from your software platform?

IT ASSESSMENT

Figures 17 and 18 reflect the subset of companies who answered “Yes” to the question “Does your Reward or Recognition program run on s software or SaaS?”

Figure 18: What data points are available in your software platform?

Even within the subset of companies running software solutions, our survey showed HR professional wanting more. Only 62% are able to pull data from their software platform. Looking at individual data points, 54% are able to identify top performers; but most other key data points are available to only a small percentage of respondents. These findings accurately reflect what is happening in the market. Current software platforms are basic Ecommerce platforms that enable employees to choose from a range of rewards. These platforms are evolving, but are rudimentary at best and lack features such as social recognition, peer to peer nominations and have little application outside the ordering of rewards.

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Figures 21 & 22: Intent to Implement a Reward & Recognition Software Solution

Figures 19 & 20: Level of Interest in a Reward and Recognition Software Solution

HR professionals have made it clear they are anxious to upgrade their capabilities, with 87% of respondents indicating “Interested” or “High Interest” in a software solution. In larger companies, 63% expressed a high level of interest.

The results were similar when respondents were asked if they intended to act on this interest. A full 74% of respondents indicated an “Intent” or “High Intent” to implement a software solution in the near future. Again, the number was higher in the larger organizations.

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SURVEY DEMOGRAPHICS

Figure 23: Number of Employees in Your Organization

Figure 24: Description of Your Industry