The importance of benchmarking your total reward package

Why only look at part of the picture?The importance of benchmarking your total package

Wednesday 23 May 2012 Adam Burden

2© 2012 Hay Group. All rights reserved

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

01What is total remuneration and why consider it?

“Total remuneration is the value of your total tangible reward offering”


What is total remuneration (TR)? In detail

Annual variable

Sales commission Annual bonus Annual incentive

Common examples Reward elements Definitions

Career development Work-life balance Non-financial recognition

Non-financial rewardsTotal reward

Social securityStatutory benefits

Total remuneration plus

Retirement provision Death / disability / medical Cars Benefit allowances / loans

Non-statutory benefitsTotal remuneration

Executive share options Restricted / performance shares Long term cash plan

Long term incentivesTotal direct compensation

Basic salary Fixed payments Near-cash allowances

Guaranteed cash

Total cash

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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


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.


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.

So how do you think they all look when benchmarked at total remuneration?


Graph showing case study companies benchmarked against their peer group’s median

Base salary Total cash Total remuneration85%

90%

95%

100%

105%

110%

115%

120%

Company A

Company B

Company C

Compensation element

Co

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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


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

02A global picture


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



Five countries placing the greatest emphasis on benefits

India Indonesia Vietnam Ukraine Brazil UK0

10

20

30

40

50

60

Benefits as a % of TR Benefits as a % of TR

Results from Hay Groups ‘Global Total Remuneration’ Report 2011Report looks at the average worker – equivalent to Hay Group reference level 12



Five countries placing the least emphasis on benefits

New Zealand Finland Hong Kong Luxembourg Chile0

2

4

6

8

10

12

14

16

18

Benefits as a % of TR

Results from Hay Groups ‘Global Total Remuneration’ Report 2011Report looks at the average worker – equivalent to Hay Group reference level 12



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


TR packages around the world


Global Total Remuneration Index – highest packages

Switzer

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Norway

Japa

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Germ

any

Belgi

um

Nethe

rland

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Luxe

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Irela

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Franc

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Sweden

0

20,000

40,000

60,000

80,000

100,000

120,000

Average total remuneration for skilled worker p.a. (USD)

Report looks at the average worker – equivalent to Hay Group reference level 12

Results from Hay Group’s ‘Global Total Remuneration’ Report 2011


Global Total Remuneration Index – lowest packages

Indi

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Vietn

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Indo

nesia

Bulga

ria

Ukrai

ne

Egypt

Venez

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Roman

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Thaila

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China

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2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Average total remuneration package for skilled worker p.a. (USD)

Results from Hay Group’s ‘Global Total Remuneration’ Report 2011


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


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

03Different approaches for benchmarking benefits


The approaches we will be discussing

1. Looking at prevalence information

2. The actuarial approach

3. Our approach


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?


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.


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!

Any questions?

Business

The importance of benchmarking your total reward package