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Global compensation planning 2009Global and regional
forecasts and insights
Global Compensation Planning Report
Global Total Rewards Survey 2008
Short-term Incentives around the World
Engaging employees to drive business success report
Key Mercer surveys used in this report (For all other surveys and their descriptions, see page 21)
Compensation Plans Around the World
Table of contents
Steve Gross
Global leader, broad-based performance
and rewards consulting, Mercer
Global shockwaves:
Economic and labor market forces 2
About money:
Base and variable pay trends6
Allocate value:
Segmentation to focus total reward
investments
10
Mission critical:
Employee engagement14
Holistic view:
Investments in total rewards18
Welcome
An interdependent world economy
The International Monetary
Fund (IMF), a global orga-
nization that monitors
economic and financial
developments around the
world, predicts that global
gross domestic product
(GDP) growth will continue
to decelerate into 2009.
The US leads this economic
slowdown, as a result of the nation’s subprime mortgage
debacle, credit crunch and rising oil and gas prices. The
result: A deepening strain on the US economy and, given
increasing global trade and financial linkages, on other
world economies.
Global shockwaves: Economic and labor market forces
2
Global shockwaves
About money
Allocate value
Mission critical
Holistic view
Mercer
Some countries and regions have fared better than others
Click on the economic outlook summary reports that most interest you.
n Asia and Pacific reportn European reportn Latin America and Caribbean reportn US and Canada report
3
Western Europe
Americas
Central/Eastern Europe and the Middle East
Asia Pacific
Global compensation planning 2009
With food and energy prices still rising,
inflation is projected to spike in most
regions, dampening consumer confidence
and spending … and increasing employees’
concerns over their 2009 base pay increases.
Global shockwaves: Economic and labor market forces
Inflation and labor market dynamics
Concerns about keep-ing pace with pay increases
4
Global shockwaves
About money
Allocate value
Mission critical
Holistic view
Mercer
Anticipating the challenges of an aging workforce Given a slowing economy, rising inflation and shifting labor market dynamics, how are orga-nizations responding? Download Mercer’s recent report.
Anticipating the
challenges of an
aging workforce
5
Important labor market dynamics – such as
increased employee mobility and the rise in
aging populations – are intensely shaping
the talent landscape. Fluid and integrated
labor markets are partly due to the readily
available labor from China, India and the
former Eastern bloc countries, which have
become key players in the open market
and are driving labor-intensive work from
around the world to lower-cost centers.
The wave of Baby
Boomers retiring – which
is profound in some coun-
tries, such as Australia and
throughout the United
Kingdom – is compounded
by the emerging talent shortage, especially
technical professionals and those with
global leadership and management skills
and experiences.
Concerns about short-age of skilled labor
Global compensation planning 2009
Mercer’s research shows that throughout
most regions, 2009 base pay increases
will be low – except for the hyper-growth
economies – but continue to outpace
inflation by 2 to 3 percentage points.
About money: Base and variable pay trends
6
Shinny Feng Asia Pacific
David Conroy Europe/ Middle EastLoree
Griffith Americas
Global shockwaves
About money
Allocate value
Mission critical
Holistic view
Increases by country and insights from our spokespersons
Base pay
Short-term incentive prevalence
Prevalence Median for all
regionsAsia Pac
Aus/ NZ
Eastern Europe
Western Europe
Latin America
North America
Executive 74% 61% 81% 77% 87% 71% 76%
Managerial 72% 50% 75% 68% 68% 52% 68%
Supervisors and team leads 71% 43% 69% 55% 47% 48% 52%Senior professional 66% 36% 65% 54% 37% 40% 47%Experienced professional 58% 33% 64% 43% 32% 42% 43%Paraprofessional 60% 29% 63% 36% 38% 24% 37%
Mercer
7
Employers increasingly are
using short-term incentives
(STIs) at all levels within
the organization. In our
global total rewards survey,
37 percent of respondents
plan to increase their investments in STIs
in the next 12 months; 59 percent plan to
keep investments at the same level.
The size of the potential rewards and
eligibility for them are directly related to
the employee level and role within the
organization. Further, as with other types
of remuneration, regional and country
differences come into play as well.
Short-term incentives trends
Variable pay
Short-term incentive as a percent of base pay
Percent of base pay Median for all
regionsAsia Pac
Aus/ NZ
Eastern Europe
Western Europe
Latin America
North America
Executive 18% 13% 19% 20% 27% 39% 20%
Managerial 13% 9% 14% 12% 17% 13% 13%
Supervisors and team leads 12% 6% 10% 6% 10% 9% 10%Senior professional 11% 7% 13% 8% 11% 11% 11%Experienced professional 10% 6% 13% 6% 10% 8% 9%Paraprofessional 10% 4% 11% 4% 8% 6% 7%
Global compensation planning 2009
About money: Base and variable pay trends
Despite economic stagnation for some and growing uncer-
tainty for others, few companies, according to a Mercer
study are planning to reduce pay budgets or staffing levels.
This suggests that employers are taking a long-term
perspective and have total rewards strategies (such as
variable pay) to weather tough times.
8
Global shockwaves
About money
Allocate value
Mission critical
Holistic view
“What will happen to retention if we cut back bonus payouts?”
“You still have to do merit increases and show you care about people’s development.”
“The reduction in our variable pay in times of economic slowness will be sufficient.”
These client quotes are from our research conducted in the US and Europe.
Response to economic downturn
Mercer
Response to significant economic growth
Significant growth has its challenges, too, from tight
labor markets to the sustainability of double-digit base
pay increases. Click on the country names, below, to read
a brief interview with Mercer consultants in which they
discuss the challenges, trends and opportunities for
employers in these countries.
India Padmaja Alaganandan, in Mercer’s Bangalore office, and human capital business leader in India
Middle East Paul O’Malley, in Mercer’s Cork office, and European and Middle East leader of total rewards
Russia Sergey Gadetsky and Larisa Muravska, in Mercer’s Moscow and Budapest offices, respectively
9
For further insight into how employers are responding to a slow economy, please read:
Steve Gross’ article, “A global talent snapshot in today’s contract-ing economy”
Client quotes in Mercer’s human capital management for slow-growth times reports
frontpage
A drumbeat of bad economic news
began to crescendo this spring, as
the U.S. unemployment rate rose for
the third consecutive month in May
from 5 percent to 5.5 percent, according
to the U.S. Department of Labor.
Spurred by this downturn, the global
picture turned gloomy as well, with
reports of economic contraction
in Europe, and a pessimistic outlook
from the International Monetary
Fund, which expects world economic
growth to slow to 3.7 percent in 2008.
With U.S. job losses in financial
services, construction, manufacturing
and retailing outweighing any gains
in strong sectors such as health care
and education, it was clear that the
housing and credit crunches, as well
as rocketing oil prices, were taking
their toll on the overall economy.
And yet the onset of economic stag-
nation must always be viewed in
perspective. Economic cycles are the
one certainty in today’s global business
environment. Innovative companies
rise to the challenge, outcompeting
their rivals and deploying solid strategy.
Indeed, human-capital strategies are
put to the test by the onset of economic
QUICK LOOK
The most striking contrast was the high
proportion of organizations considering or
instituting the expansion of their workforces.
A relatively large share of Asian organizations
are considering or implementing reductions
in their compensation budgets.
As economic uncertainty swells through
the summer and into the fall, more compa-
nies will have to consider whether extreme
responses are the right things to do.
By Steve Gross, Mercer
talentsnapshot
in today’s contracting economy
globala
07 |
08 ®
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Global compensation planning 2009
Allocate value: Segmentation to focus total rewards investment
A new employment model is
evolving, driven by four equally
important perspectives. As
employers face pressure to
successfully compete domesti-
cally and globally for market
position and talent, they need
to balance employees’ cultural
and generational total rewards
preferences with long-term sustain-
ability of employment costs while considering the external
labor market within which the company competes.
Of these four, the cost perspective gets a lot of attention.
Workforce segmentation, a relatively new concept, has
emerged to help companies determine where to best
allocate limited total rewards resources.
Download a new Mercer point of view on total rewards, “Managing your total rewards portfolio in a changing business environment.”
Managing your total rewards
portfolio in a changing business
environment
10
Global shockwaves
About money
Allocate value
Mission critical
Holistic view
EXTERNAL PERSPECTIVEEXTERNAL PERSPECTIVEEEEEEEXXXXXXTTTTTTTEEEEEEEERRRRRRRNNNNNNNNAAAAAAAAAALLLLLLLLL PPPPPPPPPPEEEEEEEEEEERRRRRRRRRSSSSSSSSSSSPPPPPPPPPPPEEEEEEEEEEECCCCCCCCCCCTTTTTTTTTTTTIIIIIIIIIIIVVVVVVVVVVVEEEEEEEEEEEEE
E
MPL
OY
ER P
ER
SPECTIVE EMPLOYEE PER
SPECTIVE
CO
ST PERSPECTIVE
Mercer
What is workforce segmentation?
Segmentation involves identifying distinct workforce
segments – performance drivers, performance enablers
and legacy drivers – and developing premium, standard or
discounted total rewards arrangements for each, based
on their relative value creation.
11
Performance driversEmployees who create value for the organization
Performance enablers
Legacy drivers
With finite resources to
spend on compensation,
organizations need to
invest these resources in a
way that makes sense for
the business and drives
future success.
Where does your business want
to be? Where will your future
growth come from – new products,
new markets, new businesses?
Who will make it happen? These
same questions that underlie
your business strategy also point
the way for leveraging your com-
pensation investments most
effectively.
It’s a matter of focus. With finite
resources to spend on compensa-
tion, organizations need to invest
these resources in a way that
makes sense for the business
and drives future success. Your business focus must be reflected in your
compensation focus.
Increasingly, however, the challenge is not just in creating alignment
between business and compensation strategies, but also in maintaining it.
Today, business strategies change frequently. If your compensation
strategy does not keep pace, costly misalignments can occur, hindering
your business progress and diminishing the return on your
compensation investments.
Segmentation: The key to alignment
There is an overall process for developing an effective compensation
strategy (see page 2). But at the heart of the process – in the discovery and
strategy stages, linked to the review of the business strategy and human
capital strategy – is the disciplined practice of segmenting your workforce.
Segmentation helps you understand where differentiation in compensation
programs will drive business performance. It can be a difficult topic for
some organizations to address because it explicitly calls for treating
employees differently. However, few businesses today can rely on a “one
size fits all” compensation strategy, as the business needs and performance
goals can vary significantly by region, market, business unit or function.
Segmentation is absolutely necessary to align your compensation strategy
with your business strategy.
Finding your focus:
Alignment and segmentation are key
to an effective compensation strategy
“
”
Performance enablersEmployees who support value creation
Legacy driversEmployees who historically created value for the organization, but no longer do
Global compensation planning 2009
Download the Mercer report, “Finding your focus: Alignment and segmentation are key to an effective
compensation strategy,” for more information on segmentation.
Allocate value: Segmentation to focus total rewards investment
Who is segmenting and how?
Few businesses today can successfully rely on – let alone,
afford – a “one size fits all” compensation strategy, as the
business needs and performance goals typically vary by
region, market, business unit or function. The solution:
workforce segmentation.
In our 2008 global total rewards survey, we learned that
the vast majority of employers are segmenting – that is,
offering or emphasizing different rewards for different
employee groups – using one or two criteria.
12
Global shockwaves
About money
Allocate value
Mission critical
Holistic view
Mercer
Shinny Feng Asia Pacific
David Conroy Europe/ Middle EastLoree
Griffith Americas
Insights from our regional spokespersons
13Global compensation planning 2009
Top workgroups and reward components by region
Learn how employers are segmenting their various workforce
populations − whether by job level, job family or geography −
and which components of total rewards they are offering or
emphasizing for those groups.
Mature market companies that segment
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
80
Americas Europe/Middle East Asia Pac
74
44 39
74
5546
72
56
43
Emerging market companies that segment
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
80
Americas Europe/Middle East Asia Pac
6656
40
6560
45
75
6151
Mercer has analyzed national trends regarding employee perceptions and identified the key drivers of employee engagement – by country and on a global basis. Download our global and country reports on www.mercer.com/whatsworking.
Engaging employees
to drive global
business success:
Insights from Mercer’s
What’s Working™ research
Engaging employees
to drive global
business success:
Insights from Mercer’s
What’s Working™ research
Mission critical: Employee engagement
The factor in the total rewards model that gets the least
attention is the employee perspective.
A new movement
Today, more and more companies rec-
ognize that how employee groups feel
about their total work experience – the
organization, its leaders, the work and
their total rewards – dramatically influ-
ences their motivation, performance and
loyalty… fueling the organization’s
productivity and growth.
The challenge for employers is to design work environ-
ments that engage and motivate employees while meeting
employer needs of cost sustainability and growth. (See
page 17 for a case example.)
14
Global shockwaves
About money
Allocate value
Mission critical
Holistic view
How does Mercer mea-sure employee engagement?
Mercer
Employee engagement: Regional or employee level differences?
According to Mercer’s global What’s Working™ research,
employee perceptions about the work experience differ by
geography and employee level.
As the exhibits illustrate, the most engaged employees are
generally senior managers, regardless of geography, and
employees working in emerging economies.
15
Employee engagement by country
0
10
20
30
40
50
60
70
80
90
100
Global compensation planning 2009
Employee engagement by level of employee
0
10
20
30
40
50
60
70
80
90
Executive/Sr. mgmt Management Non-management
74%65%
55%
“Brainpower” – the knowledge and inno-
vation that resides in the organization – is
increasingly the key source of competitive
advantage for many industries. Because
it’s created and housed in the minds of its
knowledge workers, it’s relatively tricky to
protect and nurture … but critical to
get right.
Mission critical: Employee engagement
A study of employee engagement
16
Global shockwaves
About money
Allocate value
Mission critical
Holistic view
Mercer
The knowledge worker
17
Who are knowledge workers?
How can employers engage them in the organization?
Specific considerations to engage knowledge workers:
The pay
The company
The work
The boss
HR radio interview with Mercer’s Steve Gross and Shelley Peterson on knowledge workers.
The question is: What cost-effective total rewards programs can be built to satisfy the needs of diverse employee groups to keep them engaged and committed to your organization?
Global compensation planning 2009
A study of employee engagement
A case example
Holistic view: Investments in total rewards
Often, employers strategically reallocate rewards
resources because of finite resources and changes in
business strategy, the CEO’s agenda, talent requirements
and organizational design.
More emphasis on nontraditional rewards elements
According to our global research, companies plan to invest
more in the next 12 months in career development (52 percent
of survey respondents) and training (43 percent). The com-
mon wisdom is that these vehicles will deliver greater value
for the reward investment by differentiating the employ-
ment offering and strengthening the employment brand.
18
Global shockwaves
About money
Allocate value
Mission critical
Holistic view
Mercer
Total rewards: Where is it headed next? Listen to this brief recording of Mercer’s Will Ferguson on the evolution of total rewards.
19Global compensation planning 2009
Who is investing in what over the next 12 months?
Hear Mercer spokespersons discuss the regional total
rewards investment trends and the economic and labor
market dynamics that are driving them.
Loree Griffith Americas
David Conroy Europe/ Middle East Shinny
Feng Asia Pacific
20
Holistic view: Investments in total rewards
Global shockwaves
About money
Allocate value
Mission critical
Holistic view
Mercer
Critical components of a total rewards strategy
Participants in our global total rewards survey
indicate that the most critical elements of a successful
and sustainable total rewards program are:
n Having the commitment of senior management to
develop total rewards strategy
n Effectively communicating with employees
n Clearly linking employee rewards to business
performance
From our experience, we’d add two more:
n Joint ownership – Disciplined implementation by HR
and senior management
n Paying continuous attention – Ensure continued
relevance to key employee groups and alignment
with business strategy
Evaluate and execute
Adapting to this new rewards model to
attract, engage and retain the right tal-
ent involves taking bold, new steps. It
requires that companies re-examine and
readjust their total rewards programs as
business plans and strategies change, and
as external markets shift.
Additional Mercer resources
n Total Remuneration Surveys. These surveys cover the full
rewards package and have 250 benchmark positions in over
90 countries.
n Global Compensation Planning Report. This year’s report
includes 89 countries and has enhanced coverage of many
emerging markets.
n Global Total Rewards Survey. Mercer’s largest ever total
rewards pulse survey with over 1000 participants.
n Short-term Incentives Around the World. Country-specific
practices and trends across 40 key markets.
n Engaging employees to drive business success report. Mercer’s
analysis of employee perceptions, by country and globally.
n Global HR Factbook. A quick reference tool on a range of
topics and trends from over 60 countries.
Required action for companies to execute
Global compensation planning 2009 21
Argentina
Australia
Austria
Belgium
Brazil
Canada
Chile
China
Colombia
Czech Republic
Denmark
Finland
France
Germany
Hong Kong
Hungary
India
Indonesia
Ireland
Italy
Japan
Copyright 2008 Mercer LLC.
All rights reserved.
For more information, please visit our homepage at www.mercer.com/compensation2009
To contact consultants in this report:
David Conroy (London) [email protected]
Shinny Feng (Shanghai) [email protected]
Will Ferguson (Los Angeles) [email protected]
Loree Griffith (New York) [email protected]
Steve Gross (Philadelphia) [email protected]
Shelley Peterson (Philadelphia) [email protected]
Malaysia
Mexico
Netherlands
New Zealand
Norway
Philippines
Poland
Portugal
Singapore
South Korea
Spain
Sweden
Switzerland
Taiwan
Thailand
Turkey
United Arab Emirates
United Kingdom
United States
Venezuela
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