The future of reward in the UK - Korn Ferryinfokf.kornferry.com/rs/494-VUC-482/images/KFHG_Global reward... · The future of reward in the UK ... Complexity Details Ageing workforce

2017

The future of reward in the UK

Part of the Korn Ferry Hay Group global reward webinar series

© 2017 Korn Ferry. All rights reserved 2

Meet your presenters

Mark Robinson

Senior Account Manager, Reward

Korn Ferry Hay Group

Based in Manchester, UK

Phone: +44 (0)161 831 2492

Email: [email protected]

Mark Thompson

Senior Partner and Head of Reward and Benefits Solutions for

the UK and Ireland


Based in London, UK

Phone: +44 (0)20 3819 7223



Agenda

1 ABOUT KORN FERRY HAY GROUP 4

2 REWARD IN CONTEXT 7

3 GLOBAL PAY OUTLOOK 14

4 EUROPEAN DATA HEADLINES 21

5 UK DATA IN DETAIL 24

6 UK KEY BUSINESS ISSUES 31

1About Korn Ferry Hay Group

Who we are and what we do


Korn Ferry is the preeminent global

people and organizational advisory firm.

We help leaders, organizations and

societies succeed by releasing the full

power and potential of people.

Our nearly 7,000 colleagues deliver

services through our Executive

Search, Korn Ferry Hay Group and

Futurestep divisions.



Korn Ferry – a total approach to talent

Korn Ferry Hay Group helps you

align your organization to your

people – developing, engaging,

and rewarding them to reach

new heights.

Korn Ferry Executive Search

helps you attract the best

executive talent for moving your

company in the right direction.

Korn Ferry Futurestep delivers

professional talent that builds

up leadership.

Organization

Strategy execution and

organizational design

Rewards and benefits

Talent strategy and work design

People

Assessment and succession

Leadership development

Executive search and recruitment

2Reward in context


2030 Megatrends (from Hay Group Leadership 2030)

Changing

working

patterns

Individualization

and value pluralismThe digital era

The

environmental

crisis

Globalization 2.0 Technological

convergence

Demographic

change


What CEOs are concerned about – ‘hot button’ issues

Source: Conference Board CEO Challenge Survey, 2017

Hot button issues (2017) US Asia Europe Latam Global

Developing ‘Next Gen’ leaders2 3 1 2 2

Global Political Uncertainty8 4 2 6 5

Financial Instability in Europe20 20 3 23 14

Cyber Security3 5 4 10 3

Global Recession4 1 5 7 1


What CEOs are concerned about – human capital strategies

Human capital strategies (2017) US Asia Europe Latam Global

Encourage an open, safe and

transparent ‘speak up’ culture2 1 1 2 1

Provide employee training

and development4 3 2 8 3

Communicate effectively, consistently

and transparently5 5 3 3 4

Improve performance management

processes and accountability1 2 4 1 2

Enhance effectiveness of senior

management team3 4 5 10 5

Source: Conference Board CEO Challenge Survey, 2017


The last few years and up to 23rd June 2016:

UK context – headlines

Then…on 23rd June 2016, the UK voted to leave the European Union (Brexit):

Nothing is certain except uncertainty. There is a wide range of possible Brexit outcomes, including:

Immediate currency devaluation by 12%-17%

This and other factors will drive price inflation higher in 2017

Economic growth stronger

than most Western

European countries

Employment at record

levels but many new

jobs are low paid and

part-time

Therefore, despite

economic growth, there e

(real) wage growth has

been modest

Ultra low inflation and low

interest rates has been a

feature of the UK

economy since 2009

‘Hard’ Brexit

Leaving the single market and customs union. This scenario is increasingly likely but its impact will depend on the deals done to replace the common market

‘Soft’ Brexit

Leaving the EU but remaining in the single market and/or customs union. Economic impact will be less than that of a hard Brexit –but this is harder to achieve (both diplomatically and politically)

No Brexit at all

Very unlikely, but possible that complexity of Brexit and legal challenges will mean the UK remains a member of the EU


UK context – talent management

Complexity Details

Ageing workforce Increasing longevity means we will have to accommodate more older people

into the workforce

Continuing skills

shortages Fewer choose to study in STEM fields

Limited diversity in

leadership roles Many sectors face challenges in attracting women and minorities

Globalization of

the workforce

Increasing need for talent to be able to lead diverse teams with the cultural dexterity to thrive in new environments

Accelerating pace of

automation

Obsolescence of many traditional jobs

Rebalancing of the skills portfolios and working practices required to deliver organization goals

Pay market pressures The UK labour market remains close to full employment

Years of pay restraint leading to increasing pressure

Productivity Sluggish productivity growth since the Financial Crisis leading to inability to

increase pay without putting up prices


1%

1%

1%

1%

1%

2%

2%

4%

4%

7%

7%

7%

9%

10%

18%

20%

49%

Administration/Support

Category Management

Human Resources

Legal

Quality Assurance

Call Center

Health/Safety/Environment

Customer Service

Logistics/Supply Chain

Finance and Accounting

Production

Project Management

Research and Development

Marketing

Sales

Information Technology

Engineering

UK recruitment challenges

In 2016, 47% of companies reported experiencing a scarcity of candidates.

Percentage of companies reporting candidate scarcity by job family

Source: Hay Group compensation report July 2016

47%2016

41%2015

47%2014

Highest turnover rates

in sales, engineering,

admin/support

and finance

Percentage of companies reporting candidate scarcity

12.4%Average

voluntary

turnover

3Global pay outlook

Salary trends and predictions for 2017


Every 70 seconds,

a user logs into PayNet.

Years of sustained

global database growth.

Our pay data – key figures

Organizations in our pay

database worldwide:

25,000

Countries where we collect

and provide pay data:

110+

Job holders for whom we

have 2016 salary data:

20m+£

Of the Fortune 500

use our pay data,

and contribute to

our database.

70%

15+FMCG sector

companies in our

global database.

2500+70


Where do we have data?

North America

2 Countries

2,600 Companies

5.5m People

Latin America

18 Countries

2,500 Companies

3.1m People

Europe

43 Countries

12,300 Companies

8.1m People

Africa

24 Countries

1,200 Companies

607,000 People

Middle East

10 Countries

2,200 Companies

1.1m People

Asia

13 Countries

3,800 Companies

2.4m People

Pacific

4 Countries

911 Companies

447,000 People


Global outlook: salary trends and predictions for 2017

There is consensus that:

Inflation means this will cost more, so where will the money come from? Price increases? Lower profits? Better productivity?

Growth in 2017 will

be slightly lower than

in the last couple

of years

Inflation in 2017 will

be slightly higher than

in the last couple

of years£ There presents a hard choice for companies:

This has obvious effects on employee engagement and motivation. And (unlike in the last recession) the job market provides alternative options.

This is likely to cause a squeeze on real pay increases:

Lower growth means that

affordability will be harder

for companies

Higher inflation means that

more of any ‘headline’ pay

increases will be

eaten up by inflation

Keep employee pay rising in real terms

Allow real wage increases to be squeezed


Global outlook – salary trends and predictions for 2017

Headlines:

‘Headline’ salary forecasts slightly (0.1%) down on last year (4.5% 4.4%).

‘Real’ (i.e. inflation adjusted) forecasts down 0.4% on last year (2.7% 2.3%).

Highest real increases forecasted in Asia, but China’s forecast is significantly down (6.3% 4.0%).

Mature markets see headline increases averaging 2 to 3%, real increases averaging 1 to 2%.

Source: Hay Group Global Salary Forecast 2017


Global outlook – salary trends and predictions for 2017

Forecasted salary increase 2017

Source: Hay Group Global Salary Forecast 2017 (selected countries)

Real wage increase 2017(salary forecast – inflation)

1.8%

2.5%

2.5%

2.5%

3.0%

3.0%

4.6%

6.1%

7.0%

7.0%

8.8%

10.0%

France

UK

Germany

Canada

US

UAE

Mexico

China

Russia

South Africa

Brazil

India

1.5%

-0.3%

2.2%

0.9%

1.9%

0.5%

1.9%

0.4%

-1.0%

0.5%

0.4%

4.8%

France

UK

Germany

Canada

US

UAE

Mexico

China

Russia

South Africa

Brazil

India


How sectors are currently performing globally

These percentages show, overall and regardless of country or level, how much the industry is paying its employees in 2016 compared to other industries.

% – Globally, overall, how much the industry pays compared to the general market

Life Sciences

8.4%Natural

Resources

3.8%

Oil & Gas

21.8%Transportation

-2.6%Services

-3.8%Retail

-11.8%

Chemicals

9.0%Construction

-4.0%Financials

2.5%FMCG

2.4%High Tech

2.3%Industrial

Goods

-1.5%

4European data headlines


European salary forecast 2017

Source: Korn Ferry Hay Group Global Salary Forecast 2017 (selected countries)

2.0%

2.8%

2.0%

2.1%

1.0%

1.8%

2.5%

2.0%

2.0%

2.6%

2.8%

2.5%

2.0%

2.0%

1.9%

2.3%

1.5%

2.5%

0% 2% 4% 6% 8% 10% 12%

Austria

Belgium

Cyprus

Denmark

Finland

France

Germany

Greece

Ireland

Italy

Luxembourg

Netherlands

Norway

Portugal

Spain

Sweden

Switzerland

United Kingdom

West Europe regional average: 2.2%East Europe regional average: 5.1%

4.0%

2.8%

3.3%

3.0%

8.6%

4.0%

4.3%

3.0%

4.3%

7.0%

4.1%

2.6%

8.9%

11.3%

0% 2% 4% 6% 8% 10% 12%

Bulgaria

Czech…

Estonia

Hungary

Kazakhstan

Latvia

Lithuania

Poland

Romania

Russian…

Serbia

Slovakia

Turkey

Ukraine

Source: Korn Ferry Hay Group Global Salary Forecast 2017 (selected countries)


European salary comparisons

5UK data in detail


UK general industry overview

The UK general industry outlook is

− GDP growth rate estimated at around 1%

− Unemployment rate is estimated to rise slightly to 5.3%

− Inflation forecast to increase to 2.8% in 2017

− UK pound has fallen against dollar from highs of around 1.5 to 1.25

Data effective date: 01 January 2017

2016 actual

2017 estimated

2018 forecast

2019 forecast

Economic growth(1) 2.0% 0.6% 0.9% 1.0%

Inflation(2) 0.7% 2.8% 2.7% 2.2%

Unemployment(3) 4.9% 5.3% 5.5% 5.4%

Wage inflation(4) 1.8% -1.0% -0.5% -0.5%

Key

1. GDP (% real change per annum): Percentage change in real GDP, over previous year

2. Consumer prices (% change per annum; period average): Percentage change in consumer price index in local currency (period average), over

previous year

3. Recorded unemployment (%): Recorded official unemployment as a percentage of total labor force

4. Average real wages (% change per annum): Percentage change in hourly wages in local currency adjusted for inflation, over previous year


UK salary data in detail

The forecast reveals that, adjusted for inflation, workers in the UK are expected see real salary decreases of:

down significantly from last year’s prediction of:

0.3%

2.3%

Overall salary forecast for UK in 2017

2.5 2.5 2.5

0.8

2.3

-0.3

-1

0

1

2

3

2015 2016 2017

Forecast Real


Salary movements Vs inflation

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Senior manager

Professional

Head of function

Operative / clerk

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Senior manager

Professional

Head of function

Operative / clerk

CPI RPI

Post recession, employees have gradually seen ‘real’ salary increases

grow.

In 2017, ‘real’ salaries are due to decrease by about 0.3% due to rising

inflation.


UK sector comparisons

The graph shows, irrespective of job size, the comparison of each sectors salary against the UK market.

These are average figures, which mask the fact that some sectors fluctuate in competitiveness across different employee levels.


UK job family comparisons

The table shows, by job level the comparison of each job families median pay to the overall UK market.

Base Salary

Comparison

Executive

Managem

ent

Info

rmation

Technolo

gy/

Inte

rnet-

Based

Technolo

gy

Fin

ance a

nd

Accounting

Mark

eting

Hum

an

Resourc

es

Health a

nd

Environm

ent

Pro

ject

Managem

ent

Engin

eering

Researc

h a

nd

Develo

pm

ent

Adm

inis

tration/

Support

/Serv

ice

Executives/

Senior

Management

105% 103% 104% 107% 101% 100% 103% 98% 97% –

Middle

Management/

Seasoned

Professionals

98% 99% 99% 97% 94% 95% 97% 101% 93% 90%

Supervisory/

Junior

Professionals

– 101% 97% 95% 94% 100% 99% 104% 96% 98%

Clerical/

Operational– 98% 95% 95% 96% 102% 102% 114% 97% 99%

Pro

du

ctio

n

Pro

pe

rty

Ma

na

ge

me

nt

Le

ga

l

Qu

ality

Assu

ran

ce

Lo

gis

tics/

Su

pp

ly C

ha

in

Custo

me

r

Se

rvic

e

Sa

les

Cate

go

ry

Ma

na

ge

me

nt

Call C

en

tre

99% 98% 107% – 97% 96% 101% – –

99% 93% 102% 95% 95% 91% 101% 89% 86%

103% 98% 99% 96% 97% 91% 98% 91% 89%

109% 98% – 100% 101% 91% 93% – 89%


UK regional comparisons

London continues to have the highest salaries in the UK but also has the highest cost of living.

Aberdeen has a heavy presence of oil industry organizations, which has driven salaries up.

6UK key business issues


Key business issues: talent management

Brexit:

− What will be the impact on talent supply and demand?

Productivity

− Lack of progress on productivity is a particularly acute problem for the UK.

Automation

− What will be the impact on jobs and skills?

Team-based/agile working

− What does this mean for how we pay people?

Performance management

− Widely recognized that traditional approaches are not working.


Key business issues: regulations

Gender pay gap

− Government expected to pass laws mandating ‘gender pay gap’ reporting from 2017:

− Companies will need to publish mean and median salary and bonus, for men and women – as well as data on female representation at senior job levels.

− The data being published will not look good – and will need lots of communication around it – both externally (to protect reputation as a good employer); and internally.

Executive pay

− Generally, more attention on CEO and senior manager pay. This could be next in terms of new laws with a requirement to publish pay ratios most likely and a pay cap on public sector executives a possibility.

Minimum wage

− The UK minimum wage is rising quickly – currently £7,20 it will rise to £7.50 in April and to a £9 hour ‘living wage’ by 2020. This is causing two issues for companies.

− Cost optimization – companies are looking at workforce planning, to assess the people they need.

− Knock-on effects – When the most junior jobs are paid more, those immediately above them will also need to be paid more (to maintain internal pay relativity). A consequence is less pay progression when moving up levels.

‘Gig Economy’

− Recent case law indicates employment protection legislation will include associates working for organizations like Uber, Deliveroo and City Sprint.


Detached Effective

Ineffective Frustrated

12% 48%

Key business issues: Engagement

The UK has one of the lowest rates of ‘effective’ people in Europe

Over half of our employees are not performing to their potential, nearly a quarter are ineffective*

Source: Korn Ferry Hay Group Insight employee surveys

Engaged

En

ab

led

27% 12%

Raising the levels of engagement and enablement across the UK workforce must be one of the answers to the ‘productivity puzzle.’

This requires investment in the technologies and infrastructure that enables people to do their jobs.

The link between reward and engagement is complex but this must be a primary measure of reward effectiveness in the future.


Keeping talent – predictors of employee retention

Source: Hay Group Employee Opinion Norms (2017)

Employees

planning to stay

for > two years

Employees

planning to leave

within two years Gap

Confidence in ability to achieve career objectives 64% 31% 33%

Trust and confidence in company senior management 60% 35% 25%

Opportunities for learning and development 71% 45% 25%

Benefit that meet employee needs 68% 45% 23%

Company demonstrates care and concern for employees 62% 39% 23%

Company is effectively managed and run well 73% 51% 23%

Adequately authority to do job 73% 51% 23%

Employees paid fairly for the work they do 53% 31% 22%

Supervisory coaching for development 67% 45% 22%

Support for employee creativity and innovation 70% 48% 22%

Cross-work unit collaboration and support 63% 41% 22%

Direction and goals are the right ones for the company 73% 51% 22%


Key business issues: career development

More agile working,

Team-based organisation forms

The development of career/experience pathways that typically involve cross lateral as well as hierarchical career progression

There is an acceleratingtrend towards:

They are job-based and work on the premise that the job is fixed and relatively timeless

They are hierarchical – there’s little incentive to develop a portfolio of skills when the quickest way to increase pay is a promotion to the boss’s job

Most reward structures are not aligned to these approaches to work and career design


Korn Ferry Hay Group’s reward framework

1. To maximize

the return on

reward spend,

it is critical to

link rewards to

the things that

matter most to

the business

2. To achieve this, we

consider talent needs of

the company in the

context of its strategy

3. In addition, reward

policies are designed to

appeal to the people we

want to attract, engage

and retain

5. Finally, we

ensure at the

outset that there

are clearly

defined and

measurable

outcomes that

can be

assessed

following

implementation

4. Once we are clear about the

strategic context together with

business and employee needs,

we design the reward package

aligned to those needs


A reward manager’s to-do list UK 2017 until further notice

1. Investigate and

understand the

potential impact

of Brexit,

automation,

technical

change and

business

direction on your

organization

2. Plan and review the

talent needs of the

future and potential

pinch-points

3. Ensure you understand the attitudes

and expectations of the people you

want to keep. Are you giving

‘Generation Rent’ what they need?

5. Develop a

scorecard to

measure reward

effectiveness

4. Audit your reward policies and

total reward proposition to identify

where there is a misalignment with

business strategy in general and

HR and talent strategy in

particular


Assessing reward effectiveness and ROI – a template

Compensation and benefits surveys

Total remuneration surveys

Total employment cost benchmarking

Reward design prevalence surveys

External £ benchmarking

Comparison of employee opinion survey w/other organizations

Employer brand/reputation. benchmarking (e.g., best places to work, most admired companies)

External perception benchmarking

ROI/productivity analysis

Compensation levels vs. financial/operational ratios

Turnover rates key talent retention

Bench strength – quality and quantity

Cost of replacing workers

ROI benchmarking

Employee opinion survey (longitudinal), focus groups

Perceptions of reward effectiveness, fairness, competitiveness, preferences

Perceptions of alignment with business strategy, performance

Internal perception benchmarking

External Internal

Pe

rce

ptu

al

Qu

an

tita

tive

(£)


In the UK economy, human capital is worth 4.23 times more than physical capital.

Human capital is also the greatest value creator available to organizations: For every £1 invested in human capital, £11.39 is added to GDP.*

Managing reward and motivation is therefore as critical as ever, even in the digital age!

On last thing

*Figures from The Trillion Dollar Difference, Korn Ferry Institute 2016

Mark Robinson

Senior Account Manager, Reward


Phone: +44 (0)161 831 2492


Senior Partner and Head of Reward and Benefits Solutions for the UK and Ireland


Phone: +44 (0)20 3819 7223


Mark Thompson

Thank you for joining our webinar today

Sign up for other reward webinars in the series here: http://bit.ly/RewardWebinarHub

Documents

The future of reward in the UK - Korn Ferryinfokf.kornferry.com/rs/494-VUC-482/images/KFHG_Global reward... · The future of reward in the UK ... Complexity Details Ageing workforce