The future of reward in the U.S. - Korn Ferryinfokf.kornferry.com/rs/494-VUC-482/images/KFHG_Global reward... · The future of reward in the U.S. ... 2,500 Companies 3.1m People Europe

The future of reward in the U.S.

Part of the Korn Ferry Hay Group global reward webinar series.

© 2017 Korn Ferry. All rights reserved 2

Tom McMullen

Kevin Coogan

Meet your presenters

Senior partner and reward expertise leader, North America

Korn Ferry Hay Group

Based in Chicago, United States

Phone: +1-312-228-1848

Email: [email protected]

U.S. product manager – Pay

Korn Ferry Hay Group

Based in Philadelphia, United States

Phone: +1.215.861.2587



Agenda

1 ABOUT KORN FERRY HAY GROUP 4

2 U.S. GENERAL INDUSTRY OUTLOOK 8

3 REWARD DATA HEADLINES 15

4 REWARD TRENDS AND IMPLICATIONS 24

1About Korn Ferry Hay Group


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


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%

Every 70 seconds,

a user logs into PayNet.

Years of sustained

global database growth.

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

US

2,100 Orgs

5m People

2US General Industry Outlook


US general industry overview

The US general industry outlook is getting healthier

− GDP growth rate estimated at 2-3% (and Trump promises 4%!)

− Manufacturing production at 2.8-3%.

− Unemployment continues at natural rate (between 4.5% and 5.8%).

− Inflation increasing but still moderate.

− US dollar remains strong.

Data effective date: 01 October 2016

2015 actual

2016 estimated

2017 forecast

2018 forecast

Economic growth (1) 2.6% 1.6% 2.3% 2.3%

Inflation (2) 0.1% 1.1% 2.1% 2.2%

Unemployment (3) 5.3% 4.8% 4.5% 4.5%

Wage inflation (4) 2.5% 1.3% 0.8% 0.9%


What CEOs are concerned about – “hot button” issues

Source: Conference Board CEO Challenge Survey, 2017

Hot Button Issues (2017) US Asia Europe Latam Global

Failure to attract / retain talent

top talent1 7 10 3 4

Developing “Next Gen” leaders 2 3 1 2 2

Cyber security 3 5 4 10 3

Global recession 4 1 5 7 1

Healthcare benefits for

employees5 17 25 19 11


What CEOs are concerned about – human capital strategies

Source: Conference Board CEO Challenge Survey, 2017

Human Capital Strategies (2017) US Asia Europe Latam Global

Improve performance mgmt.

processes and accountability1 2 4 1 2

Encourage an open, safe and

transparent “speak up” culture2 1 1 2 1

Enhance effectiveness of

senior management team3 4 5 10 5

Provide employee training and

development4 3 2 8 3

Communicate effectively,

consistently and transparently5 5 3 3 4


What is left to be optimized?

We have heard that for many companies:

Financing has been

optimized

Appropriate equity

structure and levels of

debt

Operations have

been optimized

Maximum processing

efficiencies have

been realized

Organizations are

running lean

Optimizing talent is

the next step, but

doing so is

unfamiliar territory

for many


Complexities to optimizing talent

Complexity Details

Aging workforce Up to 50% of the workforce may be retirement eligible soon.

Low supply of next generation talent w/ STEM backgrounds.

Decline in

technical/

engineering skills

Skill factor imbalances – skills needed by the industry and skills available may not match.

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.

Focus on high

potentials

Continue to be in high demand and have many options, so engagement and retention are more important than ever.

Employees continue to look to companies to help them grow into leaders.

Compensation

pressures

Upward pressure on starting compensation for college graduates.

Increased desire for equity stake among senior execs and high potentials.


Recruitment challenges

In 2016, 41% of companies reported experiencing a scarcity of candidates.

Source: Hay Group 2017 Prevalence and Planning report

1%

3%

3%

4%

4%

4%

6%

6%

6%

8%

10%

11%

13%

13%

16%

34%

42%

Health/Safety/Environment

Administration/Support

Legal

Category Management

Human Resources

Project Management

Call Center

Customer Service

Quality Assurance

Marketing

Research & Development

Production

Logistics/Supply Chain

Sales

Finance & Accounting

Engineering

Information Technology

201641%

201543%

201443%

Average voluntary

turnover.

11.9%

Highest turnover rates in

Production, Sales, IT

and Engineering.

Percentage of companies reporting candidate scarcity by job family

Percentage of companies reporting candidate scarcity

3Reward Data Headlines


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 salary forecast 2017Selected countries

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

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

Forecasted Salary Increase 2017 Real Wage Increase 2017 (salary forecast – inflation)

1.5%

1.9%

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


US job family differentials

Source: PayNet 2017

-8%

-2%

-1%

-1%

0%

0%

1%

2%

3%

3%

4%

5%

5%

6%

6%

8%

9%

11%

Customer Service

Marketing

Corporate Affairs

Human Resources

Finance & Accounting

Product Development

Administration/Support/Service

Health & Environment

Logistics/Supply Chain

Sales

Project Management

Production

Property Management

Research & Development

Information Technology

Engineering

Quality Assurance

Legal

These percentages show,

overall and regardless of

industry or level, how much

the job family is paying its

employees in 2016 compared

to all job families combined


US hot jobs

Source: PayNet 2017

5.7%

5.8%

5.9%

5.9%

6.2%

6.3%

6.3%

6.4%

6.5%

6.7%

6.8%

6.9%

7.1%

9.0%

Business Development Manager

Web Developer II

Maintenance Superintendent I

Production Scheduler

Category Manager III

Government Relations Representative/Lobbyist

Database Manager

Business Analyst

Brand/Product Manager IV

Tax Compliance Manager

Engineer VII

Market Communication Manager

Analyst Programmer II

Analyst Programmer I

2015-2016 percent change (%) in base salary


How sectors are currently performing globally and in the US

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

GlobalChemicals

9%Construction

-4%Financials

3%FMCG

2%High Tech

2%Industrial Goods

-2%

US 11% -2% 7% 7% 6% -7%

Note: % – Globally, overall, how much the industry pays compared to the general marketSource: PayNet 2017

GlobalLife Sciences

8%Natural Resources

4%Oil & Gas

22%Retail

-12%Services

-4%Transportation

-3%

US 16% 2% 20% -12% 2% -4%


Typical US pay mix by job level

Source: Hay Group PayNet

67%62%

44%

4% 11%

17%

5%

13%31%

24%14%

7%

15 20 25

Base salary Short term incentives Long term incentives Benefit values

Entry to mid level

professional

Functional

ManagerSenior

Executive

HRL


6%8%

19%

67%

Short term incentives

Long term incentives

Benefit value

Base salary

22

The value of benefits packages – individual contributor/management position

Assuming that an employee

receives all of the listed benefits

Source: PayNet 2017

1%

5%

28%

22%

26%

2%16%

Death benefits Disability

Healthcare Retirement

Car Other benefits

Satutory benefits


Benefits prevalence – general market

Source: PayNet 2017

Death100%

Defined contribution retirement

99%

Disability100%

Vision94%

Car26%

Healthcare100%

Employee education assistance

74%

Transportation / Commuting

22%

Defined benefit retirement

32%

Dental100%

Subsidized cafeteria

14%

Discount stock purchase

5%

4Reward Trends and Implications


Total rewards – everything the organization provides its employees of perceived value

More holistic management of reward programs that are better aligned with business strategy, talent management strategy and organization performance.

Annual

variable

Intangible

reward

Benefits

Guaranteed

cash

Long-term

incentives

Return on investmentAlignment

Change managementEngagement


Reward strategy components

© 2017 Korn Ferry. All rights

reserved

26

Program

objectives

Purpose of

each reward

element

Job analysis

and

evaluation

Labor

market

definition

Target

competitive

position

Mix/use of

leverage

Link to

performance

Compensation

administration

guidelines

Intangible

rewards

Communication

and stakeholder

involvement

Governance

and review

Segmentation

and

consistency

Ability

to pay

Evaluation

and review

Internal and

external

values


Competitive and motivational

Balanced performance measures

Variable pay program management

Career development, culture, recognition

Consistent CoE-led strategy and design

Reward strategy and design trends

From To

Externally competitive

Financial performance measures

Base pay program management

Flexible work arrangements

Inconsistent strategy and design


Keeping talent – predictors of employee retention

Employees

planning to

stay for

>2 years

Employees

planning to

leave within

2 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%

Source: Hay Group Employee Opinion Norms (2017)


Reward implementation and evaluation trends

Performance-based differentiation

Transparent and sustained messaging

Line manager-led implementation

ROI orientation of total rewards

Reward program implementation

From To

Consistent treatment in pay

Opaque/ad-hoc reward

communications

HR-led implementation

Cost orientation of financial rewards

Reward program design


Assessing reward effectiveness – a balanced approach

Taking a multi-dimensional approach.

− ROI tells you how one investment compares to another, not how to improve it.

− Must examine the drivers of financial results as well.

Source: Scott, K.D., Morajda, D., and McMullen, T.D., Evaluating pay program effectiveness. WorldatWork Journal. 15(2), 50-59.

Perception Understanding Behavior Results


Assessing reward effectiveness and ROIQ

uan

tita

tive (

$)

Perc

ep

tual

External $ Benchmarking

Compensation and benefits surveys.

Total remuneration surveys.

Total labor cost benchmarking.

Reward design prevalence surveys.

ROI Benchmarking

ROI/productivity Analysis.

Compensation levels vs.

financial/operational ratios.

Turnover rates key talent retention.

Bench strength - quality and quantity

Cost of replacing workers.

External Perception Benchmarking

Comparison of employee opinion survey

w/other organizations.

Employer brand/reputation.

benchmarking (e.g., best places to work,

most admired companies).

Internal Perception Benchmarking

Employee opinion survey (longitudinal),

focus groups.

Perceptions of reward effectiveness,

fairness, competitiveness, preferences.

Perceptions of alignment with business

strategy, performance.

External Internal


Impact of a Trump presidencyDifficult to predict actions, but the following seem likely:

Healthcare

Tax subsidies for lower income groups replaced with tax deductions/credits to help with copays, deductions, etc.

Better enabling of insurance companies to participate in public exchanges.

Support for some provisions of Obamacare (e.g., adult children coverage, pre-existing conditions).

Support for 6 weeks of paid maternity leave

Fair Labor Standards Act (FLSA)

2016 earning threshold for exemption can only be reversed by new regulations, comment period, etc.

Many employers have already increased wages or re-classified employees.

Safe assume the automatic COLA will be eliminated as part defining the earning threshold going forward.

Likely limited/no increase in federal minimum wage

Executive compensation

Specific provisions of the ACT being targeted rather than a complete overhaul.

We expect repeal of some contentious provisions:

− CEO pay ratio disclosures (required by final regulations starting in 2018).

− Reworking of overly expansive legislative or regulatory language (e.g., pay-performance disclosures, no-fault claw-backs).

− Some Dodd-Frank requirements have become best practices even if the law is repealed.

Leadership’s role

Amid uncertainty, demand for information and human connection outpaces what leaders are able to supply.

With constrained communications, employee understanding of company directions often erodes.

Leaders don’t have all answers. Frequent and honest messaging key to people being on board and engaged.

Thank you for joining our webinar today.

Tom McMullen

Senior partner and reward expertise leader, North America, Korn Ferry Hay Group

Phone: +1-312-228-1848


U.S. product manager – Pay, Korn Ferry Hay Group

Phone: +1.215.861.2587


Kevin Coogan

Documents

The future of reward in the U.S. - Korn Ferryinfokf.kornferry.com/rs/494-VUC-482/images/KFHG_Global reward... · The future of reward in the U.S. ... 2,500 Companies 3.1m People Europe