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

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

© 2012 Hay Group. All rights reserved 2

01
What 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
Internal value
or motivation

Common examples Reward elements Definitions
Intangible

 Career development
 Work-life balance Non-financial rewards
Total
reward
 Non-financial recognition
 Social security
Total
Statutory benefits remuneration plus
monetary value can be assigned

Retirement provision
Rewards to which an objective



 Death / disability / medical Total
Non-statutory benefits remuneration
 Cars
 Benefit allowances / loans
Tangible

 Executive share options Total
 Restricted / performance shares Long term incentives direct
compensation
 Long term cash plan
 Sales commission
 Annual bonus Annual variable
 Annual incentive Total
 Basic salary cash
 Fixed payments Guaranteed cash
 Near-cash allowances


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

120%

115%

110%
Comparison ratio

Company A
105%

Company B
100%

Company C
95%

90%

85%
Base salary Total cash Total remuneration

Compensation element


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


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

Benefits as a % of TR
60

50

40

30

20

10

0
India Indonesia Vietnam Ukraine Brazil UK
Results from Hay Groups „Global Total Remuneration‟ Report 2011
Report looks at the average worker – equivalent to Hay Group reference level 12



Five countries placing the least emphasis on benefits

Benefits as a % of TR
18
16
14
12
10
8
6
4
2
0
New Zealand Finland Hong Kong Luxembourg Chile

Results from Hay Groups „Global Total Remuneration‟ Report 2011



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
Results from Hay Group‟s „Global Total Remuneration‟ Report 2011

Average total remuneration for skilled worker p.a. (USD)
120,000
100,000
80,000
60,000
40,000
20,000
0



Global Total Remuneration Index – lowest
packages
Results from Hay Group‟s „Global Total Remuneration‟ Report 2011

Average total remuneration package for skilled worker
p.a. (USD)
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0


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


03
Different 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!


The importance of benchmarking your total reward package

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