Global Rewards Team Presentation

JAPANJP Morgan Chase, Tokyo

GLOBAL REWARDSTEAM PRESENTATION

Mark FehrnSteve WellsSurbhi DewanKatherine O’Regan

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1. Japan – political, economic, social overview 2. Japan – institutional influences and work rules3. JP Morgan Chase - company overview4. Compensation Comparison – Japan, US, Australia5. Compensation Implications6. Compensation Design Principles7. Expat and Local Packages8. Host Country Challenges9. Subsidiary Success and Sustainability10. Cultural Confl icts

AGENDA

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Pol i t ica l Constitutional monarchy – Westminster government Hybrid market economy Strong political and trade relationship with Australia and US

Economic Third largest global economy Experiencing unprecedented political and economic turmoil (-ve GDP/0 infl ation rate) Blue-collar and technical workers most aff ected (unemployment rate 4.8%) Undergoing structural change including deregulation and behavioural changes in business

practices Emphasis on increasing productivity as declining/aging workforce (1.34 birth rate) High levels of disposable income, standard of l iving and extremely high l ife expectancy Exchange rate to US ($1USD/79.59JPY, $1USD/$0.98AUD)

Socia l /Cul tural Growing need to util ise women in the workforce to address productivity Holfstede – moderate PDI (54) and INV (46), high MAS (95), UAI (92), LTO (80) High value of family, loyalty National focus on quality and innovation Increased reliance on technology for competitive edge and growth in outsourced services

JAPAN - OVERVIEW

Country

Economy

Socio-culture

Politics

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JAPAN - POPULATION

Country

Economy

Socio-culture

Politics

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Inst i tut ional Infl uences Labour laws

Constitutional guarantees and statutory standards employee rules Restrictions on equity ownership?

Labour Costs US$31.99/hr compensation cost Most expensive city for expats Low vertical dispersion ratio (11:1)

Taxation Expat wil l be Non Residents of japan US Expat wil l be subject to Host and Home Country Tax, AUS Expact wil l only be subject to

Host Country Japan Income Tax Similar to US and AUS (levels based on salary from 5% to 40% of Income)

Unionisation Low union membership Right to collective bargain in constitution

Fairness – distributive, procedural, interactional

Work Rules Formality, effi ciency and non verbal communication important High value placed on respect Focus on consensus, group decision making Weak link between compensation and performance Gender discrimination (transitioning)

JAPAN – INSTITUTIONAL INFLUENCES AND WORK RULES

Country

Economy

Socio-culture

Politics

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Strategic Leading global financial services fi rm Operates in more than 100 countries Matrix organisational structure - business lines and regions HR Approach = Global Job Levels / Balance Sheet Approach

Financial Assets of $2.3 trillion 2011 9% earnings increase on 2010 Seeking to address global and in-country volatility and economic conditions Listed in the US (Dow)

Cultural Global employee base of over 240,000 employees Long history - operating for 200 years; in Australia for 130 years Values - partnership, trust, world class intelligence and high performance People and company reputation highest company assets Hire people who are driven to perform, who keep their word and who hold

themselves to the highest standards Believe employees should reach their full potential, advance and be rewarded

based on merit, capability and character

JP MORGAN CHASE - OVERVIEW

Company

Strategic

CulturalFinancial

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Japan US Australia

HR Framework • High proportion base pay• Mod proportion variable pay• Stewardship gov approach• Lifetime employment• Low unionisation

• Mod proportion base pay• High proportion variable pay• Agency gov approach• Shorter tenures (4yr av CEO)• Low unionisation

• High proportion base pay• Mod proportion variable pay• Agency gov approach• Shorter tenures (4yrs av CEO)• Low unionisation

Reward Criteria • Transitioning from skill and capability to performance

• Intrinsic rewards important

• High weighting towards performance pay

• High use of individual incentives

• High use of extrinsic rewards

• Pretence towards performance pay

• Both extrinsic rewards and intrinsic rewards important

Hours • 40 hour week / 8 hour day• US$31.99 cost/hr

• 40 hour week / 8 hour day• US$34.74 cost/hr

• 38 hour week /7.6 hour day• US$40.60 cost/hr

Leave • 10 days leave, 14 holidays• No sick leave• 14 wks paid maternity, 1 year

childcare leave (social insurance)

• 10 days leave, 10 holidays• 5 days use/loose sick leave• 12 wks paid/unpaid maternity

(STD paid / FMLA unpaid)

• 20 days leave, 8 holidays• 10 days use/loose sick leave• 18 wks paid maternity

Benefits • Universal Govt Healthcare, with overlay private plans 4.67% of earnings by both ER and EE

• Contributory mandated unemployment paid by both ER/EE, workers comp

• ER/EE funded healthcare for employee and family

• EE/ER funded Medicare - 1.45% each, limited Post 65 healthcare

• ER funded unemployment, workers comp

• Universal employee funded healthcare 1.5% by EE (+1% for High Earners)

• Govt funded unemployment, workers comp

Retirement • National DB Pension (at age 65)

• Private Employers Pension (at age 60, 65 in 2025)

• 8% EE, will increase to 18.3% in 2017

• Introduce DC in 2002• Employers norm = no contrib

• Limited Employee/employer funded system (Social Security – At age 65, increase to 67)

• 4.2% EE, 6.2% ER• ER DB Pensions declining, EE

DC 401K Plans• Employer norm = ER match

• Employeer funded retirement benefits at age 65 (superannuation)

• 9% EE, voted down to increase to 12%

• Employers norm = no contrib

COMPENSATION COMPARISONS

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Need for stability and flexibility as market conditions change Opportunity to lead some change in employment conditions High competition for local talent, retention strategies important Collective performance management and job status matters Focus on productive performance External locus of control High value placed on family benefits Opportunity for recruitment of local female professionals Need to actively monitor currency exchange rates

Global/regional/local approach to people management Value placed on global learning and mobility of employees Value placed on experience across cultures and borders Firm size as an indicator of total compensation Individual performance management matters most with some group Performance management based on results, capability and competencies Strategy for expat to develop local executive

COMPENSATION IMPLICATIONS COUNTRY – COMPANY

Country

Economy

Socio-culture

Politics

Company

Strategic

CulturalFinancial

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US Executive Base pay US$200k, 30% performance pay Spouse and two children Mortgage paid Elderly parents Purpose of Assignment: Career Growth and Leadership development/knowledge

transfer “High” Internal Locus of Control Home to Home – Intent is to return in 4 years

Austral ian Executive Base pay AUS$200k, 30% performance pay Single but one child dependent who is back in Australia with Ex-Spouse Mortgage paid Elderly parents Purpose of Assignment: Career Growth and Leadership development/knowledge

transfer “High” Internal Locus of Control Home to Home – Intent is to return in 4 years

10 Japan Executives Base pay equivalent to Japan Benchmarks Additional ‘seishain’ contract = annual bonuses that make up 30% of base pay “Low” Internal Locus of Control

EXECUTIVES - PERSONAL CIRCUMSTANCES

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US Expat Australia Expat

Japan Local

FIXED PAY

• Base • Home Based Balance Sheet Approach / Tax Equalization

• Maintain home equivalent plus 20% job evaluation adjustment

• Benchmarks - global job level/local home region MNC

• Annual adjmt US COLA• Annual merit review max

10%, same as US Executive merit pay

• Host-Country Spendable Income (will be higher due to family) – Assessed Quarterly

• Home Based Balance Sheet Approach / Tax Equalization

• Maintain home equivalent plus 20% job evaluation adjustment

• Benchmarks - global job level/local home region MNC

• Annual adjmt Aus CPI• Annual merit review max

10%, same as AUS Executive merit pay

• Host-Country Spendable Income – Assessed Quarterly

• Global benchmarks job level

• Local in market benchmarks for host region MNCs

• Annual merit review max 10%, similar to the Expat’s

• Benefits/Perks • Hands Off Housing Policy in Home Country

• Host Housing Equalization at No Cost

• Private Health Insurance Fully Paid

• Reimbursement of home elderly care

• US $10k personal allowance (gym, leisure travel)

• Spouse employment search

• Child Paid Education• Domestic Services Budget

• Hands Off Housing Policy in Home Country

• Host Housing Equalization at No Cost

• Private Health Insurance Fully Paid

• Reimbursement of home elderly care

• AUS $10k personal allowance (gym, leisure travel)

• 2 Annual Paid Child Visit• Domestic Services Budget

• Fully paid Private Insurance in addition to State already provided in Japan

COMPENSATION DESIGN PRINCIPLES

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Japan Local

VARIABLE PAY

• STI • Same as Home 30% with different target measures: = 40% global, 40% Japan, 20% individual

• Japan Team 10% Bonus Incentive (2.5% Paid Quarterly)

• Same as Home 30% with different target measures: = 40% global, 40% Japan, 20% individual

• Japan Team 10% Bonus Incentive (2.5% Paid Quarterly)

• “Seishain” cash performance target bonus of 30% of salary = 20% global, 70% Japan, 10% individual

• Company Loyalty Award Program to Top Performers (Gift)

• LTI • Same as Home LTI• Start option package• Annual restricted

stock options

• Same as Home LTI• Start option package• Annual restricted

stock options

• Japan Team Gainsharing Plan wish Cash Bonus Payouts based on various assessment points

• Other • US income jurisdiction• 10 days annual leave• 14 Japan holidays*• Notional sick leave

• AUS income jurisdiction

• 10 days annual leave*• 14 Japan holidays*• Notional sick leave*

• JPN income jurisdiction• 10 days annual Leave• 14 Japan holidays• 5 days sick leave*


* Indicates country trade off

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Japan Local

RETIREMENT AND REPATRIATION

• Retirement • Maintain Home Retirement Plan and home ER contribution to 401K

• ER pays 9% contribution to an international superannuation plan

• National DB Pension + Private Employer Add On

• Entry payments

• Annual retention bonus 1st year

• Annual retention bonus 1st year

• Sign on bonus to attract good talent

• Post payments

• 2 weeks paid repatriation leave

• 2 weeks paid repatriation leave


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Challenge Issues Solution

Fairness • Different perceptions of equity• Difference in pay scales

• Clearly proactively communicate basis of total package to expats/locals

Assimilation • Cultural• Social• Family

• Multicultural training

Transparency • Different expectations of how much info, to who and when

• Maintain detailed pay confidentiality between the US, AU, and Japanese

Performance Monitoring

• What measure and who assesses

• Measure effectiveness of performance management system

• Weekly expat home conference calls

• 360 degree feedback, explicit communication of goals/objectives

Retention • Expat• Local

• Expat: competitive total package, opportunity for higher role on return based on performance

• Local: maintain equity, skill development for future, mentoring

Repatriation • Job factors• Company objectives• Social factors

• Repat training, debriefing, transition into new role at home for expat and family

Recruitment/Selection • Local labour shortage• Criteria for expat selection• Japanese succession

• Mentor Japanese Continuous training and improvement

HOST COUNTRY - CHALLENGES

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Exporter/Adapter Implementation Plan

Cost Benefit Analysis Knowledge Transfer

JP Morgan Japan

Success

SUBSIDIARY SUCCESS AND SUSTAINABILITY

Culture Culture

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Business Customs (long hours, after work gatherings)Adverse to confl ict Not accepting of “outsiders”Not timely decision makers (very methodical as

opposed to “shoot from the hip”)Stagnant talent (if employee skills are not developed)Diffi culties for wife / children to adapt (Japan is very

masculine oriented)Repatriation issues (coping back to Home country

norms) Important Hofstede Themes: High in Uncertainty

Avoidance, High Masculinity, High in Long-term orientation.

CULTURAL CONFLICTS

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REFERNCES

Global Rewards Team Presentation

Documents