HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE BUSINESS RESULTS? FEBURARY 2013 Mercer China
HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE BUSINESS RESULTS?FEBURARY 2013
MercerChina
1MERCER
Intangible Assets and Human CapitalHuman capital is seen as an important intangible asset for competitive advantage.
Importance of intangible assets for competitive advantage
Human capital is seen as the second most important intangible asset to create and maintain a competitive advantage.
97
85
72
69
36
14
11
9
0 20 40 60 80 100 120
Customer relationship
Human capital
Brand
Products and innovation
Process efficiency
Investors
Location
Supplier relationship
Source: Ephraim Spehrer-Patrick, Human Capital Measurement: Business Executives’ Perspective on Standardisation, 2010. n=171
2MERCER
0
20
40
60
80
100
Current To-be in Future
Not at all To a minimal extent To a moderate extent To a consideratable extent To a great extent
Knowledge about Return on Human Capital Expenditure However currently the knowledge in their organizations about the return on HC expenditures is very limited
To what extent does your company know the return on its HC expenditures?
Almost 80% of participants state that further knowledge about the return on human capital expenditures should be established in their organization.
Source: Ephraim Spehrer-Patrick, Human Capital Measurement: Business Executives’ Perspective on Standardisation, 2010. n=171
3MERCER
Opportunity for HR ProfessionalsFact based decisions
Organizations need to focus on “fact based decision making” to ensure cutting
edge workforce management practices.
4MERCER
Different Levels of Organisational ReadinessWhere do you stand?
Assess the way things really are
Step 1
Step 2
Step 3
Step 4
“What is going on?”
“Why did it happen?
“How can we improve?
“What do we want to happen?”
Benchmark, investigate trend
data over time
Develop models for strategic
decision making
Workforce planning;
predict, assess risk areas and take actions to mitigate risk
Basic hard &quantifiable data
Fact-based analysis, benchmarks, approaches such as regression,
correlation and modeling
Managerial experience &
predictive modeling
Past Present FutureReactive Proactive Predictive
5MERCER
WHAT TO MEASURE
6MERCER
Measurements Lead to Better Decisions
7MERCER
Business ResultsBusiness Results
IMPACT
Human Capital Factors
•Workforce composition• Rewards
• Management span• HR function effectiveness
Human Capital Factors
•Workforce composition• Rewards
• Management span• HR function effectiveness
China Human Capital Metrics Report Linking workforce data with business results
• A comprehensive suite of benchmarks measured against the market.
• Not just about HR stuff. Workforce data linked with business results, which C-suites are thrilled to see.
• Leading companies participated and used the data in their human capital decisions.
8MERCER
China Human Capital Metrics Report Comprehensive measurements with depth
Staff RatioHiring
How effective is
your workforce?
Training
C&B Costs
Human Capital ROI
HR FunctionBudget
100+benchmarks
5 key industries
Auto Consumer
High-tech
Internet
Pharma
290 companies
9MERCER
Human Capital ROI Benchmarks
Human Capital ROI• Revenue per employee
• Profit per employee
• Operating expense per employee
• Total cash costs as a % of revenue
• Total cash costs as a % of total operating expense
• Revenue per total cash costs
• Profit per total cash costs
• Total remuneration costs as a % of revenue
• Total remuneration costs as a % of total operating expense
• Revenue per total remuneration costs
• Profit per total remuneration costs
• Human capital costs as a % of revenue
• Human capital costs as a % of total operating expense
• Revenue per total human capital costs
• Profit per total human capital costs
Structure of Key Components
Total Cash Cost
Sales Revenue
Pay Effectiveness
Total Number of Employees
Total Cash Cost
Pay Level
10MERCER
0
20
40
60
80
0 100,000 200,000 300,000
Human Capital ROIConsumer Goods – Food, Beverage and Tobacco sector
If taking the Food, Beverage and Tobacco sector as an example, below grid shows companies pay level vspay effectiveness in different positions.
Pay level vs. pay effectiveness – Food, Beverage and Tobacco (2011 Fiscal Year)
=4.8
2011
Sal
es R
even
ue/T
otal
Cas
h C
ost–
Food
, Be
vera
ge, a
nd T
obac
co
(N=19)
RMB
RMB
III
III IV
Median=15.0
Median=62,997
Total Cash Cost per Employee (X=Total cash costs / total number of employees)
How effectively does your reward strategy drive the business results?
Source: Mercer’s 2012 China Human Capital Metrics Report (Consumer Goods).
11MERCER
Staff Ratio Benchmarks
Staff Ratio Benchmarks
Job function
Career level
Expatriates
• Supporting functions: HR, Admin, IT, Finance• Marketing and sales functions• Engineering• Production/Operations• Quality• Purchasing, Logistics, etc• Other key positions (varied by industry)
• Management span (executives, management)• Professional / para-professional staff• Blue collar staff
• Expatriate employee as a % of executive employee• Expatriate employee as a % of management
employee• Expatriate employee as a % professional employee• Expatriate as a % of total employees
12MERCER
1.0
1.5
2.0
2.5
3.0
3.5
4.0
High-tech 2 3 3Internet 1.7 2.3 1.6Automotive 2.3 3.6 2.3Consumer Goods 1.6 3 2.3Pharmaceutical and MedicalDevices
2.1 3.7 2.5
HR Finance Administration
Staff RatiosBy Industry
• Different industry’s staffing ratio of supporting function shows a consistent pattern with slight variance.
Staffing ratio by supporting function (Average %)
Source: Mercer’s 2012 China Human Capital Metrics Report (Consumer Goods).
13MERCER
HR Function Budget Benchmarks
HR Function Budget
•HR function budget per employee
•HR function budget as a % of revenue
•HR function budget as a % of total operating costs
Training Budget
RecruitmentBudget
HR FacilityFees HRIS Costs
OutsourcingBudget
ConsultingCosts
PublicationFees
Travel/MeetingCosts
Others
HR Function Budget Remuneration BudgetXX
14MERCER
HR Function Budget per Employee
• HR function budget per employee in Automotive industry is higher, while it is lower in Internet industry and Consumer Goods industry.
HR Function Budget per employee and HR staff as a % of total employees (Average)
11,459
4,0833,571
6,234
1.6%
2.3%
1.7%2.0%
0
3,000
6,000
9,000
12,000
15,000
High-tech Internet Automotive Consumer Goods0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
HR Function Budget per employeeHR staff as a % of total employees
Source: Mercer’s 2012 China Human Capital Metrics Report (Consumer Goods).
15MERCER
METRICS CASE STUDY
16MERCER
Identifying the Right Metrics Focus on the unique context of your organisation
DRIVERS PERFORMANCESTRATEGY
Right, few measures
The minimal number needed to steer by – and not be overwhelmed, distracted, or waylaid by the irrelevant
Measures that matter because they are demonstrably connected to the unique workforce and business outcomes of each organisation
FEW
RIGHT
17MERCER
Identifying the Right MetricsFocus on your story
18MERCER
Case Study - A Consumer Goods IndustryChallenge
• The organization is a consumer goods company with 6,000 employees.
• The market for its “green” house cleaning products is wide open with significant possibility for growth, but the company sales forecasts are not being realised.
• Due to the relative newness of the product line, management is not inclined to approve budget increases (for salary or to hire new salespersons) until the sales force shows better results.
• Hence they need external benchmarking data to review the staffing ratios as well as revenue for sales-related staff to see where to improve.
19MERCER
Case Study – A Consumer Goods Company Metrics Benchmarks
6025%35%65%White Collar
6058.88%57%15%Professional Sales
Percentage of sales employees by career level, your company versus market
604%5%20%Management
600.51%3%0%Executive
NMedianAverage(breakdown)
The market: Consumer Goods CompaniesThe
CompanyCareer Level
Productivity level for the sales function (in million USD), your company versus market
60658548Revenue per 100 FTE
600.650.850.48Revenue per FTE
NMedianAverage
The market: Consumer Goods Companies
The Company
Source: Mercer’s 2012 Global Workforce Metrics Database
20MERCER
Case Study - A Consumer Goods CompanyFindings and Actions
• There are too many managers (% of sales staff by career level). Supervisor positions have too many paperwork demands on their hands and too little time to devote to their staff.
• This results in too few sales people who actually go out to sell the products.
• Revenue per sales staff is significantly low compared to peers in the market.
Actions taken to solve the problem:1. Hire part-timers to help existing supervisors with
administrative paperwork. 2. Build sales function in the appropriate staffing
ratio3. Upgrade sales incentive plans and focus on
training.
21MERCER
Closing Thoughts
•Continuously track your performance against the market
•Start with a business problem, and go solve it
•Think like a CFO, and communicate effectively