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HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE BUSINESS RESULTS? FEBURARY 2013 Mercer China

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Page 1: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE BUSINESS RESULTS?FEBURARY 2013

MercerChina

Page 2: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

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

Page 3: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

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

Page 4: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

3MERCER

Opportunity for HR ProfessionalsFact based decisions

Organizations need to focus on “fact based decision making” to ensure cutting

edge workforce management practices.

Page 5: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

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

Page 6: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

5MERCER

WHAT TO MEASURE

Page 7: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

6MERCER

Measurements Lead to Better Decisions

Page 8: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

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.

Page 9: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

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

Page 10: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

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

Page 11: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

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).

Page 12: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

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

Page 13: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

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).

Page 14: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

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

Page 15: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

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).

Page 16: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

15MERCER

METRICS CASE STUDY

Page 17: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

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

Page 18: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

17MERCER

Identifying the Right MetricsFocus on your story

Page 19: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

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.

Page 20: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

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

Page 21: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

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.

Page 22: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market

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

Page 23: HOW EFFECTIVELY DOES YOUR REWARD STRATEGY DRIVE … · 2013-02-27 · Professional Sales 15% 57% 58.88% 60 Percentage of sales employees by career level, your company versus market