Hewitt Associates LLC November 2009 Charting the Course for Economic Recovery 2010 Global Salary Planning
About This Material This material provides final salary increase budgets for 2009 and 2010 projected. We have included data for: North America; Asia Pacific; Europe; and Latin America. In addition to this data, there is an accompanying podcast. We ask that you direct any inquiries to Craig.Bruce@hewitt.com or 847.771.7524. 2
Economic Conditions and Implications for Compensation Programs 2009 has been a tumultuous year given the dramatic impact of the world economy. For 2010, companies are cautiously optimistic based on some signs of recovery. U.S. Some recent economic growth, but consumer spending remains low and unemployment high. Globally Countries like China, India, United Arab Emirates, Czech Republic, Poland, Brazil, Colombia, and Mexico are projecting growth. Implications Implications for for Compensation Compensation Programs Programs Differentiating Differentiating performance performance with with small small merit merit budgets. budgets. Managing Managing variable variable pay pay plan plan designs designs and and payouts payouts in in 2010 2010 given given that that most most plans plans did did not not payout payout in in 2009. 2009. 3
Hewitt s Global Salary Increase Survey 2009-2010 Over 6,000 companies in 46 countries participated in Hewitt s annual Salary Increase Survey Strong sample sizes > U.S. 1,156 companies > China 404 companies > India 283 companies > U.K. 140 companies > Germany 123 companies > Brazil 115 companies Data shown reflects salaried professionals effective late July 4
Regional Salary Increase Data Overview In light of the rather tumultuous last 12 months, looking at salary increase budgets in isolation will not necessarily tell the whole story, especially as different parts of the world are faced with very different economic circumstances. Salary increases and three other economic indicators are shown for each country. 1. Salary increase data Includes companies that are freezing salaries for past or future compensation year Represents average salary increase budgets for exempt salary or professional salaried employees 2. Unemployment rates 3. Consumer Price Index (CPI): Generally accepted measure of inflation 4. Gross Domestic Product (GDP): Lagging indicator of economic performance 5
North America Salary Increases and Trends Salary Increase vs. Unemployment Rates* for Salaried Employees (Percent of Base Salary) 12% 10% 8% 10.8% 10.3% 10.2% 8.5% 6% 6.2% 5.8% 4% 2% 3.8% 2.2% 2.9% 3.7% 1.8% 2.7% 0% CAN 2008 CAN 2009 CAN 2010 (projected) Unemployment Salary Increase USA 2008 USA 2009 USA 2010 (projected) Canada (CAN) United States (USA) CPI* GDP* CPI* GDP* 2008 2.4% 0.4% 3.8% 1.1% 2009 0.1% -2.9% -0.8% -2.6% 2010 1.5% 0.7% 0.9% 1.4% (*) Source: Economist Intelligence Unit July 2008, 2009, and 2010 estimates 6
North America Key Insights 2009 actual salary increase budgets were just about 50% of what was delivered to employees on average in 2008. In 2010, there is a projected increase from 2009, but projected salary increase budgets are still 25% lower than what we had in 2008. Both U.S. and Canada are anticipating unemployment rates to peak in 2010, and to see some economic growth, albeit not to a very meaningful degree. At a time that we are recording some of the lowest salary increase budgets ever, variable pay budgets are at an all-time high. Variable pay spending for salaried-exempt employees was 12% of payroll in 2009, and Hewitt is projecting 2010 results to be in line with that at 11.7%. Data represents an upward trend of variable pay spending that has been steady over the last 10 years. Ten years ago variable pay was approximately 5% 6% of payroll. Now, projections are twice that value. 7
Asia Pacific Salary Increases and Trends Salary Increase vs. Unemployment Rates* for Salaried Employees (Percent of Base Salary) 14% 13.3% 12% 10% 8% 9.2% 7.7% 6.1% 6% 4.7% 4.2% 4% 3.3% 2.2% 2% 0% AUS 2008 AUS 2009 AUS 2009 (proj) 10.3% 10.3% 10.7% CHN 2008 CHN 2009 4.7% CHN 2010 (proj) 6.8% IND 2008 7.4% 7.2% 6.8% IND 2009 IND 2010 (proj) 9.7% 7.6% 4.0% JPN 2008 2.8% JPN 2009 Unemployment 5.9% 1.0% JPN 2010 (proj) 6.1% 2.1% SGP 2008 5.3% 2.2% SGP 2009 4.4% 3.8% 1.9% SGP 2010 (proj) Salary Increase 2.6% THA 2008 3.4% 1.4% 6.3% THA 2009 4.1% THA 2010 (proj) 11.2% 5.6% 4.7% 4.1% 3.2% UAE 2008 UAE 2009 UAE 2010 (proj) Australia (AUS) China (CHN) India (IND) (*) Source: Economist Intelligence Unit July 2008, 2009, and 2010 estimates Japan (JPN) Singapore (SGP) Thailand (THA) United Arab Emirates (UAE) CPI* GDP* CPI* GDP* CPI* GDP* CPI* GDP* CPI* GDP* CPI* GDP* CPI* GDP* 2008 4.4% 2.3% 5.9% 9.0% 8.3% 6.1% 1.4% -0.7% 6.5% 1.1% 5.5% 2.6% 20.0% 7.4% 2009 1.4% -0.4% -0.5% 7.2% 5.2% 5.5% -1.6% -6.9% -0.2% -8.6% -1.0% -4.5% 3.8% -1.8% 2010 1.9% 0.8% 1.2% 7.6% 4.3% 6.4% -0.3% 1.0% 1.9% 1.3% 2.1% 1.9% 5.7% 4.1% 8
Asia Pacific Key Insights There was a significant drop in salary increase data from 2008 forecasts to 2009 spending across most of the markets in the region. High inflation in the first half of 2008 drove up forecasts, but the markets saw very conservative actual spending in 2009 salary increases as a result of decreasing CPI. Asia is still a market where most multinationals are still betting on growth, relatively speaking to the U.S. or European markets. Variable pay is being discussed to a greater degree to drive line of sight and business growth. Beginning to see an up-tick in many parts of the business starting second half of year. Some of the hardest hit industries (e.g., auto, semi-conductors and electronics) are beginning to recover. Yet, companies still making very prudent decisions. While performance-based rewards are important to retaining key talent, company leadership, values, growth opportunities, and culture play a significant role in Asia Pacific. 9
Europe Salary Increases and Trends Salary Increase vs. Unemployment Rates* for Salaried Employees (Percent of Base Salary) 25% 20% 18.5% 20.5% 15% 10% 5% 0% BEL 2008 7.9% 7.0% 3.9% BEL 2009 2.6% BEL 2010 (proj) Belgium (BEL) 8.6% 2.9% 7.4% 3.3% FRA 2008 FRA 2009 9.7% 2.5% FRA 2010 (proj) France (FRA) 10.7% 2.5% GER 2008 7.8% 3.7% GER 2009 10.8% 10.1% 2.3% GER 2010 (proj) 2.5% Unemployment Germany (GER) (*) Source: Economist Intelligence Unit July 2008, 2009, and 2010 estimates ITA 2008 6.8% 3.7% ITA 2009 8.3% 2.9% ITA 2010 (proj) 9.8% Salary Increase Italy (ITA) 11.3% 4.6% 3.3% 3.1% 2.7% ESP 2008 ESP 2009 ESP 2010 (proj) Spain (ESP SWE 2008 6.2% 10.7% 9.3% 3.3% 3.6% 3.2% SWE 2009 SWE 2010 (proj) Sweden (SWE) CPI* GDP* CPI* GDP* CPI* GDP* CPI* GDP* CPI* GDP* CPI* GDP* 2008 4.5% 1.0% 2.8% 0.3% 2.7% 1.3% 3.4% -1.0% 4.1% 1.2% 3.5% -0.4% 2009 0.5% -4.5% -0.1% -3.3% 0.0% -5.3% 0.6% -4.8% -0.8% -4.2% -0.5% -5.5% 2010 0.9% -0.8% 0.7% 0.0% 0.7% -0.9% 0.9% -0.2% 0.7% -1.0% 0.8% 0.2% 10
Europe Salary Increases and Trends Salary Increase vs. Unemployment Rates* for Salaried Employees (Percent of Base Salary) 16% 14% 12% 10% 8% 6% 4% 2.8% 2.6% 2% 0% SUI 2008 SUI 2009 3.8% 1.5% SUI 2010 (proj) Switzerland (SUI) 5.2% 1.9% 5.6% 4.5% UK 2008 UK 2009 8.1% 1.8% UK 2010 (proj) United Kingdom (UK) 10.4% 2.5% CZK 2008 9.1% 5.4% 5.0% CSK 2009 2.5% CZK 2010 (proj) 8.8% 3.0% Unemployment Czech Republic (CZK) (*) Source: Economist Intelligence Unit July 2008, 2009, and 2010 estimates HUN 2008 7.8% 11.0% 10.5% 6.8% HUN 2009 3.5% HUN 2010 (proj) 4.6% Salary Increase Hungary (HUN) POL 2008 9.8% 6.5% POL 2009 12.3% 11.5% 2.9% POL 2010 (proj) Poland (POL) 3.9% TUR 2008 10.7% 14.9% 9.8% TUR 2009 Turkey (TUR) 5.5% TUR 2010 (proj) CPI* GDP* CPI* GDP* CPI* GDP* CPI* GDP* CPI* GDP* CPI* GDP* 2008 2.4% 1.6% 3.6% 0.7% 6.3% 3.0% 6.1% 0.6% 4.2% 5.0% 10.4% 1.1% 2009-0.7% -3.6% 1.9% -4.4% 1.7% -3.0% 4.3% -6.3% 2.9% -0.8% 6.2% -5.6% 2010 0.3% -0.6% 2.3% -0.5% 2.1% 1.2% 3.7% -1.0% 2.3% 1.5% 7.2% 2.2% 14.9% 6.8% 11
Europe Key Insights Every European country shown has gone into recession from 2008 to 2009, as indicated by the negative GDP. However, expectations for 2010 differ among the Western and Eastern regions. Western Europe There are small signs of recovery, but optimism is still muted as most Western European countries are still expecting a flat GDP for 2010. Unemployment is expected to rise again in 2010. Salary increases are projected to increase slightly in 2010. Eastern Europe Eastern European countries like Hungary and Poland are seeing greater increases in GDP. Unemployment is expected to decrease for the Eastern European countries in 2010. Salary increases are projected to increase slightly in 2010. 12
Latin America Salary Increases and Trends Salary Increase vs. Unemployment Rates* for Salaried Employees (Percent of Base Salary) 20% 20.4% 15% 14.8% 13.7% 12.2% 11.2% 11.3% 13.2% 13.6% 11.4% 14.4% 10% 5% 7.9% 9.4% 7.9% 7.3% 5.9% 8.7% 5.7% 5.0% 6.5% 6.5% 6.5% 5.5% 4.0% 4.7% 3.6% 3.9% 2.7% 3.2% 0% ARG 2008 ARG 2009 ARG 2010 (proj) BRA 2008 BRA 2009 BRA 2010 (proj) COL 2008 COL 2009 COL 2010 (proj) MEX 2008 MEX 2009 MEX 2010 (proj) PUR 2008 PUR 2008 PUR 2010 (proj) Argentina (ARG) Brazil (BRA) Unemployment Colombia (COL) (*) Source: Economist Intelligence Unit July 2008, 2009, and 2010 estimates Salary Increase Mexico (MEX) Puerto Rico (PUR) CPI* GDP* CPI* GDP* CPI* GDP* CPI* GDP* CPI* GDP* 2008 8.6% 7.0% 5.7% 5.1% 7.0% 2.5% 5.1% 1.4% 7.9% -2.5% 2009 7.0% -3.5% 4.9% -1.2% 5.0% -1.2% 5.5% -7.1% 5.0% -3.8% 2010 10.2% 0.5% 3.8% 2.7% 4.3% 2.5% 3.6% 2.8% 6.5% -2.6% 13
Latin America Key Insights The varying economic and political conditions across the Latin America region make it difficult to standardize salary increases across the region. Argentina has been most affected by high inflation with salary increase levels trying to keep pace. Brazil is projecting positive economic growth. Mandatory union increases impact the overall compensation spending in Brazil. Columbia is experiencing a relatively lower level of inflation compared to previous years. And although unemployment has increased slightly, the country is seeing the influx of new business coming from Venezuela. Mexico has been affected by a significant decrease in GDP, but has been controlling inflation. In general, companies in Latin America are continuing their focus on retaining and rewarding key talent, developing leaders to lead through the crisis and targeting key employee segments to determine what engages them. 14
Hewitt Team Frank Belmonte Lincolnshire, IL, USA Tel: +(847) 295-5000 frank.belmonte@hewitt.com Craig Bruce Lincolnshire, IL USA Tel: +(847) 295-5000 craig.bruce@hewitt.com 15