Reveal the hidden reward Global Total Remuneration report 2011 Hay Group s Global Total Remuneration report provides a snapshot of reward packages of the average employee across 58 countries. The report demonstrates the wide range of reward practices used in different markets, with the average skilled workers receiving packages of anywhere between $8,900 and $104,100 per annum, and with benefits making up anything between 12 per cent and 53 per cent of the total package. www.atrium.haygroup.com
Many companies fail to manage or communicate the benefits they provide, leaving the value of those benefits hidden. About the report Hay Group s Global Total Remuneration report examines the reward package of an average level employee (Hay Reference Level 12). This represents a skilled employee with 3-5 years experience, but not in a supervisory management or expert role. Some examples would be: a customer service representative, a call center operator or a washing machine repair technician. The study was compiled by comparing detailed crosscountry reward data from Hay Group PayNet and Reward Pinpoint. PayNet provides access to data for more than 12 million employees at 16,500 companies around the world. Our proprietary Global Total Remuneration (GTR) methodology was used to assess the median value of the total remuneration of an average employee in 58 countries including all common statutory and non-statutory benefits, pensions and allowances, as well as base salary and bonuses. These numbers were converted to USD using the Economist Intelligence Unit s forecasted average exchange rate for 2011. The proportion of benefits* in total remuneration was calculated by comparing total remuneration plus (the sum of base salary, bonus and long-term incentives, benefits, allowances and statutory benefits) with total compensation (base salary and bonus). The difference between the two represents the value of the benefits received by the employee. *Benefits include short and long-term disability benefits; death and accidental death benefits; value of health insurance; value of defined benefit and defined contribution pension schemes; value of savings plans and discounted company stock purchase plans; value of car benefits and other benefits for example subsidized canteen/cafeteria. Values are calculated using Hay Group s proprietary Standard cost of employment approach and are annualized and reported as a cash equivalent.
Global Total Remuneration (GTR) index summary The developed nations dominate the top of the Global Total Remuneration index. Swiss skilled employees are the best remunerated in the world, receiving a median total remuneration of $104,100. Indian employees are the lowest paid at $8,900. However, there are some surprises: the US, and the UK fall well outside the top 10, with the average US employee receiving $58,100 just 56 per cent of a Swiss worker s remuneration. While the UK, US and Switzerland markets have a reputation for being expensive places to source labor, the average skilled worker receives significantly less in total remuneration than their counterparts in other mature markets.
4 Global Total Remuneration report 2011 Switzerland s number one ranking mirrors its status as a leading location for business headquarters. Multinationals from the financial services, oil and gas, pharmaceutical and fast-moving consumer goods (FMCG) sectors consider Switzerland the country of choice for their global headquarters, thanks to low tax, central location in Europe and advanced infrastructure. But, as the report shows, organizations have to pay employees, of all levels, higher reward packages to account for the high cost of living expenses. Unsurprisingly, developing markets make up all ten of the lowest total remuneration markets. What is notable is the presence of two of the highest growth markets at the bottom of the scale. India is the lowest paid, only slightly below Vietnam and Indonesia. China falls just outside the bottom ten, with a total remuneration package of $15,600 per skilled worker. Brazil s outstanding economic performance is reflected in its position in the middle of the table, on par with Saudi Arabia and Hong Kong. Strong employment figures and robust growth in the oil and gas, real estate and retail sectors in particular means skilled workers are in demand, and a relatively high inflation rate is putting pressure on employers to increase wages. A definition of Total remuneration Total remuneration represents the financial value to the employee of the main tangible elements in the employment package, i.e. base salary, benefits, incentives and bonuses as shown in the diagram: Common examples n Cars n Pension n Other benefits n Employment conditions n Stock / equity n Performance shares n Annual incentive n Bonus / spot awards n Base salary n Hourly wage Reward elements Benefits Long-term incentive Short-term incentive Base cash Total remuneration Total direct compensation Total cash 2011 Hay Group. All rights reserved
www.haygroup.com Highest reward packages Country Reward package of skilled worker* (USD) 1 Switzerland 104,100 2 Norway 3 Japan 4 Germany 5 Belgium 6 7 Country Reward package of skilled worker* (USD) 49 China 15,600 90,300 50 Thailand 15,500 85,800 51 Romania 14,900 79,700 52 Venezuela 14,100 75,000 53 Egypt 12,700 Netherlands 72,200 54 Ukraine 11,400 Luxembourg 70,000 55 Bulgaria 11,400 8 Ireland 67,800 56 Indonesia 10,100 9 France 66,800 57 Vietnam 10,000 10 Sweden 66,200 58 India 8,900 Rank *Total remuneration for average level employee Global Total Remuneration index Total remuneration packages High >$66,000 Medium $17,000 $65,999 Low <$16,999 Lowest reward packages Rank
6 Global Total Remuneration report 2011 Global Benefits index summary The Global Benefits index highlights the huge variation in the emphasis placed on benefits versus pay, showing the importance of understanding the full remuneration picture. An analysis of salary and bonus payments only would give a very different, and potentially misleading, picture of the value of reward programs around the world. As significant amounts paid in benefits are hidden from the view of both employers and employees. The picture drawn by the Global Benefits index is far more mixed than the GTR index. Broadly, developing economies tend to place the greatest emphasis on benefits. In India, Indonesia, Vietnam and the Ukraine, employers pay almost as much in benefits as they do in salaries. Overall, however, there is much less consistency across the whole index. Some highly mature economies such as France and Sweden appear in the top levels, and Chile and Guatemala pay relatively low levels of benefits. The answers lie in understanding the factors that drive benefit payments and the types of benefits paid. In developing markets, benefits are often focused on meals, health and education 2011 Hay Group. All rights reserved
www.haygroup.com Global Benefits index Rank Country Benefits as % of total remuneration 1 India 53.1 2 Indonesia 49.2 3 Vietnam 47.6 4 Ukraine 46.0 5 Brazil 41.9 6 Mexico 39.0 7 Greece 38.9 8 Portugal 37.8 9 China 37.6 10 Egypt 37.2 11 Venezuela 37.1 12 France 36.8 13 Latvia 36.3 14 Sweden 35.8 15 Italy 34.9 16 Hungary 34.1 17 United States of America 33.2 18 Lithuania 32.8 19 Czech Republic 32.1 19 Romania 32.1 21 Spain 31.3 22 Slovakia 31.4 23 Saudi Arabia 31.5 24 Japan 30.8 24 Belgium 30.8 26 Malaysia 30.7 27 Russian Federation 30.2 28 Bulgaria 30.1 29 Panama 30.0 30 Turkey 29.6 Rank Country Benefits as % of 29 Panama total 30.0 remuneration 30 1 India Turkey 53.1 29.6 31 Thailand 28.9 32 Argentina 27.3 32 Estonia 27.3 34 Austria 27.6 34 Poland 27.6 36 Netherlands 26.6 37 Norway 26.5 38 South Africa 25.7 39 Ireland 25.1 40 Qatar 24.2 41 Singapore 23.9 42 Oman 23.7 43 Switzerland 23.3 44 Germany 23.1 45 Bahrain 22.9 46 Canada 22.7 47 United Kingdom 22.0 48 United Arab Emirates 21.5 59 Korea 19.3 50 Guatemala 18.6 51 Kuwait 18.3 52 Peru 18.1 53 Australia 17.3 54 Chile 17.1 55 Luxembourg 16.8 56 Hong Kong 14.8 57 Finland 11.5 58 New Zealand 4.9 Who pays for living? A major factor driving the level of benefits in different countries is the degree to which the state provides fundamental services such as health care and education. In many former socialist countries, a large proportion of the benefits paid are made up of statutory benefits. For example, employers in the Czech Republic provide 32 per cent of the value of their reward package as benefits but almost three quarters of this amount is made up of compulsory statutory benefits, which provide social security and health care for employees. There is a similar picture in Hungary, Slovakia, the Baltic states and Russia, where employers are obliged by law to pay statutory benefits in particular for health care.
8 Global Total Remuneration report 2011 A similar picture emerges in countries with large populations and state-run health and welfare systems that may struggle to meet their populations needs. Health care and supplementry social security benefits (such as disability insurance) make up a high proportion of total remuneration in countries such as Argentina, China, Indonesia and India. Health care also forms the most significant proportion of US benefits, putting the US firmly in the top half of the index with 33 per cent of US reward packages made up in benefits. In contrast to many other countries, however, these benefits are not made compulsory by law but are a result of competitive pressures. In Finland, however, social welfare and health care are paid for by the state regardless of employment, pays only 12 per cent of its total remuneration in benefits. The UK and Spain are something of a mix. Around 40 per cent of UK employers supplement the state-run National Health Service with private health cover at the average employee level and the great majority of employers offer pension benefits as part of their reward package. Spain sees 31 per cent of its average total package made up of benefits, with the state providing medical coverage and public pension plans many employees also have the option of additional benefits. Global economic volatility, constrained reward budgets and the continuing war for talent in key areas are driving many companies to examine the effectiveness of their reward. 2011 Hay Group. All rights reserved
www.haygroup.com Tax Favorable tax treatment of different benefits is another critical factor. The Baltic states provide a clear example: 30 per cent of Lithuanian companies and 80 per cent of Latvian companies provide health care benefits, which are not taxed. The higher prevalence in Latvia is caused by non taxation, but also because of the less developed heath care system in the country. While Estonia s health care is heavily taxed and therefore not prevalent at all. Fringe benefit taxes in Australia and New Zealand have removed the tax advantage from all but a few standard benefits. As a result, the vast majority of employees in both markets work on a total remuneration system: employees are offered a cash package and (within limits) can choose which benefits they take to make up that package, which is then deducted from the cash package. However, in Australia, where pensions, as well as some other allowances based in industrial awards are compulsory, employers still provide 17 per cent of their reward packages in standard benefits.
10 Global Total Remuneration report 2011 Competitive value The value placed by employees on particular benefits also varies from market to market. In Greece, it is common to provide mobile phones and company cars. These were used during the economic boom to attract talent and established an expectation among employees that they would be provided. Nowadays, due to the economic crisis, some of these benefits are being reviewed. Likewise, employees in Central and Eastern Europe value those benefits which have a representative, symbolic value, like company cars. So they are often willing to accept a lower cash income in exchange for a generous company car benefit. In contrast, the UK is a cash orientated country with fairly high base salary and a lower statutory benefits value when compared worldwide. Understanding these local trends in different markets helps employers to manage their competitiveness and costs. Employers can make informed decisions on which benefits to spend their valuable reward budgets to gain maximum return on investment. But trends shift: in Russia, pensions and other long-term oriented benefits are currently not popular, as the workforce is relatively young, and move jobs on average every three years. However, that will change. With a low birth rate, high divorce rate and an ageing population, Russian employees are likely to start thinking more long-term. As more and more women enter the workforce, this will also influence employee preferences. Women tend, in general to be focused more on long-term security and on benefits such as death and disability insurance, pensions and education. 2011 Hay Group. All rights reserved
www.haygroup.com Labor market context This study focuses on an average level employee. In developed markets, reward packages at this level tend to be focused heavily on base salary, with luxury benefits such as company cars reserved for higher levels. In the UK, a management-level employee would be far more likely to receive private medical insurance, long-term incentives, a company car and a larger pension than an employee at this level. In developing markets, benefits are often focused on more immediate needs, such as meals, health and education, with those benefits making up a significantly lower proportion of total remuneration at higher levels. In China, companies pay statutory contributions of around 40 per cent on the base salary, but this is capped (in Shanghai this is around RMB 10000). Since the market salary for a skilled worker is lower than the cap, companies need to pay a statutory contribution of 40 per cent of the base salary. At management level, the market salary is much higher than the cap and the statutory part has much less weight. The context can vary even within a single market. In Turkey, there is a perceptible difference between local and foreign companies benefit practices. The main focus of local companies is still on base salary, but foreign companies are using benefits to differentiate themselves. The pharmaceutical and FMCG sectors are very mature in terms of base salary and total cash, so competition is now shifted to benefits for example, for pharmaceutical sales staff the percentage of benefits in their total reward package is 35 per cent. Employers can make informed decisions as to which benefits to spend their valuable reward budget on to get maximum return on investment.
12 Global Total Remuneration report 2011 An effective approach to reward For companies managing reward across country borders, and for those looking to balance cost with competitiveness in their home market and the value that employees place on their package, a clear picture of total remuneration is critical. Increasingly, leading companies are considering reward on a holistic basis. Yet many companies continue to analyze and benchmark only base salary and total cash and ignore benefits which, on a global basis, make up a third of employee s reward packages. This has real implications for reward effectiveness. Companies cannot manage cost, ensure competitiveness or communicate the real value of their employment offer to current and potential employees if they do not have a clear view of their total remuneration position. Total remuneration gives a comprehensive perspective, equipping companies to make informed decisions about their reward practices, support their employer brand and compete on a like-for-like basis for the talent they need. 2011 Hay Group. All rights reserved
www.haygroup.com Are you getting the best value from your reward spend? Global economic volatility, constrained reward budgets and the continuing war for talent in key areas are driving many companies to examine the effectiveness of their reward. However, many do not look at all their reward costs as a whole instead considering pensions, company cars and other benefits through separate processes, if at all. The result is that companies are unable to assess the real value of their offer in the marketplace, and only benchmark a small aspect of their overall package. Companies are also unable to assess the cost implications of reward decisions because pay and benefits are often tied together, increases in base salary can have significant, and invisible, on-costs.
Do you know your markets? Hay Group s research has shown that multinational companies are increasingly seeking to manage reward centrally. But many companies are making ill-informed decisions about global reward policies, which can have a real impact on the competitiveness and effectiveness of local reward practices, especially when looking at which benefits to provide. Companies looking to acquire or expand operations in different markets without considering the total remuneration picture are also basing their business decisions on limited information. Does your reward drive performance? Employer brand is a critical issue for many companies. Those in depressed markets who are struggling with frozen pay budgets are looking to keep staff engaged and performing with clearer employer value propositions and reward programs that align to employee interests. Those in fast-growth markets who are competing for scarce talent are looking to rein in pay inflation and improve retention by demonstrating the true long-term value of their employment offer. As a result, companies are increasingly looking to take a holistic approach that considers everything they offer their employees. Yet many of them don t know, and therefore are unable to tell their employees, the real value of the package they provide. Ensuring a competitive future To remain competitive in difficult markets, companies must understand the reality of their reward offer and the talent markets in which they are competing. Total remuneration gives a comprehensive perspective, equipping companies to make informed decisions about their reward practices, support their employer brand and compete on a like-for-like basis for the talent they need.
Carry out an in-depth comparison of your reward packages Reward Pinpoint analyzes 20 employee rewards, from base salary through to total remuneration. Based on Hay Group s unrivalled data, it shows you exactly where your offering is competitive and where it could be improved. So, you are better placed to ensure that your offering appeals to the top talent. For more information about the report and how to benchmark your total remuneration packages, please contact your local Hay Group contact or visit www.atrium.haygroup.com
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