Worldwide Pay Study Predicts Average Rise in Global Salaries of 6%

Global salaries are expected to rise by an average of 6% in 2008, 1.9% above projected average inflation, according to a study of 62 countries worldwide by Mercer.

According to study results, India can anticipate one of the highest average pay increases in the world at 14.1%, nearly 10% above projected local inflation.  North America and most Western European countries are expected to experience the lowest salary increases worldwide.

In speaking about the implications of survey results, Steven Gross, Mercer worldwide partner and global head of broad based performance and rewards consulting, warned of the perils of short-term thinking as companies contemplate sourcing labor from emerging countries where workforce costs may be low but also volatile:

We are starting to see that short-term cost savings from sourcing labour in emerging markets can evaporate over time.  It is therefore essential for multinational companies to consider both current pay levels and future salary increases when deciding where to source their labour.

Some companies that might otherwise be looking at emerging economies to establish their customer services are now reconsidering their options.  Immediate cost savings are no longer the only consideration, as short-term affordability might be offset by long-term volatility in labour costs and inconsistent service quality in many emerging markets.

The table below features, for select countries, survey data on forecasted 2008 pay increases and projected inflation rates, ranked by projected pay increase after inflation.

Country	Projected average (‘actual’) pay increases	Projected inflation rates	Projected pay above inflation
Europe
Western Europe
Ireland	4.7	2.1	2.6
Switzerland	2.5	1.0	1.5
Spain	3.8	2.4	1.4
France	3.0	1.8	1.2
Italy	3.1	1.9	1.2
Germany	2.7	1.6	1.1
United Kingdom	3.1	2.0	1.1
Netherlands	3.0	2.1	0.9
Eastern Europe
Bulgaria	9.3	4.4	4.9
Turkey	8.5	4.0	4.5
Romania	8.3	5.0	3.3
Slovakia	4.7	2.0	2.7
Czech	4.0	3.1	0.9
North America
United States	3.7	1.8	1.9
Canada	3.8	2.0	1.8
Asia Pacific
India	14.1	4.3	9.8
Vietnam	11.9	6.3	5.6
China	7.5	3.2	4.3
South Korea	6.4	2.5	3.9
Japan	2.5	0.8	1.7
Australia	4.0	2.5	1.5
New Zealand	3.9	2.6	1.3

Source: Mercer’s 2008 Global Compensation Planning Report

Severance and Change-in-Control Practices Focus of New Study

In response to the increasing attention on severance and change-in-control (CIC) arrangements as a key part of executive rewards, WorldatWork has partnered with Innovative Compensation & Benefits Concepts LLC to conduct a survey of severance and CIC practices.

Select highlights from the survey, which features the responses of 523 WorldatWork members, follow:

• The most predominant form of severance plan reported by participants (42%) was a three-tiered structure; "one plan for the CEO, one for key executives/officers, and one for all other employees".
• The most common criteria - or basis of calculation - used for severance is "years of service" (71%).
• The most common response chosen for the formulaused to determine the amount of cash severance in the plan covering the largest number of employees was "one week per year of service" (31%).  (Interestingly, 40% selected "other".)
• In a CIC situation, 31% of respondents (the most popular response) indicated that all employees of their oranization would be eligible for severance.
• For the severance plan covering the largest number of employees, 42% of participating organizations provide outplacement benefits to all affected employees.  31% provide outplacement benefits, but on a case-by-case basis.

The survey report is available on a complimentary basis to WorldatWork members and available for purchase from the association for non-members.

IT Pay on the (Serious) Move

IT (information technology) pay soared during the dot.com bubble, only to flatten, stall and eventually fall back in line with the rest of the labor market in the years since.  Now, IT pay appears to be on the move again, perhaps in a serious way.  I have no research or numbers to support extraordinary movement here (though I am on the lookout for such), but the difficulty of attracting and retaining employees from this particular pool of talent is a hot topic for virtually every organization I've connected with in the last couple of months.

I'd be interested to hear whether my fellow compensation and HR compatriots out there are finding this to be true in their marketplaces.  Anyone?

Free Web Briefing: The Employee Benefits/Rewards Environment in China

Attention all ye multinationals expanding into China:  Mercer is holding a free web briefing on the employee benefits/rewards environment in China.  The briefing is scheduled for Wednesday, December 12 (14:00 UK GMT, 15:00 Europe CET, 9:00 EST) and will last 1 hour.

Topics covered in the briefing will include:

• An overview of the HR environment in China
• Recent market developments and emerging employee benefits practices among multinationals
• The impact of new legislation from an employee reward perspective

Register and learn more here.

Pay Gap Reversal at Board Level: Women Directors Outearn Men!

A new gender gap has emerged.  While still a minority in corporate boardrooms, a new study shows that female directors earn more than their male counterparts.

In the recently published version of its Annual Director Pay Survey, which covers more than 25,000 directors at over 3,200 companies, The Corporate Library reports median total compensation for female corporate directors of $120,000.  That's about $15,000 higher than the median earnings for male directors, which is $104,375.

In a Business Week article about the study, Paul Hodgson, the senior research associate who authored the survey, shares his thoughts on the cause(s) of the earnings gap:

Hodgson theorizes that boards, eager to get female representation across the board, assign more women to multiple committees, earning them extra fees.  He also says the pay differential appears most among smaller companies, where good governance practices, which include concerns about getting diverse input on several committees, tend to be better.

Is there a lesson here?  Yes, and it is the enduring one about supply and demand and the impact they have upon pay.  There's no straighter path to higher earnings than becoming a scarce and highly sought after resource!

The Trifecta of Effective Performance Management

Making performance management work.  This is a significant and critical challenge for any organization I've ever worked with.  So I was interested to hear what key lessons Sibson gleaned from the recently released State of Performance Management Study conducted in partnership with WorldatWork. 

Study results suggest that effective performance management is achieved through a balanced focus on three things:  leadership support, program design, and execution by managers (see figure below, source: Sibson Consulting).

This model certainly fits my experience.  Performance management failures take a variety of shapes, but a common pattern I've noted is the well-designed program that fails due to lack of leadership support or manager execution - or both.

Sibson also notes some key success criteria in each of these areas, based on observations from top performing organizations, that provide good food for thought.

Leadership support

Leaders in top performing companies are more likely to:

• Set the expectation that performance management will be done and performance ratings will be differentiated.
• Audit to make sure that performance management is tied to the overall performance of the company.
• Act as a role model for effective performance management.
• Connect performance management to business goals and people decisions.

Program design

While many of the tweaks and changes we make to the design of our performance systems do not have significant impact, there appear to be a few things that make a real difference:

• Increasing objectivity with defined accountabilities, behavioral competencies and quantifiable metrics that get employees focused on the right things.
• Making the tools convenient to access and easy to use.
• Picking a rating scale and sticking with it.

Managerial execution

So often the weak link in performance management.  The study notes two behavioral characteristics of managers that appear to be linked to success, in performance management as well as overall company performance:

• Managers coach and give regular performance feedback to improve performance
• Managers complete assessments thoroughly and on time.

In this last area, Sibson also notes another activity - heightened visibility of performance management practices and results across managers - that seems to have a positive impact on execution:

One technique that is helpful for improving the quality of execution is to increase the visibility of performance ratings, messages and actions through performance calibration across managers or through audits that publish distributions of ratings for each organizational unit.  This makes it less likely that managers will "game" the system or rate everyone high or in the middle.  When managers know that their ratings will be visible to other managers, they tend to do a better job getting their assessments done and are more objective in their assessments.

Top Metrics Used for Contact & Distribution Center Incentives

In yesterday's post, I featured a set of incentive principles which came from a study of best practices in contact and distribution center incentives, and featured in the article "Best Practice Incentives for Contact Centers and Distribution Centers:  Driving Customer Satisfaction" (WorldatWork Journal, third quarter 2006) by Patricia Zingheim and Jay Schuster.  The article and study results also feature the most common metrics used in incentives covering these two functional areas, which I thought might be interesting to share here.  (This comes, of course, with the standard caveat that, when designing incentives, you should always elect metrics that reflect your business strategy, goals and environment - not just mimic what is prevalent in industry.  That having been said, though, data on industry practices can provide helpful context.)

Most Common Contact Center Metrics (listed in order of prevalence)

• Speed of answering calls (X percent of calls answered within Y seconds)
• Dropped calls as a percent of total calls
• Percent call time or call time as a percent of time available on the phone
• Call volume (e.g., number of calls answered compared to available time, number of orders logged and confirmed)
• Customer satisfaction based on after-call customer input
• Average call time or average call-handle time

It is interesting to note that none of the surveyed organizations used an internal measurement of call quality as an incentive plan metric; rather, call quality is viewed as a performance element best addressed through proactive training, coaching and performance management.

Most Common Distribution Center Metrics (listed in order of prevalence)

• Timeliness of shipment to customer
• Accuracy of orders
• Volume of orders shipped
• Cycle time from order receipt to shipping
• Customer complaints or returns
• Safety

Another interesting note regarding distribution center metrics:  while some organizations include safety as an incentive plan metric, others are reluctant to do so (probably in response to the common concern that incenting a reduction in safety violations will only result in a reduction in the reporting of safety violations) and prefer to use recognition practices to encourage and reinforce safety.

Incentive Principles

In their article "Best Practice Incentives for Contact Centers and Distribution Centers: Driving Customer Satisfaction" (WorldatWork Journal, third quarter 2006), which I came across recently as part of some client research on call center incentives, authors Patricia Zingheim and Jay Schuster provide a list of six incentive principles.  While these principles are a product of their study of companies selected for their success with contact center and distribution center incentives, I find that they offer timeless advice that applies to any incentive design situation.  And so I present them here:

Agility in reward design.  The companies remain willing to change any element of these incentive plans to respond to the customer, market, economics or strategy, or just because that element is not getting the job done.  Compensation solutions must be aligned with business realities.  <Ann's comment:  Agreed.  Incentive plans have a limited shelf life, and must be regularly reviewed and refreshed in order to remain relevant and value producing.>

Extension of the business.  Incentives are viewed as business tools that communicate values and directions to specific workforces about goals and priorities these workforces can influence.  Incentive design comes from a business case for change, and employees understand the role incentives play in the business process. <Ann's comment:  I appreciate this point, that incentives are much more than pay delivery vehicles - they are important communication tools.  The money just adds interest and emphasis to the message.>

Creation of customer partnerships.  Incentives are designed to make allies of employees and customers.  Incentives do not reward performance from employees who are making decisions that are not in the customers' interests.  <Ann's comment:  Absolutely important!  Incentives that pit employees against customers - and these plans are out there, believe me - will have a destructive influence far beyond any short term gains they might generate.>

Few metrics and frequent awards.  These incentive plans use two to four metrics or goals consistent with the concept that everything worth working on and measuring does not belong in an incentive plan.  Only those most important metrics are used for incentives.  Too many metrics lose focus and may result in people working on easier, achievable, but less critical goals than the key stretch goals that drive the business.  And the companies measure performance and grant awards frequently.  The companies also give feedback, coach and make course corrections concurrently.  <Ann's comment:  The enemy we often must fight in incentive plan design is the urge to have the plan address every single thing we want employees to do.  Incentives are not a substitute for sound management.>

Awards "de-linked" from base pay.  Incentive payments are not granted as a percentage of base pay.  Rather they are the same-size awards for the same performance level without regard to an employee's base pay.  <Ann's comment:  Particularly at the level of hourly/non-exempt employees, I think there is value in considering "flat' awards rather than awards tied to the size of the employee's base salary.  Especially with group awards at this level, this approach reinforces the notion of teamwork and the sense that everyone is in the game together.>

Transparency to customers and employees.  Customers visit the work site of these employees.  The incentive plan is a selling point to show customers that employees are paid for satisfying customers.  Customers see posted incentive metrics and are asked to give feedback about the incentive plan metrics, often in the presence of employees. <Ann's comment:  Shouldn't this be the 'acid test' for any incentive plan?  If you wouldn't be pleased and proud to share it with your customers, perhaps you should re-think it.>

Free NACD Webcast: Tough Questions that Compensation Committees Must Ask

Today Board Compensation Committee members are expected to have sufficient knowledge of executive pay to make sound and informed decisions, yet many Directors hesitate to pose the kind of penetrating questions that dig beneath the surface of an executive compensation program and challenge underlying assumptions.

In response to this need, the National Association of Corporate Directors is hosting a complimentary webcast on Tuesday, November 13, 2007 featuring a panel of experts (Dave Swinford and Jan Koors of Pearl Meyer & Partners, and Kathy Hudson, Lead Independent Director & Compensation Committee Chair of Charming Shoppes, Inc.) who will share their experiences using tough questions to uncover and examine the areas of executive compensation that warrant close scrutiny.  The webcase is scheduled for 11:00 PST, 1:00 CST, 2:00 EST.

A great & free resource for Compensation Committee members as well as the HR and Compensation professionals who support them.  Register here.