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Australian Salary Movement Index

Authors: Steven Paola and Trevor Warden

Hay Group

July 2013: Reporting Period 1 March 2012 ‐ 28 February 2013


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Contents

Page

01 Executive Summary 3

02 Trends and Pay Challenges 5

03 Reward Movements and Forecasts 7

04 Bonuses 10

05 Pay Comparisons 12

06 The Global View 19

07 Recommendations 21

08 Appendix 22 • Definitions

• About the Report

• About Hay Group

• About the Authors

• Further information and contact details


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01 Executive Summary The Australian Salary Movement Index report is an annual overview of the Australian reward climate

collated by management consultancy, Hay Group. The report combines Hay Group’s considerable

consulting expertise as well as data obtained from Hay Group’s PayNet database – the most

comprehensive and detailed database available in Australia. This report is based on results from more

than 440 organisations and 282,000 jobs for the reporting period to 28 February 2013.

Volatility has been the dominant theme characterising the Australian economy over the past 12 months.

Major household brands, manufacturers and retailers have struggled to stay profitable and some have

even decided to close their doors – most notably the recent announcement by Ford. Project investments

have contracted in the Mining sector by around $150 billion (Source: Bureau of Resources and Energy

Economics, May 2013). Business confidence has also slipped into negative figures (Source: NAB Business

Confidence Index April 2013).

Hay Group’s findings about pay trends across all major industries and all job levels reflects this volatility.

Across the board, pay increases are smaller than in recent years, approaching the lowest levels seen in the

wake of the GFC. Perhaps the most telling sign that the boom times have ended is that the gap in pay

increases between the Resources sector and the rest of the market, after rapidly widening for a number

of years, is now starting to narrow. This mirrors the weakening conditions in the Resources sector;

impacted by the high Australian dollar, global volatility and the sharp fall in commodity prices.

This more austere trend is predicted to continue. From the data collected by Hay Group, the forecasted

pay increases for the coming 12 months across all sectors will be 3.5 per cent, and 4.3 per cent for the

Resources sector. Just 12 months ago, the forecasted pay increase for the Resources sector was for 6.25

per cent growth, illustrating just how quickly this sharp adjustment for the industry has occurred. The pay

forecasts (predictions) vs. actual movements in past years have been a lot closer, highlighting again that

the current market we are operating in is volatile.

This forecast should still see most Australians earning above forecasted inflation levels, and receiving

higher increases compared to overseas markets. However, workers expecting generous increases may be

disappointed, and employers now need to think outside the ‘pay square’ when it comes to attracting,

engaging and retaining talent.

However, there are still pockets of the market which continue to buck this trend and attract considerable

pay premiums. The hottest jobs in terms of pay can be found in Western Australia, primarily in technical

roles in the Resources sector (Mining and Oil and Gas) which continues to show the greatest salary

growth. In fact, recent analysis found that Australia’s Oil and Gas industry has the world’s highest paid

workforce (Source: AFR May 23); such wage costs are one of the big challenges facing Australia’s Resource

sector.


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Industries such as Banking and Utilities are also attracting premiums above the average. However,

Financial Services jobs also tend to have a high degree of performance‐based risk, so employees need to

meet or exceed targets to receive higher total pay.

In sectors such as Fast Moving Consumer Goods, Leisure and Hospitality, Not‐for‐profit, Business Services

and Education, average actual salaries were between six and 11 per cent below that of the national

average, creating a challenge for these sectors to retain top talent and drive productivity through reward

strategies.

Mapping the differences in pay across the country shows Western Australia, especially regional areas, is

far ahead of the eastern states. When compared to the national average salary, jobs in regional Western

Australia earn 21.9 per cent higher (compared with 16.8 per cent the previous year). Interestingly, similar

mining‐related jobs in remote Queensland earn a premium of just 3.4 per cent; perhaps because these

are located closer to regional centres so mining companies find it easier to attract workers. Among the

capital cities, Perth workers are the highest paid with a pay premium of 6.8 per cent above the national

average.

Across the other side of the continent, workers living in two of the most expensive cities in the world are

now simply average or below average in terms of their earnings. Sydney workers are now earning the

national average, while Melbourne workers earn around 3.1 per cent less than the national average.

Yet, Australia’s inflation rates are still lower than the salary increase rates, unemployment is still

comparatively low and some sectors and job functions continue to have skill shortages. This puts

employees, especially talented employees, in a good position to negotiate, and it also means employers

need to rethink the way they reward and motivate people if pay is no longer a tempting carrot to dangle.


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02 Trends and Pay Challenges

Hay Group has analysed pay practices for over 30 years in Australia and has seen many interesting trends

in how organisations reward their people. The pay packet is perhaps the most tangible way organisations

can communicate what is valued, attract the best people, recognise employee contribution and motivate

improvements. So it is vital not simply to set the bar correctly, but to continually monitor and adjust pay

on an ongoing basis.

Hay Group observed that pay increases during the recent 12‐month reporting period were fairly steady,

with comparatively modest increases for the boom industries such as Resources, Construction and

Financial Services. Since the low pay increases seen in 2009, pay movements have tracked upwards for

most industries, with Resources and Financial Services experiencing the steepest trajectories compared

with the rest of the market. In 2012, this trend appears to track much more slowly, and the Resources

sector is returning to a growth rate that is more in line with the rest of the market for the first time since

2006.

This slowing trajectory of pay increases for the Resources sector, compared to the rest of the market, is

set to continue – a reflection of the slowing pace of capital expenditure which means fewer projects in

the pipeline. Yet due to dramatic pay rises over recent years, many roles in Mining and Oil and Gas will

continue to sit well above average in terms of actual pay levels for some time.

Challenges for Australia’s reward climate

While at a macro level, Australia’s economy and national debt remain in a relatively good position within

the global economic picture, a closer look reveals there are a series of contributing factors creating

volatility and impacting the reward climate.

The Resources sector, responsible for much of Australia’s economic growth over the past six years, has

been impacted by recent global pressures and the strong Australian currency. Although still high, prices

for commodities such as iron ore have fallen sharply and investments in capital expenditure are signalling

a dramatic slowdown. And outside of the Resources sector, the prevailing weaker business confidence has

resulted in a more conservative approach to salary movements.

Another pressure on the reward climate is the cost of living and inflation. In a recent study by the

Economist Intelligence Unit, Sydney ranked the third most expensive city to live in the world, while

Melbourne was fifth (Source: EIU worldwide cost of living survey 2013). It is telling to note that ten years

ago, before the mining boom and when the dollar was historically weak, no Australian city even featured

in the top 10.


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The combination of the strong dollar and high cost of living has resulted in a decline in consumer

confidence that is greatly impacting many organisations in the Retail, Hospitality and related sectors.

Inflation (Consumer Price Index) rose 2.5 per cent in the year to March 2013, driven by rising education

costs, housing costs, pharmaceutical products and fuel (Source: ABS National Accounts, March Qtr. 2013).

The strong appreciation in the Australian dollar, which has remained above or near parity with the US

Dollar since mid‐2011, continues to impact sectors such as Manufacturing, Tourism, Retail and Services

industries – eroding profit margins and increasing costs. A decade earlier it was half that value, illustrating

the rapid rate of change and the challenge for those industries exposed to currency fluctuations.

Despite media reports of employee downsizing among Australian firms, unemployment barely grew over

the preceding year to April 2013. The seasonally adjusted unemployment rate stood at 5.5 per cent in

April 2013 (a marginal change compared with 5.4 per cent in September 2012). For many sectors, a lack of

skilled labour is pushing up salaries (a prime example is in technical roles in the Resources sector). Low

unemployment also leads to employees looking to ‘job hop’ – especially those that are considered to be

an organisation’s best talent. As seen across the Resources sector in the past five years, talent shortages

can drive up pay values to unsustainable levels. Firms need to be careful not to solely rely on salary

increases to retain talent and reduce turnover as this can create inappropriate pay grades and unrealistic

expectations.

In the face of these challenges, companies need to move beyond pay – combining a range of strategies

including reward, engagement and work climate to attract and retain talent for the long term. Further

recommendations will be discussed in Chapter 7.


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03 Reward Movements and Forecasts The Australian Salary Movement Index looks at reward movements from two different perspectives –

Fixed Annual Reward (regular fixed income), and Total Annual Reward which includes incentives such as

bonuses and commissions.

Fixed Annual Reward (FAR) Movements The Hay Group definition of Fixed Annual Reward (FAR) is the sum of base salary, fixed allowances,

benefits and superannuation. It does not include variable cash. (Refer to Appendix for remuneration

definitions).

Fixed pay increases across sectors

Fixed Annual Reward across the Industrial & Service (all organisations excluding financial services) market

rose on average by 4.3 per cent over the last 12 months, a relatively steady movement slightly above the

4 per cent forecast (Source: ASMI July 2012).

The data in Figure 3.0 Five year average Fixed Annual Reward movements, illustrates the steadily

increasing movements since the global financial crisis in 2010, which have curtailed slightly in 2013.

Figure 3.0 Five year average FAR annual movements

Fixed Annual Reward moved 3.6 per cent in the Finance sector (a more austere rise compared with 2012,

but still above the pay movements of the post GFC 2010‐2011 period). The most telling pay movement

5.4%

2.7% 2.9%

3.9%

3.6%

5.1%

2.8%

4.1% 4.5%4.3%4.3%

6.3% 6.4%

4.8%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2009 2010 2011 2012 2013

Fixed Annual Reward A

nnual M

ovement (%

)

Financial Industrial & Service Resources

Hay Group’s Average Annual Movements in Fixed Annual Reward


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was that seen in the Resources sector with a comparatively modest increase of 4.8 per cent, compared to

previous dramatic rises of 6.4 per cent and the Hay Group forecast of 6.25 per cent just 12 months ago.

This is the first time that pay increases in the Resource industries have approached those of the general

market since 2006. This unexpected change is reflective of the high volatility experienced in the sector,

attributable to fluctuating foreign demand and commodity prices, among other factors.

Total Annual Reward (TAR) Movements Total Annual Reward combines the Fixed Annual Reward (fixed pay) plus any short term incentives that

can be in the form of bonuses, profit sharing and sales commission. (Refer to the Appendix for

remuneration definitions).

Total Annual Reward pay increases across sectors

Total Annual Reward across the Industrial & Service market rose on average by 4.1 per cent over the last

12 months.

The data in Figure 3.1 Five year average Total Annual Reward movements, illustrates a different picture to

that of the Fixed Annual Reward movements.

Figure 3.1 Five year average TAR annual movements

Bonuses are still a key component of salary design. For the reporting period to February 2013, bonus

payments across most industries have remained relatively constant over the past year. The Resource

sector saw a 5.3 per cent increase in Total Annual Reward.

4.9%

0.1%

4.5%

5.7%

2.2%

5.7%

2.1%

5.0%4.9%

4.1%4.4%

8.8%

5.5%5.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2009 2010 2011 2012 2013

Total A

nnual Reward Annual M

ovements (%)


Hay Group’s Average Annual Movements in Total Annual Reward


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A notable exception to this trend was the Financial Services sector which experienced a major slowdown

with their incentive payouts. This reflects the global nature of the Financial Services industry which has

been impacted by major monetary pressures in Europe. Other factors at play are that incentives are

heavily measured against financial performance hurdles and while the actual incentive dollar amounts for

the Financial Services sector is similar to that of the general market, Financial Services companies have

more employees with incentive‐based pay than organisations in other sectors, hence the movements

tend to be more volatile when viewing pay that includes incentives.

Fixed salaries to increase by 3.5 per cent while increases for Resources slowly converge

Hay Group forecasts salary adjustments of 3.5 per cent in Fixed Annual Reward for All Industries

(Industrial & Service and Financial Services) and 4.3 per cent in the Resources sector in the coming year

(See Figure 3.2). This is the lowest expected rise since the GFC, a sign of the cautiousness within the

Australian market. However, Hay Group envisages higher increases to extend to critical or technical roles

in all resource related industries, most notably at the professional job levels.

Figure 3.2 Forecasted FAR movements

The Hay Group PayNet Database did not record any sign of ‘pay freeze’ policies in the reporting period. In

other words, salaries increased across the board, but by a smaller percentage in some industries. Yet Hay

Group is seeing these pay increases steadily becoming smaller each quarter, so the outlook may include

some pay freezes as the lack of visibility of pipeline opportunities begins to bite.

5.4%

2.7%2.9%

3.9%

3.6% 3.5%

5.1%

2.8%

4.1% 4.5% 4.3%4.3%

6.3% 6.4%

4.8%

4.3%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2009 2010 2011 2012 2013 2014

Fixed Annual Reward A

nnual M

ovement (%

)


Hay Group’s Average Annual Movements in Fixed Annual Reward


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04 Bonuses

Incentivised pay still important

Our market data suggests incentive pay was a crucial means of rewarding staff in the year to 28 February

2013. The prevalence of performance‐based bonus payments in the design of pay for many Australians is

high – around 62 per cent of admin and operational roles and 85 per cent of executives have a bonus

component of some form within their total package.

As well as serving as an important talent and risk management strategy, the increase in variable pay acts

to incentivise outcomes and reduce the fixed costs of reward if targets are not met. Hence, organisations

are saying – we are happy to pay more if you are more productive or deliver what the business expects of

you (and more).

Bonuses paid compared with targets

When comparing actual incentive payments to the target set in 2012, no employee group was able to

achieve their target payouts (as shown in Figure 4.0). Incentives are continuing to be used within the

marketplace as a vehicle for achieving better performance but the payout rates have remained steady

over the past few years.

Figure 4.0 Comparison of actual payouts vs. 2012 targets for four different groups of employees across All Sectors

As evident in Figure 4.0, target levels differ significantly for different job levels, with executive levels

receiving the highest bonus component, and the greatest level of risk. This continues the common

practise of rewarding executives relative to company goals and performance. The increased ‘line of sight’

6.2%7.8%

13.0%

37.9%

2.8%4.2%

9.3%

32.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Admin/Operations Grads to 1st level mgr Managerial Executive

y g ( )

2012 Target

Payout Rate

Work Groups

Actual Payouts vs 2012 Targets (%FAR)


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between pay and performance means the split between fixed and incentive pay is more distinct with

bonuses typically making up 37.9 per cent of the fixed package.

The use of incentives has not changed drastically over the past few years. The prevalence of incentive

targets for employees is relatively similar amongst organisations in the Industrial & Service (71 per cent)

and Financial Services sectors (74 per cent). Yet the actual payout rates are very different. In the

Industrial & Service sector, 58 per cent of employees received a bonus payment, while in the Financial

Services sector 82 per cent of employees received bonuses. This means incentives reach many more

employees and are more prevalent within the Financial Services industry than in other industry sectors.

Hay Group’s research has found that organisations that communicate reward effectively to ensure

employees understand what they are rewarded for and link this to performance are the ones that are

more likely to have an improved shareholder return and lower staff turnover.


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05 Pay Comparisons

Comparison by Industry Sector

‘Hot’ Sectors

Resources and construction jobs still command a premium

Salaries in the Resources and Construction industries remain very high compared to the general market.

Mining (28.5 per cent), Oil and Gas (18.5 per cent), Construction (13.8 per cent) and Industrial Metal (10.4

per cent) are leading the way commanding double‐digit premiums in total pay packages above the rest of

the market (refer to Figure 5.0 below).

Figure 5.0: ‘Hot’ industry sectors paying a premium for talent in 2013 (Total Annual Reward)

Twelve months ago this picture was quite different both in terms of percentage amounts and order of

industries. Mining commanded a pay premium of 20.5 per cent, Construction was second with 18.8 per

cent and Oil and Gas earned a premium on 16.5 per cent. This shows the extent to which pay for Mining

and Oil and Gas workers has increased relative to other industries. Despite lower than expected pay

increases in these industries, the starting point in which these increases are based on (FAR) are a lot

higher, therefore the dollar amount is bigger also.

28.5%

18.5%

13.8%

10.4%

6.5%

4.7%

1.0%0.3%

0%

5%

10%

15%

20%

25%

30%

Mining Oil & Gas Construction Industrial Metal Banks Utilities Chemicals Telecommunications & Media

2013 Industry Pay Premiums base on Total Reward values


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Hay Group expects that even though Mining and Construction industries will continue to experience

volatility and pay increases will continue to closer to the general market, actual pay differentiation against

other sectors will remain fairly similar in the coming year.

Weaker Industry Sectors

Not‐for‐profit, Education and Public Sector jobs below average

By contrast, Figure 5.1 reveals the lower pay in a number of other sectors. Average total annual reward in

the Fast Moving Consumer Goods is lower than the general market by 5.9 per cent followed by Building

Materials and Agriculture, Forestry and Fishing. The greatest pay differentiation was seen in Not‐for‐profit

(9.6 per cent below), Public Sector (10.2 per cent) and Education with 11.3 per cent below the market.

Figure 5.1 Fixed Annual Reward salary differentiations in weaker industries (comparisons against the market median)

Organisations that have the highest number of employees in Australia are more than likely to be the

lowest payers with the FMCG, Education, Public Sector and Hospitality industries all between 5 and 11 per

cent below market average.

For other industries such as Manufacturing, Tourism and Retail that have been affected by high exchange

rates on currency, global volatility and subdued household spending as Australians brace themselves for

rising living costs, pay increases are expected to be lower. This means organisations should pay careful

consideration to the sectors in which it competes for talent, which may differ for different groups of jobs.

‐5.9% ‐6.2%

‐8.0%

‐9.1%‐9.6%

‐10.2%

‐11.3%‐12.0%

‐10.0%

‐8.0%

‐6.0%

‐4.0%

‐2.0%

0.0%

FMCG ‐ Food & Drink Building Materials Agriculture Forestry & Fishing

Leisure & Hospitality Not‐for‐Profit Public Sector Education

% Difference in

Total Annaul Reward

2013 Industry Pay Premiums base on Total Reward values


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Hot Jobs

The flow‐on effect of the resources boom is the demand for key skills and ‘hot jobs’. As a result of fierce

competition for talent in these sectors, pay values are being driven upwards.

Resources jobs set the pace

Mining operations was the ‘hottest’ job family in 2012/13, followed by Petroleum Engineering. As shown

in graph (5.2), Mining related jobs are clearly leading the rest of the market.

Jobs in Mining Operations, Exploration and Petroleum Engineering command Total Annual Reward

premiums over 30 per cent while mining engineering jobs attracted premiums of around 27 per cent.

This highlights the skill shortages apparent within these industries, as well as the high pay rates these

types of roles can command due to the specialised knowledge the individuals must have in order to

perform the duties properly. In general, where the demand is high for these specialist roles, skilled

workers are in short supply.

Figure 5.2 Comparative pay differentiation in higher paying job families vs. all jobs in the market

At the other end of the scale, jobs in Merchandising, Education and Social Caring Work ranked lowest with

pay levels between 11‐16 per cent below the market.

Specialised skills in hot demand The shortage of specialised and technical roles driving pay growth

When looking a little deeper into the specific types of hot jobs, the specialised technical‐based positions

within the Resources, Construction, and Utilities industries are attracting the premiums across all work

38.6%

31.7%30.3%

27.2%

‐6.3%

‐12.2%

‐15.7% ‐16.7%‐20.0%

‐10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

Mining Operations

Petroleum Engineering

Exploration Mining Engineering

Call Center Merchandising Education Social and Other Caring Work

2013 High and Low Payers by Job Family2013 High and Low Payers by Job Family


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levels. Figure 5.3 shows just how dramatic this year on year increase has been with technical roles at all

levels commanding much higher premiums compared with their non‐technical colleagues. This

demonstrates where the investment in human capital has been spent and also how valuable these

specialists are.

As expected the professional levels are the most differentiated. Technical roles of this nature contain

specific knowledge which is immediately utilised within operations. As the technical roles become more

senior, their usefulness as a technical expert to the business diminishes as managerial roles require more

expertise in terms of leadership and less in terms of deep technical knowledge.

Figure 5.3 Pay movements of technical roles

Most common jobs

It is clear that resource‐based jobs are ‘winning’ in terms of pay. At the other end of the spectrum, there

are also those jobs with a pay differential close to or below the national market average (See Figure 5.4).

This graph shows that many roles that are common across all industries and organisations are

commanding only small percentages above the national average. A clear picture emerging is the earning

power of the skilled technical specialist compared to other professionals.

Twelve months ago, the 2012 Salary Movement Index found there were more ‘common jobs’ sitting

below the average, including Marketing, Sales, HR and Customer Service. This year these jobs are now

back in line with the rest of the market. It is interesting to see Health and Environment jobs earning above

the average, compared with the lower premiums for Legal, IT, HR and Marketing. At the other end of the

spectrum Admin and Research and Development roles are under the market average.

8.2%

13.4%

7.0%

19.3%

29.5%

18.3%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Operations Grads to 1st level mgr Managerial

Differential Percentage

2012

2013

Work Groups

Pay Differences of Technical vs Non-technical Positions2012-2013 (TAR)


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Figure 5.4: Total Annual Reward comparisons for common job families

Comparison by Geography

Highest premiums in remote Western Australia

Figure 5.5 shows jobs in regional Western Australia command the highest differentiation – 21.9 per cent

larger Total Annual Reward salaries compared to the nation’s average for all geographies. In 2012, the

difference was 16.8 per cent and in 2011 it was 13.4 per cent, suggesting the gap in Total Annual Reward

in regional Western Australia is widening rapidly (Source: Hay Group ASMI July 2012 & Nov 2011). There

is clearly still a need to pay well above the average to attract workers to the most remote parts of

Australia.

Meanwhile, jobs in regional Queensland earn a premium of 3.4 per cent in Total Annual Reward. This

contrast with Western Australia is probably due to the fact that Queensland mining jobs are located close

to regional centres, rather than in remote parts of the state. For this reason, workers do not require such

high wages as enticement to overcome geographic (and social) isolation. It is significant that all

geographies where pay is above the market median correlate with resources, oil and gas and construction

investments – a clear illustration of the pay practices that followed the boom.

11.4%

2.1%1.8% 1.6% 1.6% 1.4%

1.1% 1.0% 0.8%

0.0%

‐1.1%

‐4.4%

‐6.0%

‐4.0%

‐2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Health & Envir.

Legal Production IT Marketing HR Finance Logistics Sales Corporate Affairs

Admin R&D

Common Job Families DIfference from all Jobs (TAR)Common Job Families Difference from all jobs (TAR)


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Figure 5.5 Geographical Total Annual Reward differentiation

The growth in Western Australia is also evident in the State’s most recent employment figures. The

Department of Education, Employment and Workplace Relations (DEEWR) has reported that over the year

to December 2012, employment increased significantly in Western Australia, up by 53,200 (or 4.2 per

cent), compared with the national employment growth rate of 1.0 per cent. The WA labour market is

tighter in terms of availability of skilled workers than the national average, and employers are still

experiencing some difficulty in attracting workers with specialist skills and extensive experience. (DEEWR

Skill Shortages Western Australia July –December 2012 report).

By contrast, labour market conditions in Victoria weakened further over the year to December 2012, with

notable declines in manufacturing, construction, and support services employment. The unemployment

rate rose to 5.5 per cent in December 2012. Over the period, the participation rate fell to 65.1 per cent

(Source: DEEWR Skill Shortages Victoria July‐December 2012).

In terms of how these labour market figures relate to pay movements, the data reveals a widening gap

between Perth and other cities, especially Adelaide and Melbourne. These differences seem to correlate

with differing labour market conditions in each state, rather than the comparative cost of living

(considering that Melbourne is Australia’s second most expensive city to live in and fifth most expensive

city in the world).

Compared with the year‐on‐year figures, this trend is very clear. In 2012, Melbourne‐based workers

earned Total Annual Reward ‐1.17 per cent below the national average, and today this has slipped to ‐3.1

per cent. Meanwhile, Perth‐based worker's total earnings moved from 1.8 per cent to 6.8 per cent above

ce from

NT

Regional(-2.7%)

Regional(0.0%)

Regional(-2.8%)

TAS(-6.4%)

WA

Perth(6.8%)

Regional(21.9%)

QLD

Brisbane (-0.4%)

Regional(3.4%)

Adelaide(-3.2%)

Melbourne(-3.1%)

Sydney

(0.0%)

SA NSW

VIC


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the national average. There may be a need to differentiate pay package rates for jobs in Perth depending

upon the role and situation.

Although Sydney is a more expensive city to live in, compared with Brisbane, individuals are earning

comparable salaries in the Hay Group PayNet database. Employers may like to consider the geographic

location of a role when considering pay, but there is no obvious link to suggest that workers located in

cities with a higher cost of living, receive higher pay as a result.

Interestingly, a recent study by Hay Group comparing international pay across the world’s largest cities

found that Sydney workers are the 4th highest paid workforce in the world behind Geneva, Zurich and

Oslo (Hay Group International Comparison Report 2012).

Another key reason for the pay difference in Western Australia is that employees in Perth and Regional

WA are receiving incentive payouts that are closer to target than that of other locations (See figure 5.6

below). Although the incentive target percentage may not be higher than all other states, the starting

point in which the incentive is based on (FAR) is a lot higher, therefore the dollar incentive amount is

bigger also.

Figure 5.6 Perth and Regional WA payout rate is closer to target then other geographies

Actual Payouts vs 2012 Targets (%FAR) - Managers

13.0%

10.0%

9.0%9.3%

8.0%

9.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

All Geographies Perth Regional WA

2012 Target

Payout Rate


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06 The Global View

Mature Markets

According to Hay Group’s global PayNet databases, the Australian market is well positioned when

compared to other mature markets such as US, UK and also NZ. In 2013, Australia’s salary forecast

predicts a 3.5 per cent increase, ahead of the US, UK and NZ (all predicting less than 3 per cent rise) across

all levels in the market (Refer to Figure 6.0 below).

Australian general market pay movements in 2012 were well ahead of these markets, in particular those

seen in the US and UK where the challenging economic climate resulted in small movements of 1.5 per

cent in the US and marginally higher 1.7 per cent in the UK. Countries such as the US and UK are

beginning to recover as is indicated with the increase forecast rates, but still remain slower than Australia.

Figure 6.0 Median general market salary movements and forecasts comparison between mature markets

4.0%

1.5%

1.7%

3.5%3.5%

2.9%

2.7%2.8%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Australia US UK NZ

2012 Movements

2013 Forecast

Established Markets Movement and Forecast Comparison


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Regional Markets

India had largest real wage outcomes in 2012

Hay Group’s PayNet database showed that in the developing regional markets, India recorded the highest

wage growth in 2012 (11.7 per cent) and also has the highest growth forecast among these regional

economies. China’s pay growth was close behind with 9.0 per cent, followed by Malaysia (5.7 per cent)

and Indonesia (5.5 per cent).

Compared to the forecast, India's high rate of pay growth was above expectations ‐ the forecasted

movement in 2012 was 10 per cent. Similarly, China's forecasted growth of 9 per cent was also exceeded

in the last 12 months (Source: Hay Group Australian Salary Movement Index July 2012). It is interesting to

see that these dramatic wage rise forecasts are being met and exceeded in these dynamic economies.

The forecasted increase rates for 2013 across the region remain quite high with India and Indonesia

expecting double digit growth. The region is bracing for continued economic growth and this is being

reflected in the continual high forecasted pay rates.

Figure 6.1 Salary movements and forecasts comparisons in regional markets

9.4%

2.8%

11.7%

5.5% 5.7%

9.0%

5.2%

11.6%

10.8%

6.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

China Hong Kong India Indonesia Malaysia

2012 Movements

2013 Forecast

Regional Markets Movement and Forecast Rate Comparison


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07 Recommendations

When it comes to how organisations reward employees, getting it right can have a huge impact on productivity, performance, team morale and loyalty. The same can be said for getting it wrong. Given the relatively small pay increases that are forecasted for the coming quarters, retaining talent and incentivising performance through traditional pay‐related measures may require a rethink. As has been presented, the market differs substantially across jobs, sectors and geography, hence organisations need to focus on understanding the market that they compete in and apply the appropriate monetary and non‐monetary rewards that best fit. In the current Australian market, employee retention is a real concern. With Australia's low unemployment, highly valued employees may look elsewhere for more favourable work environments, making retention a growing concern for organisations. In fact, Hay Group has recently conducted research with the Centre for Economics and Business Research (Cebr) that found 58 per cent of Australian workers do not intend to stay in their current jobs for more than five years. The research reveals that organisations wishing to have higher engagement among employees and lower turnover should focus on getting these five fundamentals right. 1. Confidence – in the organisation and its leadership, providing clear direction ‐ line of sight ‐ and

support 2. Development – ensuring clear pathways for career development and progression are in place and

communicated 3. Selection – ensure you are selecting the right people for the right job in order to maximise employee

contribution and minimise turnover costs 4. Reward – fair (internal and external) recognition of both monetary and non‐monetary methods,

ensuring it’s a good fit for the organisation 5. Enabling employees – giving people what they need to do a good job, and an environment that is

positive and one that fosters innovation and creativity


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08 Appendix

Remuneration Definitions

Movements

Salary movements presented throughout this report have been calculated using only those organisations

participating in the database at two anchor points in a 12‐month period i.e. 1 March 2012 and 28

February 2013. This ensures that the movements presented are reliable and valid when examining trends

over time. These are reflective of each individual 12‐month period and are not to be taken as cumulative

over a number of years.

Actual Short Term Incentive

Actual Short Term Incentive (STI) is the actual award amount paid during the most recent 12‐month

period under a target based incentive or bonus / profit sharing plan. Where applicable it also includes

commission, production bonus and productivity bonus. The full year award is included even where part of

the payment is deferred for a period of time. This concept includes zero values i.e. where an incumbent

qualified for a Short Term Incentive but did not receive one in the last year, for performance reasons. It

does not include incumbents who do not participate in any Short Term Incentive scheme.

Target Short Term Incentive

Target Short Term Incentive is the target award amount anticipated to be paid at the completion of the

current 12‐month period under a target based incentive or bonus / profit sharing plan at the planned

performance level. Where applicable it also includes targets for commission, production bonus and

productivity bonus. The amounts given under this concept may or may not include the superannuation

associated with the payments as per “Ordinary Time Earnings” (hereafter referred to as OTE).

Fixed Annual Reward

Fixed Annual Reward (FAR) is the sum of base salary plus fixed allowances and benefits such as medical,

telephone, company cars, loans, club fees, car allowances plus employer superannuation on fixed package

elements, but excluding Actual Short Term Incentive and related Superannuation on variable OTE package

elements. The cost of Fringe Benefit Tax (FBT) and Goods and Services Tax (GST) is also included.

Total Annual Reward

Total Annual Reward (TAR) is FAR defined as above with the addition of Actual Short Term Incentive

payments and related superannuation contribution on variable OTE payments.

STI as a Percentage of FAR

STI as a Percentage of FAR is the Actual Short Term Incentive amount paid during the most recent 12‐

month period under a target based incentive or bonus / profit sharing plan as a percentage of Fixed

Annual Reward.


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Target as a Percentage of FAR

Target as a Percentage of FAR is the Target Short Term Incentive amount anticipated to be paid at the

completion of the current 12‐month period under a target based incentive or bonus / profit sharing plan

at the planned performance level as a percentage of Fixed Annual Reward. As defined above, Target Short

Term Incentive payments may or may not include the superannuation associated with the payments as

per OTE.

Please note: all of the above definitions EXCLUDE payments which vary due to the hours worked (e.g. shift

allowance, overtime, callout/standby payments) and any allowances which are site related (e.g. Fly‐in Fly‐

Out, remote location).

About this Report

The Australian Salary Movement Index (ASMI) is released on an annual basis. It observes trends

throughout Australia across all industries, geographic regions and job levels.

This report includes detailed analysis, which addresses the following questions:

How is the economy tracking?

How has pay moved in the key sectors and what is the salary forecast for next 12 months?

Which geographic, industry and job family pay differentials does one need to be aware of?

How prevalent are Short Term Incentives? What is the value of incentives?

How does the reward mix vary by job size?

How are global markets moving?

The Australian Salary Movement Index report is a comprehensive overview of the Australian reward

climate as reflected by Hay Group’s PayNet database. This report is based on market results from 440

organisations and well over 280,000 jobs collected by Hay Group updated on 28 February, 2013.

Internationally, Hay Group’s PayNet databases cover over 90 countries with 15,000 organisations

providing data on 12 million incumbents.

The charts below represent the distribution of the Australian database participants by major industry.


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Data Collection

Data is collected on a rolling basis throughout the year as clients complete their annual remuneration

review cycles. This ideally occurs within 90 days of a finalised review. This approach means that Hay

Group’s Australian databases reflect only current data, direct from our client organisations. Data

submissions are subjected to extensive quality checks before they are integrated to the database.

All survey jobs require full identification coding to allow analysis based on geography, industry and job

family. Every part of the remuneration mix has also been collected allowing analysis for each component

and/or aggregate in isolation, as well as overall package value.

About Hay Group

Hay Group is a global management consulting firm that works with leaders to transform strategy into

reality. We develop talent, organise people to be more effective and motivate them to perform at their

best. Our focus is on making change happen and helping people and organisations realise their potential.

We have over 2600 employees working in 85 offices in 48 countries. Our clients are from the private,

public and not‐for‐profit sectors, across every major industry. For more information please contact 1800

150 124 or email us at [email protected].

1%1%

2%2%2%2%2%2%

3%3%3%3%3%3%3%3%

4%4%

5%5%

6%6%

7%8%8%

9%

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

Consumer DurablesTelecommunications & MediaAgriculture, Forestry & Fishing

ConstructionEducation

Industrial MetalsLeisure & Hospitality

Other Financial ServiceBanks

Building MaterialsFMCG ‐ Other

High TechnologyInsurance

Pharmaceuticals & Healthcare ProvidersPublic Sector

RetailBusiness Services

Professional ServicesFMCG ‐ Food & Drink

Not‐for‐ProfitMining

Oil & GasTransportation

ChemicalsUtilities

Industrial Goods

Percentage of Participants

Distribution of Participants by Industry Classification


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Specifically with reward, Hay Group helps organisations untangle complex compensation and total reward

information to reveal the insights needed to make pay decisions and support strategic business goals.

We help clients in over 90 countries utilise benchmarking information to maximise the return on their

payroll investment. We always seek to understand your reward information requirements and present

the right solution to meet your needs. We understand the role of reward as a strategic ‘lever’ in

organisations and we have unrivalled experience in providing detailed and practical information to guide

on‐going decisions.

We can help organisations regardless of size. Our client base spans multinationals with thousands of

employees across multiple geographic regions.

Our databases enable clients to make in‐depth compensation comparisons with unparalleled consistency

and reliability. We are continually improving and expanding the databases to provide deeper dimensions

of analysis, more customised capabilities and greater flexibility.

About the Authors

Steven Paola is a Senior Consultant with Hay Group based in Melbourne. Steven helps organisations

understand how reward can be managed efficiently and effectively in the organisation to benchmark its

internal equity and external competitiveness and achieve the appropriate return on investment. This

specifically revolves around providing advice and interpretation of market pay and benefits information

and then the link to how best use this in the organisation.

Trevor Warden is the National Practice Leader for Strategic Reward for Hay Group Pacific, based in

Melbourne. Trevor area of expertise is working across people issues with a focus on executive and

employee reward. He helps organisations develop sound people, reward and performance strategies and

implement practical programs that are aligned to business strategies and objectives.

_______________________________________________________________________________ Disclaimer

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is

published on the understanding that the publisher is not responsible for any errors or omissions and for any action or actions that

are taken or for any consequences of reliance on this information by the purchaser or any other person or persons as a result

either directly or indirectly of the information contained in this publication.

Copyright

This publication is copyrighted. All rights are reserved by Hay Group Pty Limited including right of total or partial reproduction in

same or deceptively similar form without written permission of the owner of the copyrights.


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Media and Analyst Enquiries: We encourage you to contact us if you require additional information not contained in this report,

or should you need assistance in interpreting the survey results. You can contact Reward

Information Services at the following locations within Australia:

Melbourne Office:

Level 27 Suite 10

360 Collins Street

Melbourne VIC 3000

Tel: (03) 9667 2666

Fax: (03) 9667 2699

Brisbane Office:

Level 14

340 Adelaide Street

Brisbane QLD 4000

Tel: (07) 3832 0033

Fax: (07) 3832 1546

Sydney Office:

Level 17

1 Castlereagh Street

Sydney NSW 2000

Tel: (02) 8227 9300

Fax: (02) 8227 9399

Perth Office:

24 Railway Road,

Subiaco Perth WA 6008

Tel: (08) 6380 1331

Fax: (08) 9381 2425

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