managing investment in employees strategically

Managing Investment in Employee Strategically

A New Era in Compensation Management – using remuneration to execute strategy

Copyright held by Brightworks

Brightworks ProfileSouth African registered private company with offices in South Africa and Zimbabwe, founded in July 2007 and markets their unique Electronic Compensation Management Toolkit (ECMT), primarily on the African continent. - South Africa, Lesotho, Swaziland, Botswana, Namibia, Zimbabwe, Mozambique, Malawi, Zambia, Tanzania, Kenya, Burundi, Nigeria, Mauritius and Dubai

SHAREHOLDERS:

• Pat Wright: Managing Director specializes in job evaluation and compensation management with over 25 years’ experience in the reward consulting field, including 15 years with pwc Zimbabwe and South Africa managing the Human Resource Consulting Department. Produced the Zimbabwe National Salary Surveys and Malawi Industry specific salary surveys in association with Imani Development. Designed the ECMT and has consulted with and installed the Toolkit in over 200 organizations across all sectors, both Private and Public

• Michael Mitchley: Financial Director. business executive with over 30 years of experience in the finance, HR and IT fields. His work experience includes holding senior positions at Gold Fields, Billiton and Richards Bay Minerals as well as working as an independent consultant on performance management, large shared services and other change management projects.


Background

Background

• Clients have recognised the need to take a more strategic approach to compensation management. Human Resources can and should be playing a vital role in contributing to the growth and sustainability of the organization by managing their most important and differentiating assets – people.

• Compensation is seen as an effective tool to reinforce and encourage desired

behaviours aligned with achieving business objectives and clients realise that sourcing talent at the right prices and managing its talent is imperative for ongoing growth and sustainability.

• In order to manage its compensation strategically and effectively, the client requires a consistent approach in both its Job Evaluation system and its Remuneration and Talent Management Policies and practices across its operations.


Compensation TerminologyAnnual Basic Salary – the fixed guaranteed cash payment made to an employee,

typically on a monthly basisTotal Guaranteed Package (TGP) - basic salary + guaranteed cash and guaranteed non-cash

benefitsShort Term Incentives (STI) - Annual Performance bonus/profit shareTotal Gross Compensation (TGC) - total guaranteed package + STIs Long Term Incentives (LTI) - share options etc. is specifically excluded from

remuneration data for comparisonsComparators - companies agreed to represent market data for external

competitiveness comparisonsSalary Scale Policy - Min, Mid and Max Pay Lines constructed from the

comparator sample base selected quartileLow Anomaly - Employee whose TGC is less than the Min of the market

policy quartile (red)Within Scale - Between Min and Max of the market policy quartile (green)High Anomaly - Employee whose TGC is more than the Max of the market

policy quartile (blue)Copyright held by Brightworks

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CASE STUDY – Managing Investment in Employees Strategically Improvement in External Competitiveness - Total Gross Compensation as a percentage of Selected Market Median

Improvement in Internal Equity- Percentage of Employee within Scale of Policy

2007 2008 2009 2010 2011 2012 2013 2014 2015 Proposed

70.83% 78.53% 82.76% 87.12% 91,56% 95.78% 97.12% 98.80% 100%

2007 2008 2009 2010 2011 2012 2013 2014 2015 Proposed

36.17% 48.12% 66.34% 72.12% 82.17% 88.34% 92.12% 95.22% 98.00%

Improved External competitiveness and Internal Equity taking into account talent management initiatives = motivated employees


CASE STUDY – Improved Investment in Employee – Employee Costs as a percentage of Op Profit 2007 - 63.75%

Employee Costs as a percentage of Op Profit 2008 - 60.88%






Employee Costs as a percentage of Op Profit 2014 - 53.45%Proposed Employee Costs as a percentage of Op Profit 2015 - 52.63%

Improved Employee costs as a percentage of Financial Metrics = satisfied Shareholders – highlights ROI on talent management initiatives


Managing Investment In Employees StrategicallyEffective Organization Structure – based on Strategy and business

objectives

Job Evaluation - Job Descriptions, Grading

based on Org. Structure

Set Remuneration Policy and Guidelines based

on Rem Strategy

Formalise Benefits and Allowances, Policies and Conditions of

Service

Salary structuring Establish external

competitiveness and internal equity

Formalise Perf. Mgt., retention and

succession planning policies - link to pay

Formalise Rem. Review Process. Manage

Investment in Employee

Getting the Foundation Right to achieve Strategy

Talent Management – achieving targets/ margins

Managed by ECMT


Organizational Structures

Organizational structures exist to enable the performance of work activities in line with the company's strategy. This definition applies at every level of the organization, from corporate layers to functional business units

Indicators for poor organization design:- lack of coordination; - activities that no one is held accountable for; - buried "shadow" functions resulting in overlaps of tasks;- poor flow of information and work; - slow decision making and responsiveness; and- destructive conflict


What is Job Evaluation?

• Process by which each job, in relation to every other job in the company (and ultimately, the Group), is systematically, objectively and reliably valued from the JOB content

• There are several methods of job evaluation, each with their own criteria for sizing jobs

• Ultimately, all job evaluation systems do the same thing – provide relative hierarchy of jobs within an organization – it is just the label that is different

• It is concerned with the content of the JOB, and has nothing to do with the PERSON carrying out the job

• GRADE the JOB – PAY the PERSON based on talent management initiatives


• Facilitates the analysis and definition of the new and revised organization structures;

• provides a much clearer understanding of Line Manager and job incumbent own jobs, those in the relevant Department and in some instances, other Departments;

• Job Description details Key Result Areas and related activities, KPIs, Key Decisions, Supervisory Control etc. Job Holder and supervisor understand exactly what the job requirements are;

• Provides the foundation for the implementation of all Human Resource Systems, such as Recruitment, Training and Development, Performance Management, Retention and Succession Planning

Benefits of implementing a Job Evaluation System


Managing Compensation Strategically

An annual Salary Review takes into account:

• Economic background -inflation, currency devaluation etc.

• Remuneration policy -selected market quartile, retention policy, internal equity etc.

• Measurement of JOB -Comparisons against local market at job worth (grade) and job function = accurate JOB alignment

• Measurement and placement of INDIVIDUAL holding the job;-strategic placement of individual within policy range based on performance and talent management strategy

• Affordability – -Salary and Wage bill vs. company financials, turnover/profit etc.


The primary use of ECMT

ECMT was developed to provide for the unique requirements of companies operating in the region.

Objectives - to provide a system:

• for the entire organization across all its operations;• that is agile and can adapt to market changes;• that supports strategy;• that is objective and transparent;• that provides for competitive and market-aligned compensation;• that provides for internal equity whilst still taking into account premiums for

skills shortages; and• that is aligned with other HR initiatives and programs – talent management

Not Essentially a Survey company – BUT external comparisons are part of Strategic Investment in Employee Copyright held by Brightworks

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0

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

Company A Company B Company C

Annu

al T

GC

Package Composition Example Table

Basic Benefits Variable

Only common factor across varying compensation arrangements is Annual Total Guaranteed Pay (TGP). External comparisons are made at TGP


• Comparator organizations in each labour market use a variety of job evaluation systems:

- formal systems such as Paterson, Peromnes, Hay, JE Manager, Towers Watson etc.

- informal ranking systems

• All Job Evaluation systems are doing the SAME THING. They are measuring the relativity of job worth between each job within the organization, and ultimately measuring each job against the highest graded job i.e. CEO/ MD

• Correlation to one system i.e. Paterson – it is the most commonly used system across Africa. It has 28 sub-grades which makes it ideal for correlation purposes. Extensive consultant experience

• No generic correlations, each organization NOT using Paterson is correlated using:

- current grades/ranking

- organograms to determine reporting structure

Market Data Analysis – Job Worth Correlation


HR Manager – 30 Incumbents (TGC Span: Min 3,200 – Max 11,865)

C4 C5 D1 D2 D3 D4 E1 C4 5,000 5,000 3,200 6,750 4,800 7,500 10,850 11,865 C4 6,200 6,200 6,820 5,650 5,950 8,650 9,745 9,040 C4 4,550 4,550 5,725 6,725 6,800 9,000 8,200 C4 5,600 5,600 8,200 7,725 C5 3,200 7,120 9,200 C5 6,820 8,540 8,355 C5 5,725 7,600 7,540 D1 6,750 10,780 D1 5,650 D1 6,725 D2 4,800 D2 5,950 D2 6,800 D2 8,200 D2 7,120 D2 8,540 D2 7,600 D3 7,500 D3 8,650 D3 9,000 D4 10,850 D4 9,745 D4 8,200 D4 7,725 D4 9,200 D4 8,355 D4 7,540 D4 10,780 E1 11,865 E1 9,040 25'th 6,013 4,888 4,463 6,188 6,375 8,075 8,081 9,746 50'th 7,520 5,300 5,725 6,725 7,120 8,650 8,778 10,453 75'th 8,623 5,750 6,273 6,738 7,900 8,825 10,004 11,159 90'th 9,849 6,020 6,601 6,745 8,336 8,930 10,801 11,583

Data analysed by Job Title Data analysed by Job Worth and Job Function

Grade HR Manager

HR Function


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Job Family/Function Example Graph

Total Gross Compensation by Paterson Grade and Job function

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

A1 A2 A3 B1 B2 B3 B4 B5 C1 C2 C3 C4 C5 D1 D2 D3 D4 D5 E1 E2 E3 E4 E5 F1

Paterson Grade

Ann

ual T

otal

Gro

ss C

ompe

nsat

ion

All Gen Fin IT HR Ops Tech Sls Whouse Risk

Data analyzed by job worth AND job function to take into account any premiums paid in local market based on skills pools Copyright held by Brightworks

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Setting ECMT Foundational Guidelines and Talent Management

COMPENSATION PHILOSOPHY Example

At Co X we are committed to providing a strategically aligned and competitive compensation program to enable us to attract, retain, motivate and reward our people to deliver outstanding performance. We strive to balance internal and external equity. We have a clearly defined process which supports our company strategy and links individual

pay to individual and company performance.

18 Copyright held by Brightworks

Background

Defensible Remuneration Policy Guidelines Example

Compa Ratio -

Salary / Midpoint

1) Retention Policy 2) Performance Management Policy 3) Equal Pay for Equal Work- Defensible differentiating criteria

Score Description Level of Performance Score Description Experience Qualification Performance Tenure Competence

130% 7 Critical specialist/Unique skill

Stretch

5 Merit/Exceptional

Relevant experience for

the jobExpert

Outstanding /Very good

performance

> 3 years in role

Coaching others

125% 6 Critical retention

120% 5 High potential – Succession planning

4 Above Average110% 4 High retention

100% 3 Medium retention Target 3 AverageExperience

required for the job

Fully qualified

Meet performance requirements

2-3 years in role

Fully competent

85% 2 Low retention

Below Target 2 Marginal Some relevant

experienceApproaching qualification

Does not meet performance requirements

Less than 2-3 years

Approaching full

competence75% 1 Needs development / New appointment

< 75% No Score

Employees who are low anomalies for good reason and market matching is not required ( Students/ Pensioners/Temps)

Poor Performance 1 Unsatisfactory None / very little

experienceNot yet qualified

Poor or not yet assessed

New / < 1yr in role New in role


Background

Remuneration Guideline Considerations

Selection of comparator organisationsSelection of how many job function structures and which are appropriateDecide if Comparisons at TGP or TGCDecide if Comparisons based on Eligibility or ActualSelection of quartile/s at which to pay

Retention/ Talent Management Policy

Selection of Retention Range - i.e. can narrow (between 90% - 100%) or broaden( between 75% and 125%) based on strategy/affordability, recruitment requirements

Performance ManagementLinked to increase or kept as annual one off Bonuses

Managed and Costed by ECMT

Market Survey and Market Salary Structure analysis

USE ECMT to guage whether selected

policies are affordable/ sustainable


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ECMT Demo (for a demonstration, please contact Pat Wright on +27 79 808

3444

Potential Actions Required for Review· Job Grade maintenance/check for extreme anomalies· Formalise annual increase process and policy;· Formalise talent management (retention/market alignment policy);· Managing Anomalies -select optimal solution in terms of cost and impact to

company and individual - Utilise the toolkit to assess cost implications based on formal policy;

· Implement market related adjustment taking into account retention and succession planning strategy for key skills as well as affordability/sustainability

· COMMUNICATE any policy changes at least three months before so no unrealistic expectations


What do we use the Toolkit for?

• Budgeting – Remuneration Committee Salary Increase Mandates• Salary Reviews – executing strategy and talent management initiatives• Benefits Policy management• Job Evaluation maintenance• Recruitment and promotions• Union Negotiations – Equal Pay for Work of Equal Value (costings to restore parity)


What are the Benefits?The toolkit is customised to the organization with regard to market sample base, market structures by job function/Status, job evaluation and allows the user to:- easily manage internal equity and external competitiveness;- see the impact of policy decisions immediately and clearly;- produce detailed compensation reviews; - do budget forecasting and tracking;- corporate governance reporting;- Employment Equity compliance

resulting in increased credibility and defensibility of remuneration decisions


Correctly motivated employees are a company’s greatest appreciating asset. Systems for their management should be in place that will allow employees to determine the rate at which

they grow and contribute

The Electronic Compensation Management Toolkit facilitates sound reward management practice

Contact:Pat WrightManaging DirectorBrightworksCell :+27 79 808 3444Email : [email protected]

managing investment in employees strategically

Leadership & Management