the future of reward in the uk - korn ferryinfokf.kornferry.com/rs/494-vuc-482/images/kfhg_global...
TRANSCRIPT
2017
The future of reward in the UK
Part of the Korn Ferry Hay Group global reward webinar series
© 2017 Korn Ferry. All rights reserved 2
Meet your presenters
Mark Robinson
Senior Account Manager, Reward
Korn Ferry Hay Group
Based in Manchester, UK
Phone: +44 (0)161 831 2492
Email: [email protected]
Mark Thompson
Senior Partner and Head of Reward and Benefits Solutions for
the UK and Ireland
Korn Ferry Hay Group
Based in London, UK
Phone: +44 (0)20 3819 7223
Email: [email protected]
© 2017 Korn Ferry. All rights reserved 3
Agenda
1 ABOUT KORN FERRY HAY GROUP 4
2 REWARD IN CONTEXT 7
3 GLOBAL PAY OUTLOOK 14
4 EUROPEAN DATA HEADLINES 21
5 UK DATA IN DETAIL 24
6 UK KEY BUSINESS ISSUES 31
1About Korn Ferry Hay Group
Who we are and what we do
© 2017 Korn Ferry. All rights reserved 5
Korn Ferry is the preeminent global
people and organizational advisory firm.
We help leaders, organizations and
societies succeed by releasing the full
power and potential of people.
Our nearly 7,000 colleagues deliver
services through our Executive
Search, Korn Ferry Hay Group and
Futurestep divisions.
© 2017 Korn Ferry. All rights reserved 5
© 2017 Korn Ferry. All rights reserved 6
Korn Ferry – a total approach to talent
Korn Ferry Hay Group helps you
align your organization to your
people – developing, engaging,
and rewarding them to reach
new heights.
Korn Ferry Executive Search
helps you attract the best
executive talent for moving your
company in the right direction.
Korn Ferry Futurestep delivers
professional talent that builds
up leadership.
Organization
Strategy execution and
organizational design
Rewards and benefits
Talent strategy and work design
People
Assessment and succession
Leadership development
Executive search and recruitment
2Reward in context
© 2017 Korn Ferry. All rights reserved 8
2030 Megatrends (from Hay Group Leadership 2030)
Changing
working
patterns
Individualization
and value pluralismThe digital era
The
environmental
crisis
Globalization 2.0 Technological
convergence
Demographic
change
© 2017 Korn Ferry. All rights reserved 9
What CEOs are concerned about – ‘hot button’ issues
Source: Conference Board CEO Challenge Survey, 2017
Hot button issues (2017) US Asia Europe Latam Global
Developing ‘Next Gen’ leaders2 3 1 2 2
Global Political Uncertainty8 4 2 6 5
Financial Instability in Europe20 20 3 23 14
Cyber Security3 5 4 10 3
Global Recession4 1 5 7 1
© 2017 Korn Ferry. All rights reserved 10
What CEOs are concerned about – human capital strategies
Human capital strategies (2017) US Asia Europe Latam Global
Encourage an open, safe and
transparent ‘speak up’ culture2 1 1 2 1
Provide employee training
and development4 3 2 8 3
Communicate effectively, consistently
and transparently5 5 3 3 4
Improve performance management
processes and accountability1 2 4 1 2
Enhance effectiveness of senior
management team3 4 5 10 5
Source: Conference Board CEO Challenge Survey, 2017
© 2017 Korn Ferry. All rights reserved 11
The last few years and up to 23rd June 2016:
UK context – headlines
Then…on 23rd June 2016, the UK voted to leave the European Union (Brexit):
Nothing is certain except uncertainty. There is a wide range of possible Brexit outcomes, including:
Immediate currency devaluation by 12%-17%
This and other factors will drive price inflation higher in 2017
Economic growth stronger
than most Western
European countries
Employment at record
levels but many new
jobs are low paid and
part-time
Therefore, despite
economic growth, there e
(real) wage growth has
been modest
Ultra low inflation and low
interest rates has been a
feature of the UK
economy since 2009
‘Hard’ Brexit
Leaving the single market and customs union. This scenario is increasingly likely but its impact will depend on the deals done to replace the common market
‘Soft’ Brexit
Leaving the EU but remaining in the single market and/or customs union. Economic impact will be less than that of a hard Brexit –but this is harder to achieve (both diplomatically and politically)
No Brexit at all
Very unlikely, but possible that complexity of Brexit and legal challenges will mean the UK remains a member of the EU
© 2017 Korn Ferry. All rights reserved 12
UK context – talent management
Complexity Details
Ageing workforce Increasing longevity means we will have to accommodate more older people
into the workforce
Continuing skills
shortages Fewer choose to study in STEM fields
Limited diversity in
leadership roles Many sectors face challenges in attracting women and minorities
Globalization of
the workforce
Increasing need for talent to be able to lead diverse teams with the cultural dexterity to thrive in new environments
Accelerating pace of
automation
Obsolescence of many traditional jobs
Rebalancing of the skills portfolios and working practices required to deliver organization goals
Pay market pressures The UK labour market remains close to full employment
Years of pay restraint leading to increasing pressure
Productivity Sluggish productivity growth since the Financial Crisis leading to inability to
increase pay without putting up prices
© 2017 Korn Ferry. All rights reserved 13
1%
1%
1%
1%
1%
2%
2%
4%
4%
7%
7%
7%
9%
10%
18%
20%
49%
Administration/Support
Category Management
Human Resources
Legal
Quality Assurance
Call Center
Health/Safety/Environment
Customer Service
Logistics/Supply Chain
Finance and Accounting
Production
Project Management
Research and Development
Marketing
Sales
Information Technology
Engineering
UK recruitment challenges
In 2016, 47% of companies reported experiencing a scarcity of candidates.
Percentage of companies reporting candidate scarcity by job family
Source: Hay Group compensation report July 2016
47%2016
41%2015
47%2014
Highest turnover rates
in sales, engineering,
admin/support
and finance
Percentage of companies reporting candidate scarcity
12.4%Average
voluntary
turnover
3Global pay outlook
Salary trends and predictions for 2017
© 2017 Korn Ferry. All rights reserved 15
Every 70 seconds,
a user logs into PayNet.
Years of sustained
global database growth.
Our pay data – key figures
Organizations in our pay
database worldwide:
25,000
Countries where we collect
and provide pay data:
110+
Job holders for whom we
have 2016 salary data:
20m+£
Of the Fortune 500
use our pay data,
and contribute to
our database.
70%
15+FMCG sector
companies in our
global database.
2500+70
© 2017 Korn Ferry. All rights reserved 16
Where do we have data?
North America
2 Countries
2,600 Companies
5.5m People
Latin America
18 Countries
2,500 Companies
3.1m People
Europe
43 Countries
12,300 Companies
8.1m People
Africa
24 Countries
1,200 Companies
607,000 People
Middle East
10 Countries
2,200 Companies
1.1m People
Asia
13 Countries
3,800 Companies
2.4m People
Pacific
4 Countries
911 Companies
447,000 People
© 2017 Korn Ferry. All rights reserved 17
Global outlook: salary trends and predictions for 2017
There is consensus that:
Inflation means this will cost more, so where will the money come from? Price increases? Lower profits? Better productivity?
Growth in 2017 will
be slightly lower than
in the last couple
of years
Inflation in 2017 will
be slightly higher than
in the last couple
of years£ There presents a hard choice for companies:
This has obvious effects on employee engagement and motivation. And (unlike in the last recession) the job market provides alternative options.
This is likely to cause a squeeze on real pay increases:
Lower growth means that
affordability will be harder
for companies
Higher inflation means that
more of any ‘headline’ pay
increases will be
eaten up by inflation
Keep employee pay rising in real terms
Allow real wage increases to be squeezed
© 2017 Korn Ferry. All rights reserved 18
Global outlook – salary trends and predictions for 2017
Headlines:
‘Headline’ salary forecasts slightly (0.1%) down on last year (4.5% 4.4%).
‘Real’ (i.e. inflation adjusted) forecasts down 0.4% on last year (2.7% 2.3%).
Highest real increases forecasted in Asia, but China’s forecast is significantly down (6.3% 4.0%).
Mature markets see headline increases averaging 2 to 3%, real increases averaging 1 to 2%.
Source: Hay Group Global Salary Forecast 2017
© 2017 Korn Ferry. All rights reserved 19
Global outlook – salary trends and predictions for 2017
Forecasted salary increase 2017
Source: Hay Group Global Salary Forecast 2017 (selected countries)
Real wage increase 2017(salary forecast – inflation)
1.8%
2.5%
2.5%
2.5%
3.0%
3.0%
4.6%
6.1%
7.0%
7.0%
8.8%
10.0%
France
UK
Germany
Canada
US
UAE
Mexico
China
Russia
South Africa
Brazil
India
1.5%
-0.3%
2.2%
0.9%
1.9%
0.5%
1.9%
0.4%
-1.0%
0.5%
0.4%
4.8%
France
UK
Germany
Canada
US
UAE
Mexico
China
Russia
South Africa
Brazil
India
© 2017 Korn Ferry. All rights reserved 20
How sectors are currently performing globally
These percentages show, overall and regardless of country or level, how much the industry is paying its employees in 2016 compared to other industries.
% – Globally, overall, how much the industry pays compared to the general market
Life Sciences
8.4%Natural
Resources
3.8%
Oil & Gas
21.8%Transportation
-2.6%Services
-3.8%Retail
-11.8%
Chemicals
9.0%Construction
-4.0%Financials
2.5%FMCG
2.4%High Tech
2.3%Industrial
Goods
-1.5%
4European data headlines
© 2017 Korn Ferry. All rights reserved 22
European salary forecast 2017
Source: Korn Ferry Hay Group Global Salary Forecast 2017 (selected countries)
2.0%
2.8%
2.0%
2.1%
1.0%
1.8%
2.5%
2.0%
2.0%
2.6%
2.8%
2.5%
2.0%
2.0%
1.9%
2.3%
1.5%
2.5%
0% 2% 4% 6% 8% 10% 12%
Austria
Belgium
Cyprus
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
United Kingdom
West Europe regional average: 2.2%East Europe regional average: 5.1%
4.0%
2.8%
3.3%
3.0%
8.6%
4.0%
4.3%
3.0%
4.3%
7.0%
4.1%
2.6%
8.9%
11.3%
0% 2% 4% 6% 8% 10% 12%
Bulgaria
Czech…
Estonia
Hungary
Kazakhstan
Latvia
Lithuania
Poland
Romania
Russian…
Serbia
Slovakia
Turkey
Ukraine
Source: Korn Ferry Hay Group Global Salary Forecast 2017 (selected countries)
© 2017 Korn Ferry. All rights reserved 23
European salary comparisons
5UK data in detail
© 2017 Korn Ferry. All rights reserved 25
UK general industry overview
The UK general industry outlook is
− GDP growth rate estimated at around 1%
− Unemployment rate is estimated to rise slightly to 5.3%
− Inflation forecast to increase to 2.8% in 2017
− UK pound has fallen against dollar from highs of around 1.5 to 1.25
Data effective date: 01 January 2017
2016 actual
2017 estimated
2018 forecast
2019 forecast
Economic growth(1) 2.0% 0.6% 0.9% 1.0%
Inflation(2) 0.7% 2.8% 2.7% 2.2%
Unemployment(3) 4.9% 5.3% 5.5% 5.4%
Wage inflation(4) 1.8% -1.0% -0.5% -0.5%
Key
1. GDP (% real change per annum): Percentage change in real GDP, over previous year
2. Consumer prices (% change per annum; period average): Percentage change in consumer price index in local currency (period average), over
previous year
3. Recorded unemployment (%): Recorded official unemployment as a percentage of total labor force
4. Average real wages (% change per annum): Percentage change in hourly wages in local currency adjusted for inflation, over previous year
© 2017 Korn Ferry. All rights reserved 26
UK salary data in detail
The forecast reveals that, adjusted for inflation, workers in the UK are expected see real salary decreases of:
down significantly from last year’s prediction of:
0.3%
2.3%
Overall salary forecast for UK in 2017
2.5 2.5 2.5
0.8
2.3
-0.3
-1
0
1
2
3
2015 2016 2017
Forecast Real
© 2017 Korn Ferry. All rights reserved 27
Salary movements Vs inflation
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Senior manager
Professional
Head of function
Operative / clerk
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Senior manager
Professional
Head of function
Operative / clerk
CPI RPI
Post recession, employees have gradually seen ‘real’ salary increases
grow.
In 2017, ‘real’ salaries are due to decrease by about 0.3% due to rising
inflation.
© 2017 Korn Ferry. All rights reserved 28
UK sector comparisons
The graph shows, irrespective of job size, the comparison of each sectors salary against the UK market.
These are average figures, which mask the fact that some sectors fluctuate in competitiveness across different employee levels.
© 2017 Korn Ferry. All rights reserved 29
UK job family comparisons
The table shows, by job level the comparison of each job families median pay to the overall UK market.
Base Salary
Comparison
Executive
Managem
ent
Info
rmation
Technolo
gy/
Inte
rnet-
Based
Technolo
gy
Fin
ance a
nd
Accounting
Mark
eting
Hum
an
Resourc
es
Health a
nd
Environm
ent
Pro
ject
Managem
ent
Engin
eering
Researc
h a
nd
Develo
pm
ent
Adm
inis
tration/
Support
/Serv
ice
Executives/
Senior
Management
105% 103% 104% 107% 101% 100% 103% 98% 97% –
Middle
Management/
Seasoned
Professionals
98% 99% 99% 97% 94% 95% 97% 101% 93% 90%
Supervisory/
Junior
Professionals
– 101% 97% 95% 94% 100% 99% 104% 96% 98%
Clerical/
Operational– 98% 95% 95% 96% 102% 102% 114% 97% 99%
Pro
du
ctio
n
Pro
pe
rty
Ma
na
ge
me
nt
Le
ga
l
Qu
ality
Assu
ran
ce
Lo
gis
tics/
Su
pp
ly C
ha
in
Custo
me
r
Se
rvic
e
Sa
les
Cate
go
ry
Ma
na
ge
me
nt
Call C
en
tre
99% 98% 107% – 97% 96% 101% – –
99% 93% 102% 95% 95% 91% 101% 89% 86%
103% 98% 99% 96% 97% 91% 98% 91% 89%
109% 98% – 100% 101% 91% 93% – 89%
© 2017 Korn Ferry. All rights reserved 30
UK regional comparisons
London continues to have the highest salaries in the UK but also has the highest cost of living.
Aberdeen has a heavy presence of oil industry organizations, which has driven salaries up.
6UK key business issues
© 2017 Korn Ferry. All rights reserved 32
Key business issues: talent management
Brexit:
− What will be the impact on talent supply and demand?
Productivity
− Lack of progress on productivity is a particularly acute problem for the UK.
Automation
− What will be the impact on jobs and skills?
Team-based/agile working
− What does this mean for how we pay people?
Performance management
− Widely recognized that traditional approaches are not working.
© 2017 Korn Ferry. All rights reserved 33
Key business issues: regulations
Gender pay gap
− Government expected to pass laws mandating ‘gender pay gap’ reporting from 2017:
− Companies will need to publish mean and median salary and bonus, for men and women – as well as data on female representation at senior job levels.
− The data being published will not look good – and will need lots of communication around it – both externally (to protect reputation as a good employer); and internally.
Executive pay
− Generally, more attention on CEO and senior manager pay. This could be next in terms of new laws with a requirement to publish pay ratios most likely and a pay cap on public sector executives a possibility.
Minimum wage
− The UK minimum wage is rising quickly – currently £7,20 it will rise to £7.50 in April and to a £9 hour ‘living wage’ by 2020. This is causing two issues for companies.
− Cost optimization – companies are looking at workforce planning, to assess the people they need.
− Knock-on effects – When the most junior jobs are paid more, those immediately above them will also need to be paid more (to maintain internal pay relativity). A consequence is less pay progression when moving up levels.
‘Gig Economy’
− Recent case law indicates employment protection legislation will include associates working for organizations like Uber, Deliveroo and City Sprint.
© 2017 Korn Ferry. All rights reserved 34
Detached Effective
Ineffective Frustrated
12% 48%
Key business issues: Engagement
The UK has one of the lowest rates of ‘effective’ people in Europe
Over half of our employees are not performing to their potential, nearly a quarter are ineffective*
Source: Korn Ferry Hay Group Insight employee surveys
Engaged
En
ab
led
27% 12%
Raising the levels of engagement and enablement across the UK workforce must be one of the answers to the ‘productivity puzzle.’
This requires investment in the technologies and infrastructure that enables people to do their jobs.
The link between reward and engagement is complex but this must be a primary measure of reward effectiveness in the future.
© 2017 Korn Ferry. All rights reserved 35
Keeping talent – predictors of employee retention
Source: Hay Group Employee Opinion Norms (2017)
Employees
planning to stay
for > two years
Employees
planning to leave
within two years Gap
Confidence in ability to achieve career objectives 64% 31% 33%
Trust and confidence in company senior management 60% 35% 25%
Opportunities for learning and development 71% 45% 25%
Benefit that meet employee needs 68% 45% 23%
Company demonstrates care and concern for employees 62% 39% 23%
Company is effectively managed and run well 73% 51% 23%
Adequately authority to do job 73% 51% 23%
Employees paid fairly for the work they do 53% 31% 22%
Supervisory coaching for development 67% 45% 22%
Support for employee creativity and innovation 70% 48% 22%
Cross-work unit collaboration and support 63% 41% 22%
Direction and goals are the right ones for the company 73% 51% 22%
© 2017 Korn Ferry. All rights reserved 36
Key business issues: career development
More agile working,
Team-based organisation forms
The development of career/experience pathways that typically involve cross lateral as well as hierarchical career progression
There is an acceleratingtrend towards:
They are job-based and work on the premise that the job is fixed and relatively timeless
They are hierarchical – there’s little incentive to develop a portfolio of skills when the quickest way to increase pay is a promotion to the boss’s job
Most reward structures are not aligned to these approaches to work and career design
© 2017 Korn Ferry. All rights reserved 37
Korn Ferry Hay Group’s reward framework
1. To maximize
the return on
reward spend,
it is critical to
link rewards to
the things that
matter most to
the business
2. To achieve this, we
consider talent needs of
the company in the
context of its strategy
3. In addition, reward
policies are designed to
appeal to the people we
want to attract, engage
and retain
5. Finally, we
ensure at the
outset that there
are clearly
defined and
measurable
outcomes that
can be
assessed
following
implementation
4. Once we are clear about the
strategic context together with
business and employee needs,
we design the reward package
aligned to those needs
© 2017 Korn Ferry. All rights reserved 38
A reward manager’s to-do list UK 2017 until further notice
1. Investigate and
understand the
potential impact
of Brexit,
automation,
technical
change and
business
direction on your
organization
2. Plan and review the
talent needs of the
future and potential
pinch-points
3. Ensure you understand the attitudes
and expectations of the people you
want to keep. Are you giving
‘Generation Rent’ what they need?
5. Develop a
scorecard to
measure reward
effectiveness
4. Audit your reward policies and
total reward proposition to identify
where there is a misalignment with
business strategy in general and
HR and talent strategy in
particular
© 2017 Korn Ferry. All rights reserved 39
Assessing reward effectiveness and ROI – a template
Compensation and benefits surveys
Total remuneration surveys
Total employment cost benchmarking
Reward design prevalence surveys
External £ benchmarking
Comparison of employee opinion survey w/other organizations
Employer brand/reputation. benchmarking (e.g., best places to work, most admired companies)
External perception benchmarking
ROI/productivity analysis
Compensation levels vs. financial/operational ratios
Turnover rates key talent retention
Bench strength – quality and quantity
Cost of replacing workers
ROI benchmarking
Employee opinion survey (longitudinal), focus groups
Perceptions of reward effectiveness, fairness, competitiveness, preferences
Perceptions of alignment with business strategy, performance
Internal perception benchmarking
External Internal
Pe
rce
ptu
al
Qu
an
tita
tive
(£)
© 2017 Korn Ferry. All rights reserved 40
In the UK economy, human capital is worth 4.23 times more than physical capital.
Human capital is also the greatest value creator available to organizations: For every £1 invested in human capital, £11.39 is added to GDP.*
Managing reward and motivation is therefore as critical as ever, even in the digital age!
On last thing
*Figures from The Trillion Dollar Difference, Korn Ferry Institute 2016
Mark Robinson
Senior Account Manager, Reward
Korn Ferry Hay Group
Phone: +44 (0)161 831 2492
Email: [email protected]
Senior Partner and Head of Reward and Benefits Solutions for the UK and Ireland
Korn Ferry Hay Group
Phone: +44 (0)20 3819 7223
Email: [email protected]
Mark Thompson
Thank you for joining our webinar today
Sign up for other reward webinars in the series here: http://bit.ly/RewardWebinarHub