HOW EFFECTIVELY DOES YOUR REWARD STRATEGY
DRIVE BUSINESS RESULTS?
FEBURARY 2013
Mercer
China
Intangible Assets and Human Capital
Human capital is seen as an important intangible asset for competitive
advantage.
Importance of intangible assets for
competitive advantage
0
20
40
60
80
100
Customer relationship
97
Human capital
85
Brand
72
Products and innovation
69
Process efficiency
36
Investors
Location
Supplier relationship
120
14
11
9
Human capital is seen as the second most important
intangible asset to create and maintain a competitive
advantage.
Source: Ephraim Spehrer-Patrick, Human Capital Measurement: Business Executives’ Perspective on Standardisation, 2010. n=171
MERCER
1
Knowledge about Return on Human Capital Expenditure
However currently the knowledge in their organizations about the return
on HC expenditures is very limited
To what extent does your company know the return on its HC expenditures?
100
Almost 80% of participants state
that further knowledge about
the return on human capital
expenditures should be
established in their
organization.
80
60
40
20
0
Current
Not at all
To a minimal extent
To-be in Future
To a moderate extent
To a consideratable extent
To a great extent
Source: Ephraim Spehrer-Patrick, Human Capital Measurement: Business
Executives’ Perspective on Standardisation, 2010. n=171
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2
Opportunity for HR Professionals
Fact based decisions
Organizations need to focus on “fact
based decision making” to ensure cutting
edge workforce management practices.
MERCER
3
Different Levels of Organisational Readiness
Where do you stand?
Step 1
“What is
going on?”
Assess the way
things really are
Basic hard &
quantifiable data
MERCER
Step 2
“Why did it
happen?
Step 3
“How can we
improve?
Step 4
“What do we want
to happen?”
Workforce
planning;
predict, assess
risk areas and
take actions to
mitigate risk
Develop models
for strategic
Benchmark,
investigate trend decision making
data over time
Fact-based analysis, benchmarks,
approaches such as regression,
correlation and modeling
Managerial
experience &
predictive modeling
Past
Present
Future
Reactive
Proactive
Predictive
4
WHAT TO MEASURE
MERCER
5
Measurements Lead to Better Decisions
MERCER
6
China Human Capital Metrics Report
Linking workforce data with business results
Business
BusinessResults
Results
Human
HumanCapital
Capital
Factors
Factors
•Workforce
•Workforcecomposition
composition
•• Rewards
Rewards
•• Management
Managementspan
span
•• HR
function
effectiveness
HR function effectiveness
IMPACT
• A comprehensive suite of benchmarks measured against the market.
• Not just about HR stuff. Workforce data linked with business results,
which C-suites are thrilled to see.
• Leading companies participated and used the data in their human capital
decisions.
MERCER
7
China Human Capital Metrics Report
Comprehensive measurements with depth
5 key industries
Human Capital
ROI
100+
benchmarks
Auto
HR Function
C&B Costs
Budget
How
effective is
your
workforce?
290
companies
Hiring
Consumer
High-tech
Internet
Pharma
Staff Ratio
Training
MERCER
8
Human Capital ROI Benchmarks
Human Capital ROI
Structure of Key Components
• Revenue per employee
• Profit per employee
Pay Effectiveness
• Operating expense per employee
• Total cash costs as a % of revenue
• Total cash costs as a % of total operating expense
• Revenue per total cash costs
Sales Revenue
Total Cash Cost
• Profit per total cash costs
• Total remuneration costs as a % of revenue
• Total remuneration costs as a % of total operating
expense
Pay Level
• Revenue per total remuneration costs
• Profit per total remuneration costs
Total Cash Cost
• Human capital costs as a % of revenue
• Human capital costs as a % of total operating
expense
Total Number of Employees
• Revenue per total human capital costs
• Profit per total human capital costs
MERCER
9
Human Capital ROI
Consumer Goods – Food, Beverage and Tobacco sector
If taking the Food, Beverage and Tobacco sector as an example, below grid shows companies pay level vs
pay effectiveness in different positions.
Pay level vs. pay effectiveness – Food, Beverage and Tobacco (2011 Fiscal Year)
2011 Sales Revenue/Total Cash Cost– Food,
Beverage, and Tobacco
RMB
80
II
I
Median=62,997
60
How effectively does your
reward strategy drive the
business results?
40
=4.8
20
Median=15.0
IV
III
0
0
100,000
200,000
300,000
RMB
(N=19)
Total Cash Cost per Employee (X=Total cash costs / total number of employees)
MERCER
Source: Mercer’s 2012 China Human Capital Metrics Report (Consumer Goods).
10
Staff Ratio Benchmarks
• Supporting functions: HR, Admin, IT, Finance
• Marketing and sales functions
• Engineering
Job function
• Production/Operations
• Quality
• Purchasing, Logistics, etc
• Other key positions (varied by industry)
Staff Ratio
Benchmarks
• Management span (executives, management)
Career level
• Professional / para-professional staff
• Blue collar staff
• Expatriate employee as a % of executive employee
Expatriates
• Expatriate employee as a % of management
employee
• Expatriate employee as a % professional employee
• Expatriate as a % of total employees
MERCER
11
Staff Ratios
By Industry
• Different industry’s staffing ratio of supporting function shows a consistent pattern with slight
variance.
Staffing ratio by supporting function (Average %)
4.0
3.5
3.0
2.5
2.0
1.5
1.0
High-tech
Internet
Automotive
Consumer Goods
Pharmaceutical and Medical
Devices
MERCER
HR
Finance
Administration
2
1.7
2.3
1.6
2.1
3
2.3
3.6
3
3.7
3
1.6
2.3
2.3
2.5
Source: Mercer’s 2012 China Human Capital Metrics Report (Consumer Goods).
12
HR Function Budget Benchmarks
HR Function Budget
•HR function budget per employee
•HR function budget as a % of revenue
•HR function budget as a % of total operating costs
Training
Budget
Travel/Meeting
Costs
Outsourcing
Budget
MERCER
Recruitment
Budget
HR Facility
Fees
HR Function Budget
Consulting
Costs
Publication
Fees
HRIS Costs
XX
Remuneration
Budget
Others
13
HR Function Budget per Employee
• HR function budget per employee in Automotive industry is higher, while it is lower in
Internet industry and Consumer Goods industry.
HR Function Budget per employee and HR staff as a % of total employees (Average)
15,000
2.5%
2.3%
12,000
1.7%
11,459
2.0%
1.6%
2.0%
9,000
1.5%
6,234
6,000
1.0%
4,083
3,571
3,000
0.5%
0
0.0%
High-tech
Internet
Automotive
Consumer Goods
HR Function Budget per employee
HR staff as a % of total employees
MERCER
Source: Mercer’s 2012 China Human Capital Metrics Report (Consumer Goods).
14
METRICS CASE STUDY
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15
Identifying the Right Metrics
Focus on the unique context of your organisation
STRATEGY
DRIVERS
PERFORMANCE
Right, few measures
RIGHT
FEW
MERCER
Measures that matter because they are demonstrably connected to the unique
workforce and business outcomes of each organisation
The minimal number needed to steer by – and not be overwhelmed, distracted, or
waylaid by the irrelevant
16
Identifying the Right Metrics
Focus on your story
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17
Case Study - A Consumer Goods Industry
Challenge
• The organization is a consumer goods
company with 6,000 employees.
• The market for its “green” house cleaning
products is wide open with significant
possibility for growth, but the company
sales forecasts are not being realised.
• Due to the relative newness of the product
line, management is not inclined to
approve budget increases (for salary or to
hire new salespersons) until the sales
force shows better results.
• Hence they need external benchmarking
data to review the staffing ratios as well as
revenue for sales-related staff to see
where to improve.
MERCER
18
Case Study – A Consumer Goods Company
Metrics Benchmarks
Percentage of sales employees by career level, your company versus market
The market: Consumer Goods Companies
Career Level
The
Company
Average
(breakdown)
Median
N
Executive
0%
3%
0.51%
60
Management
20%
5%
4%
60
Professional Sales
15%
57%
58.88%
60
White Collar
65%
35%
25%
60
Productivity level for the sales function (in million USD), your company versus market
The market: Consumer Goods Companies
The
Company
Average
Median
N
Revenue per FTE
0.48
0.85
0.65
60
Revenue per 100
FTE
48
85
65
60
Source: Mercer’s 2012 Global Workforce Metrics Database
MERCER
19
Case Study - A Consumer Goods Company
Findings and Actions
• There are too many managers (% of sales staff by
career level). Supervisor positions have too many
paperwork demands on their hands and too little time
to devote to their staff.
• This results in too few sales people who actually go
out to sell the products.
• Revenue per sales staff is significantly low compared
to peers in the market.
Actions taken to solve the problem:
1. Hire part-timers to help existing supervisors with
administrative paperwork.
2. Build sales function in the appropriate staffing
ratio
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3. Upgrade sales incentive plans and focus on
training.
20
Closing Thoughts
• Continuously track your performance
against the market
• Start with a business problem, and go
solve it
• Think like a CFO, and communicate
effectively
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21