MANAGING THE TOTAL COST OF EMPLOYMENT ACROSS EMEA: THE CITI APPROACH

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1 MANAGING THE TOTAL COST OF EMPLOYMENT ACROSS EMEA: THE CITI APPROACH Citi, a leading global bank with approximately 200 million customer accounts, does business in more than 160 countries and jurisdictions. Citi provides consumers, corporations, governments, and institutions with a broad range of financial products and services. Global companies face an enormous challenge in trying to understand the total cost of employment across their operations and subsequently optimising their rewards spend. This issue is compounded by the difficulty in accurately measuring rewards spend in different regions and ascertaining an appropriate benchmark cost in local markets. At the 2013 EMEA Compensation and Benefits Conference, George Kingaby, head of Pension and Benefits for Citi EMEA, and Mark Quinn, a partner and leader of Mercer s Talent business in the UK, discussed the two organisations co-development of an innovative and comprehensive programme that has provided a deep understanding of Citi s total cost of employment across EMEA, along with the detailed data needed to review the approach to rewards. WHAT IS TOTAL COST OF EMPLOYMENT? Total cost of employment denotes everything that an employee receives from the employer in return for the work he or she performs. When calculating this cost, a company must therefore consider all aspects of the employee relationship, including standard forms of compensation, such as salary and bonuses, and taking into account the benefits the employee may receive, such as a retirement plan, risk insurances, medical programmes, company cars, and leave. The sum of the cost of these elements that an employee receives from the employer is known as the total rewards. 1

2 Figure 1 Total Rewards: The Sum of the Value of Everything an Employee Gets in Return for Work COMPENSATION Base pay. Guaranteed bonuses. Short-term incentives. Long-term incentives. Financial allowances. Financial recognition programmes. Deferred compensation. BENEFITS Retirement savings and other wealth-creation plans. Medical/dental/vision/ prescription drugs, etc. Life insurance. Short- and long-term disability. Accident coverage. Job-related perquisites. WORK LIFESTYLE Time off. Wellness programmes. Dependant care. Workplace flexibility. Commuter programmes. Workplace facilities and perquisites. Experiential rewards. Nonfinancial and status recognition. CAREER AND DEVELOPMENT Performance management. Learning and development. Career opportunity and pathing. Tuition reimbursement. Mobility opportunities. 2

3 From a cost perspective, organisations usually focus on compensation and benefits (C&B), as this has typically been where the majority of spend lies. However, challenging global circumstances in recent years have forced many organisations to re-examine their C&B cost structures in relation to typical market and industry practices, along with reviewing their understanding of how local operations are benchmarking C&B globally. Employees are an enormous investment, carrying at least 50% of total organisation costs, and this figure is even higher in intelligence- or service-based industries. Citi s spend on talent stands at about 60% of total costs. One of Citi HR s most important roles currently, and the most effective way for it to assist managerial staff, is focusing on issues of cost management. HR has the potential to contribute huge value to an organisation by assisting with cost management and ensuring that the effectiveness and value perception of the company s workforce spend are maximised and appropriate to each jurisdiction. Effective cost management cannot only be achieved by simply cutting staff, which has the negative side effect of draining talent from an organisation and can lead to disengagement and anxiety. Rather, Citi sought an approach that would allow it to achieve the following objectives: Gain a clear understanding of the total cost of employment across the organisation. Ascertain appropriate benchmarks for each element of C&B spend to develop a quantitative basis that informs ongoing decision-making in relation to future changes in C&B spend. Promote informed engagement with internal local stakeholders in relation to the request for alterations to C&B spend. IDENTIFYING AND MANAGING EMPLOYMENT COSTS ACROSS EMEA Citi operates in 52 countries across Europe, the Middle East, and Africa (EMEA), and the diversity of these markets and their respective employees can pose a challenge to understanding rewards spend. This issue is compounded by the variety of business lines within Citi and the huge variety of roles that must be rewarded. The catalyst for Citi undertaking an extensive review of its global rewards structure was the convergence of a number of business needs. These included a need for clarity around the true cost of employment, a need within HR to understand the market positioning of rewards across locations, and the ability to respond to requested changes to the rewards package. Citi also identified that its business managers needed to understand the rewards packages of their direct reports and constituent elements of a reasonable rewards package across locations in order to assist with internal cross-border moves, among other points. These challenges were combined with a data-driven culture around management decision-making and the need for a quantitative impact analysis at both the individual employee and total workforce levels. 3

4 THE CITI APPROACH The approach focused on the creation of a total rewards benchmarking system (TRBS) that would consolidate all the costs of employment and benchmark values in one place. Such a systems-based approach would meet the requirements of Citi s data-driven culture. Mercer and Citi worked collaboratively to create an online system with the relevant data outputs and structure. Some of the initial challenges identified were the existence of (approximately) 30 payroll systems across EMEA and the fact that not all rewards information was held within those payroll systems. A process was also needed to ensure the appropriate level of engagement from local stakeholders to guarantee accuracy and required inputs, in some cases using external consultancy support when local resources within each operation were lacking. In order to drive a collaborative approach at the country, regional, and central levels, communication across the stakeholder groups focused on the vision and value of the project. Relevant stakeholders (finance and expense management, HR partners and compensation teams, line management, and rewards professionals) were consulted to determine their system requirements prior to building. Data were collected, standardised, and used to inform benchmarks that were driven by Citi at the local level, subjected to relevant reviews, and then approved as appropriate. Citi also determined how to realistically and consistently value life insurance, company cars, and all benefits elements across the region. THE TOTAL REWARDS BENCHMARKING SYSTEM (TRBS) The TRBS interface was constructed to reflect three areas: Market benchmarks: data can be filtered across a number of categories, such as country, role, legal entity, etc. and can show total internal cost and benchmark value. Comparative analysis: using the same filtering capabilities, cost data can be shown on an historical basis, allowing cross-year total rewards comparisons and comparison of countries against benchmarks and each other. Employee details: data can be viewed at the individual employee level. Users are able to select by location and grade (C-level) and then examine the relevant data, which can then be exported to Excel and used as needed. The TRBS also includes a library to hold standard reports that are required internally. Each area of the system allows for data export and reporting at each of the levels of data view. One major benefit of the system is the ability to view rich data regarding particular business lines and see clearly if a country or an element of local operation provisions materially deviates from identified benchmarks. The comparative analysis option offers rich insights into how rewards break down in a particular country, the mix of rewards per location, and how budgets are being spent in that location. This option allows for optimal employee allocation because HR can quickly see the cost of employment for a certain employee in different locations, compare with budgets, and find the ideal place for this employee. The TRBS allows the fundamental analysis of total rewards elements to find the optimal mix based on a clear vision of costs previously, managers were working on assumptions and broad-base knowledge. The system should help to inform not only the 4

5 structure of future requests from local operations for changes to the rewards package, but also promote greater headquarters-level understanding of the context for the request and improve response times. At any point in the year, data can be viewed on an individual level and supplied to senior leaders. This gives leaders a clear understanding of what their total spend is, what each employee costs them, and how this measures against the benchmark in effect, how much should this person cost? The TRBS also shows the total cost of employment for a country and allows for individuals to be compared against their peer group and the market. Year-end decisions regarding rewards elements are then informed by this data. OUTCOMES One of the system s major benefits is its ability to make a strong case for changes to the rewards package the data can help provide insight on the individual impact of proposed changes. One example is Turkey, where the growing economy has put real pressure on rewards. This fact is verified by the data and supports a case for rewards changes. The availability of accurate data also allows management to improve turnaround times for change requests, and also helps leaders to better understand the total cost of employment, what this actually means, and the rationale for decisions. The system has provided Citi with invaluable insights on its workforce and the various elements that contribute to concepts of rewards for employees and management. The collection of data, however, is not the end point the system and the data that it contains will support ongoing initiatives, such as the link between performance and rewards, employee value perception, and the ongoing cost-value analysis. The system may also be used in the future to generate total rewards statements. The TRBS is a strong foundation for analysing employment spend and facilitating a position in which every rewards component is oriented towards achieving strategic intent, is reflective of market benchmarks, and forms a basis for future changes and routine rewards reviews. Citi now has an unparalleled grip on its current total cost of employment, as well as a wealth of data on which to base decisions and future alterations to its rewards package across EMEA. ABOUT THE AUTHORS George Kingaby is head of Pension and Benefits for Citi EMEA. Mark Quinn leads Mercer s Talent business in the UK. Based in London, he can be reached at or mark.quinn@mercer.com. Mark Price is a principal in the International Consulting Group, providing a broad range of advice to a portfolio of multinational clients. Based in London, he can be reached at or mark.a.price@mercer.com. 5