Insights From The 2008 Aon Consulting Symposium

Transcription

1 Insights From The 2008 Aon Consulting Symposium

2 HARNESSING HUMAN CAPITAL IN TODAY S ASIA PACIFIC ENVIRONMENT Contributors: Edouard Merette, ceo, asia pacific, aon consulting Boon Chong Na, director, asia pacific, aon consulting

3 Harnessing Human Capital in Today s Asia Pacific Environment Introduction Recently, employers in many parts of Asia have been squeezed in a vise between the needs of the business and the demands of employees. Slower economic growth, investor pessimism, skyrocketing costs, price competition, and skills shortages are making companies increasingly wary of acquiescing to employee demands. Yet, employees are faced with rising cost of living and robust employment demands, which put them in a good position in employment or wage negotiations. While Asian economic growth rates remain relatively high, the economic slowdown in the U.S. is damaging confidence in Asia and leading companies to become more concerned about cost control. Companies are building up their cash reserves in case the credit crisis aggravates and the liquidity situation deteriorates further. Asian currency exchange rate appreciation has further exacerbated the cost pressures. Measured against the US dollar, the Chinese renminbi went up 6.4 percent in 2007 followed by an appreciation on 6 percent in the first eight months of The Indian rupee and Singapore dollar have experienced increases as well. As Asian exports to the U.S. are usually priced in dollars, the rising exchange rates mean that, in local currency terms, costs are rising due to commodity price inflation while revenues are declining as their dollars buy less RMB, rupees and Singapore dollars. 1 Meanwhile, persistent shortages of skills and experience are threatening efficiency and quality of output for many Asian manufacturers and service firms. The hardest hit are those countries that have achieved the highest economic growth. A study by McKinsey Global Institute forecasts that China will need 75,000 business leaders in the next 10 years, but that it currently has only 3,000 to 5,000 business leaders. In 2005, it was estimated that China needed 300,000 accountants just to fill existing requirements. 2 Even where China has ample supply, the poor quality of education significantly reduces the pool. McKinsey estimates that China has 1.6 million young engineers, but only 160,000 are suitable for employment by MNCs. 3 Foreign education is not much of a solution over one million Chinese went to study overseas between 1978 and 2006, but 70 percent did not go back home, according to The Guardian.4 The issue of skills shortages is not exclusive to China. In India, despite graduating three million students from universities annually, skills shortages are a growing problem. In a recent article for The Hindu, former President A.P.J. Abdul Kalam remarked that a large proportion of recent graduates are unemployable and half the employed youth suffer skills deprivation. The Employer s Bottom Line The bottom line for employers across Asia is the necessity of keeping a lid on controllable costs. Unavoidable increased costs must be accompanied by higher productivity and greater value creation. To prepare for the revival of higher growth as well as sustain current operations, businesses also need to secure and retain highly qualified and high-performing staff. How Employees See It Employees throughout much of Asia have a different perspective, generally feeling that jobs are readily available. According to a recent global survey of job prospects by AC Nielsen, 5 seven out of the 10 most optimistic countries were in Asia. 6 Job seekers in India were especially optimistic with 26 percent saying their prospects were excellent while another 60 percent saying that prospects were good. 2 aon consulting 2008

4 Shaping The Workplace Of The Future insights from the 2008 symposium EXCELLENT GOOD SWITZERLAND UAE INDONESIA DENMARK NORWAY SINGAPORE VIETNAM HONG KONG AUSTRALIA INDIA Top 10 Most Optimistic Countries Worldwide (% of respondents) The Employee s Perspective Perception of local job prospects over the next 12 months. Source: Consumer Confidence, Concerns, Spending and Attitudes to Recession, A global Nielsen consumer report, AC Nielsen, June 2008 While jobs are plentiful, inflation is dampening the mood of many consumers. Salary increases throughout Southeast Asia have failed to keep pace with inflation. Even in China, significant salary increases 7 are expected to inch up by only 1.2 percent in 2008, according to the Radford International Semi-Annual Summary of Industry Trends report. 8 Despite the thought shared by many HR professionals that compensation is the number one reason employees leave their jobs, a survey by Manpower China listed 9 career development and advancement opportunities as the two top reasons cited by candidates for leaving an employer. This was followed by better compensation and benefits packages. A similar pattern appears in the traits that candidates are seeking from employers. Career development opportunities was on the top of the list, followed by better compensation, advancement opportunities and quality of leadership and management. The AC Nielsen Survey indicated that more than in any other place in the world, employees in Asia/ Pacific noted work/life balance as their biggest concern. 10 China tops the list worldwide with 42 percent of respondents indicating it is their biggest or second biggest concern. Five Southeast Asian countries 11 plus China and Taiwan accounted for seven out of the 10 top countries worldwide where the greatest concern was work/life balance. Employee s Bottom Line The bottom line for employees is that they are looking for something more than compensation. Stimulating jobs and promotion opportunities top their lists, as well as enlightened leadership and an excellent work environment. aon consulting

5 Harnessing Human Capital in Today s Asia Pacific Environment How to address the situation? The solution to this conundrum lies in identifying and addressing both employer and employee concerns and priorities. Companies must find a way to keep a lid on costs and link pay to value creation while at the same time addressing the demands of employees for a rising standard of living, more opportunities and a better work environment. I am looking for more than just money. What employees look for in a new employer. GEOGRAPHIC LOCATION 12% QUALITY OF CO-WORKER RELATIONSHIPS 18% MATCH BETWEEN JOB AND SKILL SET / WORK STYLE 21% MATCH BETWEEN PERSONAL VALUES AND ORGANIZATIONAL VALUES 21% QUALITY OF LEADERSHIP / MANAGEMENT 37% ADVANCEMENT OPPORTUNITIES 40% BETTER COMPENSATION / BENEFITS PACKAGE 48% CAREER DEVELOPMENT OPPORTUNITIES 64% The Employee s Perspective Source: China Employee Engagement and Retention Survey, Manpower China Research Report, July First things first the Compensation foundation In the words of a wise former colleague, Money is not everything, but it is the first thing. If companies do not have a strong compensation foundation, all efforts at attraction and retention are meaningless. But, a strong compensation foundation does not necessarily mean above market compensation or salary increases that are linked solely to inflation and market movement. The Compensation Foundation The compensation foundation should consist of four key elements: 1. A salary range and a benefits package that is broadly competitive for the position Actual salaries that reflect a person s capabilities to do the job and personal development and growth. Bonus and short-term incentives that reflect individual and corporate performance. 4. Long-term incentives (paid out over time) that reward consistent and repeated high performance. Salary range and benefits package. A company s capacity to pay and philosophy of pay defines the parameters of a competitive salary range and benefits package. A survey of the market provides a reality check to ensure that the policies are roughly aligned with market conditions. 4 aon consulting 2008

6 Shaping The Workplace Of The Future insights from the 2008 symposium Actual salaries. Accurate competency assessment and consideration of a person s growth in the job are important factors in determining the actual salary. Linking fixed pay to capability is essential as it ensures that personal growth in line with corporate needs is encouraged and rewarded. Bonus and short-term incentives. Variable pay linked to performance is a critical component of the package as it addresses both the need of the company to keep costs in line with value creation while at the same time providing the employee the opportunity for high compensation. This reinforces the company s business and people strategy by aligning rewards with company outcomes and employee performance. Long-term incentive. Long-term incentives such as deferred bonuses and deferred stock in the form of restricted stock or stock options are an increasingly critical part of the pay package. Long-term incentives provide the opportunity for wealth creation to satisfy the future needs of the employee while at the same time ensuring the added cost is tied to retention and performance. A compensation package comprised of these four elements sets the foundation for retaining highperforming and highly competent staff; however, it only sets the stage and does not ensure attraction and retention. Now that compensation is fixed Once a compensation foundation is in place, companies need to focus on what really matters. In a recent survey by Insync, experienced professionals and managers (i.e. baby boomers ) rated their direct manager as the number one reason for leaving their employer. Generation X and Y employees also rated their direct manager as very important in their decision. 71% 41% 54% GENERATION X GENERATION Y BABY BOOMERS Direct Manager Interaction Source: InSync Survey aon consulting

7 Harnessing Human Capital in Today s Asia Pacific Environment Concentrating on developing total leaders goes a long way to addressing both employee and employer concerns. An emphasis on leadership development increases an otherwise short supply and also has a very positive impact on employee attraction, motivation and retention. Leaders, other than exhibiting exemplary behaviors in directly influencing and engaging their employees, are also the architects to the creation of a conducive work environment that goes a long way in attracting, motivating and retaining. Employees are drawn to a company that has an employee value proposition environment that appeals to them. More importantly, they expect their day-to-day work experience, and the HR policies and programs, to be congruent with the value promise. Appealing to the employee needs and aspirations does not negate the need to assign clear accountabilities, set stretched targets and drive high performance. The challenge is about setting the right expectation, communicating that clearly, engaging employees in the process, and sharing the success. It takes a confident leadership to create this work environment that doesn t operate strictly on top-down control. The next step is mutual commitment Starting with a firm foundation in compensation and adding a focus on cultivating total leaders will certainly harness the human capital, leading to strong mutual commitment between employers and employees. First, the company must make a strong commitment to its employees. This means having clear values, strategy, roles, objectives, and rewards and then creating a supportive environment that encourages and rewards performance and development. It also means demonstrating concern for the individual as a person. Developing relationships built on trust and empathy creates a strong bond among employees and between employees and their supervisors. Open communication helps to reinforce the trust and respect that develops out of those relationships. In return, the individual must commit to the company. To ensure mutual commitment, the individual must be expected to deliver the highest performance possible. Employees need to align behavior with the values of the organization and continuously develop themselves personally and professionally. If the company fails to commit to the individual, then the employee should leave the company. Likewise, if the individual fails to commit to the company, then the employee should be asked to leave. Charting a Path Forward A recent McKinsey s survey of boards of directors shows that the directors would like to spend more of their board meeting time reviewing talent management issues relating to leadership, succession, organization structure, capabilities, rewards for value creation, etc. Aon Consulting is studying human capital issues that are of concern to boards and executive management in Asia Pacific and globally. Empirical data will anchor this study. Asian companies operate in their unique social cultural environments, histories, and ownership structures. The research should throw light on effective practices that take into account these contextual and environmental factors. 6 aon consulting 2008

8 Shaping The Workplace Of The Future insights from the 2008 symposium Endnotes 1 Oanda.com, the currency site. 2 Wild, Damian. China facing a skills shortage. Accountancy Age 23 June 2005: N. pag. 2 Sept < 3 Farrell, Diana. Don t Be Afraid of Offshoring. BusinessWeek 22 Mar. 2006: N. pag. 2 Sept < com/globalbiz/content/mar2006/gb _ htm>. 4 Watts, Jonathan. China fears brain drain as its overseas students stay put. The Guardian 2 June 2007: N. pag. Date Accessed (2 Sept. 2008) < 5 Consumer Confidence, Concerns, Spending and Attitudes to Recession, A global Nielsen consumer report, AC Nielsen, June The 10 most optimistic perceptions of local job prospects over the next 12 months were Norway, India, Denmark, Australia, Indonesia, Hong Kong, UAE, Vietnam, Switzerland and Singapore. Some Asian countries were also among the 10 most pessimistic: Japan (second most pessimistic), South Korea (fourth) and Thailand (seventh). 7 Average salary increase minus the increase in consumer prices. 8 Asia Pacific Executive Brief, August 2008, International Market Assessment Asia Pty Ltd and Radford International Semi-annual Summary of Industry Trends Survey, April China Employee Engagement and Retention Survey, Manpower China Research Report, July % of respondents in Asia/Pacific cited it as their biggest or second biggest concern compared with 30% in Latin America, 20% in Europe and 16% in North America. 11 Vietnam (41%), Indonesia (38%), Philippines (38%), Singapore (38%) and Malaysia (37%). aon consulting