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Emerald Group Publishing Limited
Copyright © 2011, Emerald Group Publishing Limited
A look at current trends and data
Article Type: Research and results From: Strategic HR Review, Volume 10, Issue 5
Shareholder pressure to keep lid on executive salaries
FTSE 350 executives will see minimal, if any, increases in base pay in 2011, according to a PwC survey of senior reward professionals and accompanying analysis of company reports and accounts. Almost a quarter (23 percent) of companies are planning to apply a pay freeze at executive director level. Salary increases, where given, are expected to be around 3 percent, marginally higher than last year (2.8 percent), but significantly below the 6 percent increases of 2007 and 2008.
Sean O’Hare, reward partner at PwC, commented: “Shareholder activism on pay has stepped up substantially over the last few years and seems to be having an effect. It looks like 2011 will be the third consecutive year of pay rise restraint, with increases lower or in line with national average earnings after years of rising much faster. The difficulty for remuneration committees will be managing executives’ expectations, which are rising again post recession.”
Focus on bonuses as motivational tool
Pressure to ensure executives remain motivated in the face of pay freezes perhaps explains why 30 percent of companies are planning to increase the maximum potential bonus. Last year the average (median) maximum potential bonus for FTSE 100 CEOs rose for the first time in three years, from 150 percent to 175 percent of base salary. Actual bonus payments also increased substantially in 2010. The average (median) actual bonus payment for a FTSE 100 CEO was 111 percent of base salary, almost 30 percent higher than the previous year.
Sean O’Hare said: “Increasing the potential bonus opportunity will cause shareholders to focus on how tough the targets are. Last year a number of companies recovered more swiftly than expected meaning that bonus targets were comfortably exceeded. A third of companies are consequently amending performance conditions this year, with 17 percent increasing the level of performance required to achieve maximum pay-out.”
Half of the companies planning to increase the maximum potential bonus this year are also implementing a new deferred bonus plan, which will include some compulsory deferral. The survey also shows that FTSE 350 companies are taking other steps to ensure a clearer link between risk and reward this year. Some 20 percent of respondents are planning to introduce clawback, on top of the 20 percent that already have. Clawback methods being considered include scaling back deferred bonuses and long term incentives, but also reclaiming cash bonuses in certain situations.
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L&D in UK organizations focused on driving organizational change
The most commonly anticipated major change affecting learning and development (L&D) over the next two years is predicted to be a greater integration between coaching, organizational development and performance management to drive organizational change. This is according to 47 percent of respondents who state this as the major L&D development in this year’s Chartered Institute of Personnel and Development’s (CIPD) Learning and Talent Development Survey of 600 UK-based organizations. The next most common changes anticipated are greater responsibility devolved to line managers (38 percent) and more emphasis on monitoring, measuring and evaluating training effectiveness (36 percent).
Organizational development/change management will be high up on the agenda for the next 12 months too, with 43 percent of respondents stating it is set to be one of the top three activities on which L&D specialists will spend most of their time. The other two are more operational, with 46 percent expecting to spend time on management/planning of L&D efforts and 44 percent on delivering courses/spending time in a training facility.
Giving leaders change management skills
The real stand-out finding is the focus on organizational development/change management, which is increasing as an integral part of an L&D specialist’s role. Last year it was in the top three activities for 36 percent and in 2009, just 22 percent. This focus is clearly influenced by the current economic volatility and the cuts to the UK public sector, but also by gaps in leadership skills in the area of “leading and managing change.” Over half of respondents (55 percent) identified it as a gap, second only to performance management (59 percent).
As such, the most common focus of leadership development activities in the next 12 months will be enabling the achievement of the organization’s strategic goals (43 percent), improving the skills of leaders to think in a more strategic and future-focused way (39 percent) and developing high-potential individuals valued by the organization (37 percent). Coaching is most commonly rated as one of the most effective talent management activities (49 percent), with in-house development programs second (28 percent) and high-potential development schemes third (25 percent).
The survey also highlights the need for practitioners to prove the impact of learning and development through comprehensive evaluation.
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The Learning and Talent Development survey can be downloaded from: www.cipd.co.uk/research/_learning-talent-development
World-class HR organizations drive down costs
While typical companies saw the recession drive up HR costs by over 11 percent from 2008 to 2010, world-class HR organizations have largely avoided the impact, and managed to reduce costs by more than 13 percent. This according to new Book of Numbers research from The Hackett Group Inc., titled, From Operational Excellence to Strategic Differentiation: Building the Capabilities of a World-class HR Organization.
The Hackett Group, a global business advisory and operations improvement consultancy, found that world-class companies now spend nearly 30 percent less per employee on HR, and operate with over 25 percent fewer employees. They also achieve significantly higher effectiveness across many key areas. By focusing on standardization, automation, and process rationalization, world-class HR organizations are able to reduce transaction-processing costs per employee by 41 percent.
Other recent HR research from The Hackett Group also quantified the bottom line benefit of the HR strategy of improving talent management performance. A new performance study found that talent management top performers see significantly higher EBITDA than typical companies, driving $550 million to the bottom line annually (for a typical $26 billion Global 1000 company).
Agility and speed key
Harry Osle,The Hackett Group global HR transformation and advisory practice leader, comments: “HR organizations have been sailing into stiff winds over the past few years. What we see in this year’s Book of Numbers research is very clearly how world-class HR organizations outperform their peers under stress. As the recession forced companies to make staffing cuts, world-class HR organizations were in a better position to make smarter downsizing decisions, and were able to move faster than typical companies, and control costs more effectively. At the same time, they have a better understanding of their companies, and can more effectively identify and develop HR capabilities and infrastructure that provide powerful support for the unique strategic needs of the business.”
The latest Book of Numbers research includes a comprehensive capability maturity model that examines more than 400 key capabilities in HR. The capability maturity model offers a self-rating system enabling companies to assess their own maturity.
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Global companies to transfer more employees in 2011
As the global economy continues to improve, so too do the expectations of global companies, with 61 percent expecting to transfer more employees in 2011 than in recent years, according to the 2011 Global Relocation Trends Survey Report, published by Brookfield Global Relocation Services. A total of 118 multinational firms participated in the worldwide survey. Combined, these firms manage a worldwide employee population of 5.6 million.
Reinforcing this anticipated growth, the 16th annual survey found that 58 percent of company revenues were generated outside companies’ headquarters country for the second straight year, the highest ever recorded by the survey. Of significance, 57 percent of international assignees were relocated to or from the headquarters country, the second-lowest percentage in the history of the report.
The location of a company’s headquarters is a factor in that company’s optimism. Those headquartered in Europe, the Middle East and Africa (EMEA) were more optimistic than their counterparts with headquarters in North America. For example, 64 percent of EMEA-based companies expected to send more employees on assignment this year, versus 58 percent of companies based in North America.
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