By Sandrine Bardot
Following my report on Day One of the 17th annual Compensation & Benefits Forum from IIRME in Dubai, I am happy to share, today, my notes from the second day of this great conference.
John Ohrnberger from ADIA opened with a general presentation on points to consider when thinking about Executive Compensation.
It’s important to know what’s going on outside the region because it helps to assess if your compensation design and recruitment offers are competitive.
For instance, John reminded the audience of the recent changes in regulations that are affecting some or all industries with respect to Exec Comp, such as the Capital Requirements Directive IV in the European Union which limits bonus to 100% max of pay (200% as an exception if shareholders approve it… but few companies feel like asking for an exception in the current economic climate).
With a focus on the design of long-term incentives and their link to performance, John pointed out that some topics are currently discussed a lot, like clawbacks for example, but have not really been implemented in real life so far. There are very few examples of organisations asking for a recovery of the amounts they had already distributed in the past…
If you don’t have a long-term incentive, you could focus some of the KPIs on the long-term, for example in the case of financial services, looking at the multi-year performance of the funds managed by the executive. I like this idea, even if I can anticipate the comments, complaints and legitimate questions around real ownership, accountability and influence on such KPIs by the executive, especially in his/her first one or 2 years of tenure.
John also discussed some of the common LTI design features in the GCC :
- Only 30% of public listed GCC companies had LTIs vs 67% in US and Europe.
- In the private sector, only 20% of companies offer LTI (mostly cash-based) vs 40% in Europe / US.
- Most plans are cash-based, 3-year plans, typically with a cliff vesting and no interim payment.
- Target bonus is typically 150% of annual pay for CEO, 75-100% of pay for C-suite executives, 30% of annual pay for VPs.
- Stretch is usually at double of target payment.
- KPIs are usually linked to EBITDA or Balanced Score Card.
John also highlighted that data does not always match up, especially when it comes to international comparisons, so companies need to have a holistic approach, and a clear Employee Value Proposition and communication strategy.
Duncan Micallef from PepsiCo introduced the employee wellbeing initiatives at his organisation, and how this helps drive higher engagement in the company.
A study demonstrated that 40% of all healthcare costs can be avoided by changing behaviours related to diet, smoking, stress and exercise.
Enhancing employee wellness understanding and program availability are core values of Pepsico. Combine it with the fact that every 1$ invested in health and wellness has the potential to return 5 to 6 $ (Vielife, 2011), and you understand why wellness programs are used as a differentiator in the Employee Value Proposition at PepsiCo.
Such a strong belief is even embodied in the performance management system : all employees are encouraged to have a work-life balance objective as part of their annual appraisal. This is a great example of a company putting its actions where its mouth is !
Duncan also advised us to remember to focus on communications and branding, as this increases the perceived value of any rewards initiative.
Finally, there are examples across industries where employees contributing towards the cost of wellness programs can increase participation and appreciation. This is based on psychology : it might sound counter-intuitive (who doesn’t like to receive something for free ?), but people have more motivation and commitment when they have something tangible, that they invested personally, at stake – like a co-financing of a benefit, even if it is a small amount of money.
We then had a series of 3 presentations on the topic of medical and health benefits.
Stephen Clements from Mercer first presented the results of their recent Health Benefits survey in EMEA.
500 participants were from the Middle East and Africa region, and their results indicated a difference compared to all participants : beyond compliance, they offer health benefits for attraction and retention purposes significantly more (58% vs 47%), and also to manage health risks (54% vs 39% for the overall results).
The average health benefits represent about 6% of payroll in the Middle East (3.9% for “all”, and about 12.5% in the USA). And these costs are rising in the Middle East, currently at 15 to 20% per year, which means the amounts could double in the next 4 to 5 years if the trend continues.
The thing is, most employers focus on reducing the costs without really looking at the underlying reasons for the increase. As a result, the actions they take may not be the most appropriate in that it may drive only a short-lived reduction in cost.
Stephen recommended to conduct an audit of organisational health, starting by a review of all health-related benefits and services, and the related processes. Then, an assessment of the health risks specific to your workforce (which can be done online), and a comparison against market trends.
You should also evaluate how your provider performs, determine your best opportunities for a good return on investment (I guess that may also include performing an RFP to check if you should change providers), and decide your action plan. Don’t forget to understand what success looks like when you design your program !
Paul Johnstone from GE then focused on healthcare cost mitigation.
First, there are global drivers of why costs of healthcare delivery are growing, such as the use of more sophisticated equipment for diagnosis and treatment, which by itself is expensive. Drugs are expensive to develop for instance, malpractice also comes at a cost, and the list goes on.
In the Middle East specifically, greater availability and more frequent access to treatment, with greater success rates from treatment and more diseases that are now treatable, are causing more people to use their healthcare plans… and the premiums to rise.
Paul then quickly explained how insurer costs are calculated, with the 3 main categories being administration, medical inflation, and the actual claims. A lot of employers focus on negotiating medical inflation increase with their provider, but they should not forget to look at the claims themselves.
A claims analysis includes the following : who, how frequently, medical conditions, declined claims, hospital usage, and how high cost claims are managed.
Once performed, you can make decisions about what to enhance or reduce, if/where to change the emphasis of the plan, whether to include preventative options, which hospital networks to use, whether to introduce or amend cost-sharing with the employees, and potentially propose flexible benefits.
Similar to Pepsico, GE focused on prevention and wellness programs as one of the ways to not only control their healthcare costs, but also as an important part of their EVP, in line with their values and mission (ever heard their credo Healthymagination ?).
One of the things done by GE was to undertake the Voluntary Protection Programs (VPP)for health, which is a US quality standard /certification for sites with 100 employees or more. This program made them focus on the various categories of the certification, which include, among others, education and prevention, nutrition, physical activity, tobacco addiction, and stress management.
They also implemented a dedicated health portal which supports prevention, provides tips on healthier living, includes resources related to employee health management, and a dedicated recognition scheme. Another example of advanced management of health programs !
Finally, Robin Wells from Medstar Insurance delivered a very educational presentation on managing health insurance programs.
He started by reminding us that the 4 major stakeholders (employer, employee, healthcare provider (hospitals, doctors…) and insurance company) have differing objectives which can conflict. Managing your health insurance program means trying to achieve the best balance between these views.
As described by the 2 previous speakers, there are many actions that can be taken in order to control the increase in the cost of the medical plan, addressing each of the stakeholders :
- Employee wellness programs to change employee behaviours,
- Design of the plan by the employer,
- Quality assurance and best practices in network management from the healthcare provider side,
- Monitoring of abuse and cost control initiatives from the insurer side.
Robin then offered some other, promising approaches based on “macro thinking” when looking at our health insurance plans :
- Regional leverage : companies can offer a unified scheme in the region, with local tailoring. This could bring economies of scale
- Pooling : where, if the company is large enough, the risks are pooled. This is a solution adopted by a number of multinationals.
- Profit-share : where, if your spend as been less than the premium you paid, at year-end the insurer refunds the company through a portion of the profit
- Self-funding : at times, it may be more advantageous for the organisation to cover the costs of specific situations themselves (“self-insurance”) rather than through the insurance scheme. While I was working for one of the high-tech giants a few years back, we chose this option in the case of an employee’s spouse treatment as her cancer form was very rare and expensive to treat, and the costs were affecting the whole pooling structure, resulting in costs larger than if we paid the treatment directly.
With so many local companies growing even outside the boundaries of the GCC, it was good to be reminded of concepts that look beyond the individual country plan and offer a coordinated, regional or even global approach.
Mohammad Laghari from Abdul Latif Jameel International then covered effective communication of rewards.
He started by reminding us that effective rewards communication achieves multiple objectives, such as :
- linking the external brand of the company with the total employment experience within the organisation,
- strengthening customer satisfaction and building customer loyalty,
- and becoming one of the strategies for improving performance.
In short, rewards communication goes beyond applying a common “look and feel” to employee communication materials, and it is not focused only at recruitment campaigns, (even if it is a very nice and flashy campaign).
Mohammad then described a case study at one of the countries where his company operates, where they had retention issues as other organisations were seeing them as a great training centre ie breeding ground for qualified staff, and were poaching away a significant portion of ALJ employees.
The team performed a traditional compensation redesign project, with proper market benchmarking, a pay structure redesign, and the implementation of stronger linkage between rewards and performance (including development plans).
Once this was done, they had to consider the communication plan. They followed a 3-step approach, Discover (needs and gaps analysis) > Design (create the framework for the communication approach) > Deliver (plan execution, tracking and fine-tuning).
They then defined their main stakeholders : executives, line managers, HR and all employees.
I especially liked how they focused on 3 progressive levels of engagement for each of the stakeholders : Get it > Support it > Do it, with action plans and identified ways to track progress. A nice matrix that certainly helped in managing the overall communication process.
Mohammad described the operation as a success that increased the employees’ sense of trust in HR and line managers feeling more confident in their ability to deliver.
The day also included two cases studies that demonstrated that organisations can implement innovative approaches in the region :
Nisheeth Pathak from Noor Investment Group started by a demonstration of the use of social media in Compensation & Benefits.
Yammer is an internal social network platform, like a “mini-Facebook/Twitter” but private and focused on the company. Employees can post status updates, engage in conversations, share photos etc. This kind of environment is especially well-suited to an organisation like Noor because a large portion of their employees are young and engaging on social media is like a second nature to them.
Nisheeth walked us through how employees reacted when a change in benefits was introduced.
On Yammer, employees voiced strong concerns about costs and some of the specific aspects of the plan. This was swiftly addressed by the HR team, which operated a change in the plan design. The changes were much appreciated by the staff, and what had started as potential engagement issue was efficiently and quickly resolved.
Nisheeth also showed us how Yammer is used as a recognition tool, when employees spontaneously praise one another for their support. So the traditional recognition scheme is not only amplified on the social network, but individuals are also instantly put in the spotlight.
Engagement also increases through the use of features like photo sharing of personal events (birthdays for example) or team events, or even voting features.
The team are currently working on deploying Spigit in the future. Spigit is an “ideation engine” as Nisheeth put it. Basically, it will be used as a suggestion tool, but using a gamification approach. The community of employees will give feedback on the ideas, not a committee like in traditional suggestion schemes. Noor are apparently even considering potential ways to fuel this reputation rank into the performance evaluation system. This is quite a novel approach to the traditional suggestion box and I look forward to hearing how this experiment works out !
Some of the points that struck me were :
- The candor with which employees expressed their opinions, even negative ones. The system is not anonymous so everyone knows who said what. Clearly, employees believe in the “no retribution” approach that was put in place by the organisation. As Nisheeth explained, this level of trust is fundamental if you want staff to engage in meaningful conversations with the organisation.
- The speed with which the C&B and HR team reacted had nothing to do with traditional responses that many organisations are used to. The team reacted immediately, at first by explaining things in more detail to the employees, and even the top management jumped in the conversation. You can’t implement social media tools that allow instant sharing of comments and ideas, without responding at the same speed to employees – so be prepared for that.
- The HR team kept staff regularly updated of the progress they were making in seeking amendment to the plan design. This open follow-up was adapted to the speed of social media, in the sense that it was more frequent than usual HR “updates” on projects (we’re about to launch, … silence…, sometimes weeks or months of silence…., “here is the new plan”). This is major in terms of maintaining credibility. By treating employees as adults and with respect, the HR team received the same respect in return, instead of being perceived as a big “black box” of unknown activities.
- Finally, yes some issues may surface in a public way through the use of internal social media tools. And this may cause HR to go in “crisis mode” to sort the issue out. So there is a price to pay for HR : you have to constantly monitor (ie : resources), to respond quickly (ie : be ready to consider that you don’t always “do things perfect the first time”), and to accept that some topics will not be “put under the carpet” like they were in the past. But the reward is massive : you get to know of potential employee concerns early, nip them in the bud, and as a result, ensure continued high levels of employee satisfaction and engagement. This directly impacts the bottom line, and HR is viewed as a value-adding partner by the business, and a credible point of contact by the employees.
I hope this will encourage more organisations to consider introducing social media within the company.
Nelly Nassif from BAT covered a different approach to expatriate compensation in the Middle East and Africa
…Expatriates as in “traditional international assignees”, not as our common term in the region describing “non-citizens working in the GCC countries, normally on local employment contracts”.
Nelly first presented the global mobility framework in place at BAT.
Like many other companies with large numbers of employees on international assignments, BAT looks at the purpose of the assignment (for top management, for skills transfer, for development purposes, or initiated by the employee), and assigns a type of package to each : long or short expatriate assignment, or “local +” package with a soft transition to a fully localised package.
They mostly use a home country system with a balance sheet approach combined with various allowances linked to the type of assignment and its location. They also have a HQ system for their “professional permanent expats”, for whom the “home country” is always the headquarter.
Some other systems exist to cater to specific cases such as moving from a “cheap” country with weak currency to a strong currency country, but they are not the most widely used.
In the GCC and Middle East, mobility presents a number of challenges. Some are linked to the current instability in some parts of the region, while other challenges are linked to the structure of the local market conditions, especially in the GCC.
Nelly looked at the UAE, and in particular, presented the challenges of outbound mobility from UAE to other countries.
The current existing local salary structure, based on international standards of living combined with no income tax (except most notably for US citizens), have created 2 issues :
- The incoming / host location cannot accommodate the high costs related to the assignment of the employees coming from the UAE – this restricts the opportunities for development of employees.
- The UAE-based employees would see their income go down when on assignment and are therefore less incentivised to move out.
This is the situation facing all companies in the GCC by the way, not just BAT…
But the company looked at it in an innovative way. They tried to resolve the balance of talent mobility needs and cost efficiency, by ensuring that while in the UAE, employees are paid at fair market levels, and when they move to another country, employees coming from the UAE will be cost-competitive in comparison to other BAT international assignees coming to the same host country.
Their approach :
- They selected 6 categories of typical host countries, I suppose based on prior movement patterns and anticipated business needs
- They calculated international assignment packages to these host countries for an employee from the “Hub” (London is their reference point), and an employee coming out of Dubai.
- They categorised the differences in costs (assignment cost and package offered to the assignee) into 3 buckets (green, orange, red).
- They redesigned the packages of employees based in the UAE accordingly. The traditional gross salary was replaced by a base salary + Home Base Allowance (HBA).
In short, HBA represents the variable portion of pay which is linked to the unique characteristics of the UAE’s labour market. When going on an outbound assignment, the employee will keep their base salary and the HBA will be replaced by the other allowances that are typical of an international assignee in the host country.
This will not solve all issues, as the employee may still end up doing a move for a total package representing less than their UAE package. Consequently the company is a bit limited in the options of which countries to offer as an assignment to employees.
I believe however that such a structure will have a positive impact, especially as an education / awareness tool. Employees will be conscious of the specifics of being employed in the GCC. They will be more aware of what an assignment could mean to them, and balance the package considerations against the career development ones. This will most certainly facilitate discussions about their potential outbound mobility.
All in all, this was a very practical, down-to-earth presentation which introduced the audience to a “different” way of approaching mobility in the region. There were a lot of “a-ha” faces around the tables so I guess Nelly’s presentation generated a lot of thinking
Other conference activities.
There were also roundtables (Total Rewards, Oil & Gas, Employee Engagement and Growth Markets), panel discussions (Nationalisation and C&B, Total Rewards and Engagement), and a fun “speed networking” activity.
I won’t report on these, if you want to experience them, you’ll have to come next year ! The 18th Forum is scheduled for June 8-12, 2014 in Dubai.
Sandrine Bardot has 18 years of Compensation and Benefits experience with a strong focus on the Middle East and Africa region. A keen interest on urban development, sociology and science-fiction. Follow her blog The Compensation Insider for more insights.
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