Global and Local Remuneration Trends

1. Global and Local Remuneration Trends 13 May 2010

2. Growt_ & P_ofit The world’s most successful companies have this one figured out

3. Top 15 Reward Trends • Employee Engagement • Total Reward Approach • Retention Trends • Linking Pay to Performance • New Long Term Incentives • Non-Financial Rewards • Globalisation • Governance • More Flexibility and Reward preferences • Setting Non-Executive Director (NED) Pay • Rewards for Creativity • Dual Career Paths and Flat Structures (Broadbanding) • Media Scrutiny • HR, Reward and the Bottom line • Branding and EVP

4. 1. Employee Engagement Engagement

5. Work • Work Tasks • Sense of Accomplishment • Resources • Work Processes People • Senior Leadership • Manager • Coworkers • People Focus • Customers Total Rewards Opportunities • Pay • Benefits • Recognition • Career Opportunities • Learning and Development Company Practices • People/HR Practices • Managing Performance • Brand Alignment • Organization Reputation Quality of Life • Work/Life Balance • Physical Work Environment Six Categories Drive Employee Engagement

6. Employee Engagement (cont.)The Big 5:

7. Engagement and the Bottom Line 30% - 150% of annual salary Accountant = R250,000 (median annual salary 2009) =R250,000 x R30% =R75,000 10 – 6 – 2 Every 10% improvement in commitment can increase an employee’s effort level by 6%, which can improve an employee’s performance by 2% (10-6-2 rule). 10 : 9 Every 10% improvement in commitment can decrease an employee’s probability of departure by 9% Source: Corporate Leadership Council, Driving Employee Performance and Retention through Engagement.

8. 2. Total Reward Approach TOTAL REWARDS STRATEGY Remuneration Benefits Work-Life Performance & Recognition Development & Career Opportunities OrganisationalCulture Employee Satisfaction & Engagement Business Performance& Results Attract Motivate Retain BusinessStrategy HumanResourceStrategy REF: W@W 2008

9. + Long-term Incentive Variable Pay + Short-term Incentive Total Earnings / Total Cost to Company + Car Benefit + Other Benefits + Cost of employee benefits Guaranteed Package / Total Guaranteed Package Fixed Pay Base / Basic Salary Base / Basic Salary Remuneration Definitions and Terminology Total Remuneration/ Total Cost of Employment Rolling Incentive

10. Total Package Approach • Total Packages concept continues to be a trend • There are few tax reasons for going this route, but many other advantages of doing so

11. 3. Retention Trends • Retention of critical skills and top executives is a top driver of remuneration policy and strategy • People join companies and leave bosses • It is all about engaging top talent • Once all the hygiene factors are sorted out, then one can turn to remuneration • Remuneration is 25% of the stay decision • BUT, remuneration is the ticket to the game – it has to be right

12. Retention – Remuneration Options • Market Stance • Restraint of trade payment • Sign-on bonuses/Retention bonus • Sign-on Loans • Rolling or banking of bonus incentives earned • Flexibility • Post retirement benefits • Long-term incentives (LTI) • Short-term incentives (STI) • Deferred compensation

13. 4. Linking Pay to Performance • Movement away from discretionary bonus plans (determined by the Board after the fact) to target based plans (where specific performance requirements and contingent reward outcomes are set in advance) • Targets are both quantitative and qualitative • Not just what was paid – how did you earn it?

14. Short Term Target and Stretch Targets Percentages by Level

15. 5. New Long Term Incentives • With the introduction of AC 139/IFRS2, companies need to evaluate different share valuation models and select one that is most appropriate to their circumstances • Although AC139/IFRS2 does not prescribe share valuation models (nor offer more than cursory guidelines as to their application), the onus regarding fair valuation rests squarely on the shoulders of the external auditor as part of the fiduciary responsibility to certify the fairness of the company’s financial statements • Section 8C of the Income Tax Act

16. Allocation Multiples for Employee Share Participation Schemes

17. Options/Share as a Percentage of Package

18. 6. Non-Financial Rewards • Recognition • Clearer career paths • Development opportunities • Job enrichment • Tuition of choice • Mentoring and coaching • Internships • Rotation and Learning

19. lternatives to cash

20. Your Total Rewards InventoryWork-Life

21. Your Total Reward Inventory Work-Life (cont)

22. Your Total Reward Inventory Work-Life (cont.)

23. Your Total Reward InventoryWork-Life (cont.)

24. Your Total Reward Inventory Performance and Recognition

25. Your Total Reward InventoryDevelopment and Career Opportunities

26. 7. Globalisation Remuneration Trends Think Global Act local

27. Glopats want to know that: • Their pay is competitive • They will not be worse off (and that hardship is taken into account) • Living standards are upheld • Their purchasing power parity (PPP) index is upheld • Sufficient and adequate pension arrangements are made

28. 8. Governance • More focus on independence of NED’s • Learning to strike the balance between good governance and being too transparent • The question being asked is: “If we disclose all our remuneration data, schemes and how they operate, we are giving our competitive advantage away” • King III implemented

29. 9. More Flexibility and Reward Preferences • More flexible working arrangements for employees and the organisation • Five year contracts with handsome “completion” bonuses are increasingly popular in South Africa, and this approach serves several goals • Reward preferences by Life Cycle, MBTI

30. Generations, now life cycle and Reward

31. Why do we call the last long generation Y.  I did not know,  but  a caricaturist  explains it eloquently below... Learned something new!

32. Personality type and reward preference Nienaber & Bussin, 2009

33. Reward categories influencing attraction, motivation and retention of employees Nienaber & Bussin, 2009

34. 10. Setting Non Executive Director (NED) Pay • Should they all earn the same • Should they get shares to align with agency theory? • Should they get an incentive bonus to reward great decisions? The trend will be to differentiate NED pay

35. A typical NED Pay Model

37. 11. Rewards for Creativity • If people bother to put forward suggestions, they should be recognised for this effort • If everyone gets into the habit of making a creative effort then, there will be valuable ideas • It is at least as important to motivate people who do not see themselves as creative to become creative, as it is just to choose already creative people

38. Paying for This There is a wide range of payment plans ranging from: • A pharmaceutical company is paying a maximum of R 10 000 per idea • An FMCG pays R 500 000 for the best idea of the year • A consultancy lets you choose your own reward • A bank pays R1m for the best idea

39. 12. Dual Career Paths and Flat Structures (Broadbanding) • Broadbanding is hugely seductive to organisations who want to become HPO’s (High performing organisations). • The reason is that the million of hours spent doing job grading and fighting about miniscule changes in the job description leading to non-value-add-upgrades can now be spent on performance.

40. SST - Dual Career Path Approach PATERSON SST LINE Specialist F 5 E 4 D 3 C Upper 2 C Lower 1 B 1 A 1 DESCRIPTIONS SI - Corporate strategic direction and policy sign-off SE - Translation of corporate direction into organisation planning & management MP - Translation of organisation plans into functional plans and best practice systems SP - Optimizing a given system to achieve plans AO - Solving a range of technical problems within a recognized technical discipline through the appropriate use of tools O - Routine application of industry specific tools and equipment which require training but not discipline apprenticeship P - Routine task orientation using simple tools and equipment normally of a manual nature TOP MANAGEMENT GROUP / FUNCTIONAL / ADVISOR SNR. MNGT MIDDLE MNGT PROFESSIONALS/ SPECIALIST TECHNICIAN / PRACTITIONER FIRST LINE SUPERVISORS ADVANCED OPERATIONAL OPERATIONAL SKILLS PRIMARY SKILLS

41. Retention - Skill Categories • Critical Skills: Skills critical to sustain its business objectives. It is essential that these skills are in place to ensure business continuity • Scarce Skills: Determined by the demand and supply of a particular skill in the market. The situation changes over time when the skill pipeline facilitates more people acquiring this level of skill • High Fliers: Consistently high performers as per performance standards • Core Staff: Employees who work in the operational areas • Support Staff: Employees who work in non-core or support areas

42. Critical Skills Engineering Management General/ Manager Resource/Technical Management Specialists Professional Traditional Management “Phd” Engineer Principal Engineer Senior Engineer Engineer Graduate Engineer (Trainee)

43. Scarce Skills cont. . . Employee A MAX 10% Scarce Skills Allowance Employee B P50 MID Employee C MIN Employees A, B and C all get an allowance calculated from the MIDPOINT of the salary scale irrespective of where they are paid relative to their peers

44. 13. Media Scrutiny Executive Pay – too much or too little?

45. Most Common Determinants of Pay • Organisation Size - turnover, number of employees, value of assets • Organisation Performance - profitability, return on investment, value added • Executive Specific Factors - Age, experience, tenure, career path • Organisation Structure - Holding, subsidiary or single unit company, capital or labour intensive • Job or Position Specific Factors - level of decision making, consequence of error, organisation level • Job Complexity

46. Considerations when choosing market comparators: • Holding, subsidiary or single unit organisation • Private, public or state owned enterprise • Monopoly or many competitors • Complexity of industry or market • Listed or not • Local listing only (JSE) or overseas listing e.g. LSE, NYSE or both • Organisation size in terms of turnover, budget, profit, assets, market cap, number of employees

47. Considerations when choosing market comparators (cont.): • Job content, not just position title • Job size – not all CEO job sizes are the same • Performance of organization in terms of financials, shareholder return, strategic vision, people management practices • Geographic footprint • Ownership structure • Extent of regulation

48. 14. HR, Reward and the Bottom line Ref: Watson Wyatt

49. The higher the company’s HCI score, the higher the TSR

50. The Watson Wyatt HCI “Global Truths” • Companies with superior human capital practices can create more than double the shareholder value than companies with average human capital practices • Companies have better TSR if they have: • Clear Rewards and Accountability – delivering a 16.5 to 21.5% • Excellence in Recruitment and Retention – delivering a 5.4 to 14.6% • A Collegial, Flexible Workplace – delivering a 9.0 to 21.5%