Pay Trend & Compensation Overview in Hong Kong

1. 28 February 2011 Pay Trend & Compensation Overview in Hong Kong Connie Leung, Mercer Hong Kong

2. What do we hear from our clients as an employer? How to attract/retain the employees? How to balance between market competitiveness and maintaining cost? What should we do to response to employees’ request other than increasing salary? How can benefits motivate and engage employees?

3. Three key perspectives considered in a structured decision making process

4. This presentation covers • What is happening in the market? • Pay Increase trend • Staff turnover • Hiring intention and hot jobs • Annual base salary & annual total cash trend line • Year over year comparison on typical positions and starting salaries of graduates • Benefits practices and prevalence • What do you think your employees pursue? • Attraction & retention • Different generations and life stages, different needs • What do you think about yourself as an employer? • Conclusions • Mercer’s Total rewards Approach • Key Takeaways • Q & A • About Mercer

5. An Overview of the Market

6. Mercer’s Total Remuneration Survey DatabaseAbout 350 companies in 2010

7. Overview of Hong Kong Pay Trend ( 3.4 if excluding salary freeze) Average salary increase for All Industries Source: IMA Asia, January 2011 2008-2010 Hong Kong TRS All Industries & 2010 Q4 Hong Kong Market Flash

8. Overview of Hong Kong Labour Market Note: 2010 staff turnover rate & retrenchment rate for All Industries are estimated based on the January to September figures of 2010 Source: IMA Asia Forecast, Q3 2010 2008 – 2010 TRS All Industries 2010 Q4 HK Market Flash

9. Most Difficult in Recruiting Sales – Professional Level Sale – Managerial Level Engineering – Professional Level Most Difficult in Retaining Sales – Professional Level Marketing – Professional Level Marketing – Managerial Level Hiring Intention & Hot Jobs Headcount Planning in the Next 12 Months Source: 2010 Q4 Hong Kong Market Flash & 2010 TRS All Industries

10. Comparison of Annual Base Salary (2008 – 2010) Source: 2008-2010 TRS All Industries

11. Comparison of Annual Total Cash (2008 – 2010) Source: 2008-2010 TRS All Industries

12. 2010 2008 2009 Compensation Mix (2008 – 2010) Source: 2008-2010 TRS All Industries

13. Average Variable Pay (as a % of Annual Base Salary)Based on 2009, 2010 and 2011 performance Source: 2008-2010 TRS All Industries

14. Year over Year Comparison for Annual Base Salary (2008 – 2010) Selected positions in typical job functions Source: 2009-2010 TRS All Industries

15. Year over Year Comparison for Annual Base Salary (2008 – 2010)Starting salaries for new graduates Source: 2009-2010 TRS All Industries

16. HK Statutory Requirement Mandatory Provident Fund (DC) 5% of MPF Relevant Income and monthly contribution capped at HK$1,000 for both employer and employee contribution Immediate 100% vesting to employee on both employer and employee contribution Withdrawal of benefits upon retirement age at 65 (early retirement at 60) Upon resignation, employee need to transfer their benefits in a preserved account of a MPF service provider Typical Market Practice ORSO (DC) MPF Top Up (DC) Typically, no cap on contribution amount Employee contribution is not necessary required Vesting scale is usually made according to years of services and normally be fully vested since 10 years of services Withdrawal of benefits is allowed for those benefits above the Minimum MPF Benefits (MMB) upon resignation MMB should be transferred to a preserved MPF account and be withdrawn upon retirement Retirement Benefit in HK Source: 2009/2010 HK Benefits Survey

17. HK Statutory Requirement Disability Benefits Injury at work Occupational Disease Death 36 – 84 times of monthly earnings according to age of employee Permanent Total / Partial Incapacity 48 – 96 times of monthly earnings according to age of employee # monthly earnings are subject to a maximum of HK$21,000 for calculation of compensation Typical Market Practice Disability Benefits Group Term Life Insurance Group Personal Accident Insurance The coverage is typically made at 36 months’ base salary (without capped at HK$21,000) Disability and Death Benefit in HK Source: 2009/2010 HK Benefits Survey

18. HK Statutory Requirement 12 statutory holidays Progressive annual leave entitlement from 7 days to a maximum of 14 days according to years of services 4/5 paid sick leave accumulated up to 120 days according to years of services 4/5 paid maternity leave for 10 weeks Typical Market Practice 12 statutory holidays plus 5 days public holidays Progressive annual leave entitlement from 12 days to 24 days (varies by employee category) Full paid sick leave Full paid maternity leave 2 days paternity leave 3 days marriage leave 3 days compassionate leave Holiday and Vacation Benefit in HK Source: 2009/2010 HK Benefits Survey

19. Benefit Prevalence in HK-Insurance and medical benefits Source: 2009/2010 HK Benefits Survey

20. Benefit Prevalence in HK -LTI, perquisites and housing Source: 2009/2010 HK Benefits Survey

21. About the Employees

22. Employee groups with the highest turnoverBy job function • Among the 12 job functions listed, sales function was mostly ranked (68%) as one of the top 3 functions with the highest turnover rate in the past two years • Human resources function was relatively stable with only 11% of respondents reported it as one of the top 3 functions with the highest turnover rate Source:2010 Q2 Hong Kong Market Flash

23. Employee groups with the highest turnoverBy years of service, age group and employee category Our survey participants indicated that the following employee groups had the highest turnover in the past two years: • Employees who have joined their company for 1 to 2 years • Employees aged between 26 and 35 • Individual professional employees Source:2010 Q2 Hong Kong Market Flash

24. Attraction of Professional Staff Top 10 commonly used methods & top 10 most effective methods • Competitive pay (94%), performance-based pay (89%), training and development program (87%) as well as promotion opportunity (87%) are the most prevalent methods used to attract professional staff • Promotion opportunity (51%), harmonized work culture (46%) and effective leadership (43%) were ranked as the top 3 most effective methods to attract professional staff Source:2010 Q2 Hong Kong Market Flash

25. Retention of Professional Staff Top 10 commonly used methods & top 10 most effective methods • Performance-based pay (90%), training and development program (82%) as well as effective leadership (77%) are the top 3 most prevalent methods used to retain professional staff • Harmonized work culture (57%) and promotion opportunity (53%) were ranked as the top 2 most effective methods to retain professional staff Source:2010 Q2 Hong Kong Market Flash

26. Different Generations, Different Needs Traditionalist Boomer Generation X Generation Y • Hope about future • Collaboration • Social activism • Tolerance for diversity • Family centricity • Conformity • Stability • Upward mobility • Security • Economic success • Free agency and independence • Street-smarts • Friendship • Cynicism • Personal and social expression • Idealism • Health and wellness • Youth Born 1928–1945 Born 1946–1964 Born 1965–1980 Born 1980–2000 Mercer is not responsible for any opinion or statement made by third parties Source: International Labor Organization 2009

27. Different Life Stages, Different Needs Retirement Enter Workforce Children leave home Marriage(dual coverage) Parenthood Start Family 20 25 30 35 4045 505560 • Cash • Vacation • Car • Career - Training • Life & Medical • House • Career Progression • Work/Life Balance • Pension • Medical • Work/Life Balance • Children’s College

28. About the Employers

29. Understand Yourself as an Employer • Understand yourself • Your vision, mission, values, strategies and plans • Your workforce and talent strategies and plans • Your affordability and constraints….. • As a SME, there could be some features: • Relatively small organization size • Easy to change and adapt to new approaches • Innovative ideas can be easier to promote • But, limited resources….. • Relatively simple structure • Efficient decision making process to get things done • More direct communication with employees • Employees can obtain broad knowledge and skills as they may have multiple roles and responsibilities • But, career path is not likely to be defined, and • Policy and procedures is likely to be non-standard…..

30. Conclusions

31. Integrated Approach - Total Rewards

32. Key Takeaways • Quick economic recovery and business expansion increase the competition for talent • Pressure on C&B costs in 2011 • Regular salary increase • Market catch up and special adjustment • Higher expectation of salary due to turnover • Accelerating benefit cost • Cost constraints • Your reward strategies will need to be specific to your talent market • You need to get more information and do more analysis before making the right decision • Adopt integrated approach to attract and retain your talents • Cash Compensation • Benefits • Career and Development • Work Lifestyle

33. Q & A

34. About Mercer

35. Mercer – a Member of Marsh & McLennan Companies MARSH Risk and Insurance Services MERCERConsulting, Outsourcing and Investments GUY CARPENTER Reinsurance Services OLIVER WYMAN Management Consulting and Advisory Services

36. Mercer – Our global network • Mercer is a leading global provider of consulting, outsourcing and investment services, with more than 25,000 clients worldwide. Mercer consultants help clients design and manage health, retirement and other benefits and optimize human capital. The firm also provides customized administration, technology and total benefit outsourcing solutions. Mercer’s investment services include global leadership in investment consulting and multi-manager investment management. • Mercer’s global network of more than 19,000 employees, based in over 40 countries, ensures integrated, worldwide solutions. Our consultants work with clients to develop solutions that address global and country-specific challenges and opportunities. Mercer is experienced in assisting both major and growing, mid-size companies. • The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago and London stock exchanges.

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