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The Target Moves Faster: Benchmarking Pay Levels and Practices

The Target Moves Faster: Benchmarking Pay Levels and Practices. People Aspects in Managing your Business in an Environment of Accelerated Growth 17 June 2005. Valentina Boliasnikova, HR Manager D.E.Rusbrands. WHO WE ARE. Sara Lee Corporation is a global company with HQ in Chicago.

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The Target Moves Faster: Benchmarking Pay Levels and Practices

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  1. The Target Moves Faster: Benchmarking Pay Levels and Practices People Aspects in Managing your Business in an Environment of Accelerated Growth 17 June 2005 Valentina Boliasnikova, HR Manager D.E.Rusbrands

  2. WHO WE ARE • Sara Lee Corporation is a global company with HQ in Chicago. Employs over 140 000 people providing products and services in 180 countries. • Three segments: Food & Beverage, Intimates & Underwear Household & Body Care Products • In Russia: Rep Office - from 1995 D.E.Rusbrands - from 2005 Brands in Russia: Moccona, Pickwick, Kiwi, Ambi-Pur, Radox

  3. BASIC PRINCIPLES OF SL COMPENSATION SYSTEM • External competitiveness • Internal Equity • Compliance with legal and regulatory requirements • Cost -effectiveness • LOCAL ENVIRONMENT REALITIES TAKEN INTO ACCOUNT • Russian Labor market general conditions • Foreign companies pay practices • Supply vs. demand for specific jobs • FMCG industry pattern

  4. TOTAL REMUNERATION STRUCTURE • Direct Compensation • Base salary ( Non-sales staff) • Base salary + monthly/quarterly bonus related to individual performance • Base salary + annual bonus related to company performance and discretionary targets achievement • Base salary + short-term incentives (monthly/quarterly/annual bonus) • + long-term incentives (share options) • Indirect Compensation (Benefits) • Legally required benefits • Additional benefits

  5. IMPORTANCE OF INDIRECT COMPENSATION • Increase work efficiency • Corporate car • Mobile phone reimbursement • Relocation allowance • Protect employees’ physical and financial well-being • Medical and other insurance schemes • Non-state pension programs • Free lunches in company canteen • Sick days paid above statutory • Sports/fitness facilities • Increase commitment to the company • Subsidizing long-term tuition (MBA, second higher education, etc.) • Compensation maternity leave at 100% • Child-care allowance

  6. SALARY SURVEYS AVAILABLE • Hay Group • Price Warehouse • Ernst & Young • Watson Wayatt • Ancor • Mercer Human Resource Consulting (a club survey for FMCG multinationals) • Others

  7. BENCHMARKING • Provides general direction • Where we are at the labor market • What are the trends • What new Comp & Ben instruments are becoming a common practice • Gives reference points • For regional recruitment • For entirely new roles which do not have a clear internal match • Helps to deal with certain challenges • Balance among external, internal, and individual equity • Basis for making pay adjustments • Balance between pay and benefits • Choosing from benefit options

  8. FROM PAY MANAGEMENT TO REWARD MANAGEMENT: • Quality of reward management processes are more seen as the key differentiator from rivals

  9. TOTAL REWARD SYSTEM CONSIDERS: • Compensation and benefits • Security • Status / recognition • Social interaction • Work variety • Work importance • Advancement • Authority/control autonomy • Feedback • Work conditions • Development opportunities

  10. VISIBLE TRENDS • Compensation systems are becoming more business driven • Higher focus on “objective” component of compensation system • Growing variety in benefit package • Gradual convergence in pay levels and benefit packages offered by foreign • and Russian employers • Different pay systems are implemented: • for different job families • for jobs particularly vulnerable to market pressures • for jobs particularly valuable for the business

  11. REWARD APPROACHES BEHIND VISIBLE TRENDS • Organizational responses Reward focus shift • to market pressures • De-layered ‘lean’ structures • More flexible roles • Assumption of competence • Competition for scarce skills, • ‘war for talents’ • From vertical to horizontal progression • From job-centered to role-centered approach • From reward for results to reward for • contribution (results +competencies) • From internal relativities to external • comparison

  12. SALARY ADJUSTMENT PRACTISES: • Merit increase cycle linked to the performance review cycle • Annual Market adjustments: at the beginning of each calendar year • to deal with exceptions • for salaries that fall behind market rate levels • Compensation for inflation : at the end of each calendar year • Special budget for small recognition payments

  13. USD PURCHUSING POWER RUR cost of living rate* USD/RUR exchange rate dynamics** Gap CY • Retrospective analysis (1999-2003) 1999 36,5% 46,6% -10,1% 2000 20,2% 4,4% 15,8% 2001 20,2% 8,3% 11,9% 2002 15,1% 5,2% 9,9% 2003 11,4% - 7,8% 19,2% Cumulative 1999- 2003 103,4% 56,7% 46,7% • Jan 1 2004 Denomination of salary in RUR ( fixed rate - USD= 29,45 RUR ) 2004 11,1% -5,8% 16,9% 2005 (Jan-May) 7,0% 1,2% 5,8% Cumulative 2004- 2005 17,1% 4,6% 11,1% * Source:State Statistics Committee(www.gks.ru) ** Central Bank exchange rate as per the last day of the month

  14. CORPORATE PENSION PLAN ELIGIBILITY: All full time permanent employees, who have successfully completed probation period. All Participants have the same rights and obligations. The Company is responsible for administration. PENSION CONTRIBUTIONS: Defined contribution program. Joint financing scheme • RegularEmployee’s pension contributions of 2 % of Employee’s base salary are matched by Employer’s Pension contributions of 4 % of his/her base salary. • Employees’ Pension contributions are credited to their Individual Pension Accounts (IPA-P). • Company’s contributions are credited to the Individual Pension Accounts (IPA-Er)and transferred to Individual after the expiration of the Vesting period. • Vesting period - 3 years of employment with the company.

  15. CORPORATE PENSION PLAN Employee Individual Contributions Pension Contributions Joint Financing (on voluntary basis) IPA Individual Pension Accounts Vesting Employer IPA IPA Pension payments (annuities) Employee • The benefit is distributed only to those who appreciate it • Both parties’ commitment • Diagnostic of each employee loyalty • Selling the benefit through involvement of employees:- Weighted decision of an employee • - Higher value of the benefit to an employee

  16. REASONS TO START A CORPORATE PENSION PLAN • Differentiation from the majority of competitors and improvement of the company’s HR market attractiveness; • Coordination of local HR policy with the global standards; • Flexible HR instrument - “Golden Handcuffs” (vesting); • Increase Employees’ loyalty to the company.

  17. POTENTIAL RISKS • When reward system • Badly managed • Wrongly conceived • Poorly communicated • Flexible benefits /Cafeteria-style plans • Extra administrative efforts • Control (keeping records, tracking data) • Delivery arrangement

  18. ‘BEST FIT’ vs. ‘BEST PRACTICE’ • Reward practices • fit the needs of the business • aligned with organizational structure and culture • deliver message about what the organization values • Reward system elements • integrated • mutually supportive • produce a cumulative effect on individual, team, organizational effectiveness

  19. QUESTIONS AND ANSWERS

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