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In times of economic uncertainty it is increasingly
important to make fact-based decisions. The
implications of decisions today can be enormous
as companies fight for survival. But, to make the
right decisions you need the right facts. And, to
make clever decisions, it is sometimes necessary
to find ways to uncover and exploit previously
unexamined relationships that often exist
between fact sets.
For most organizations, employee engagement data
represents an untapped opportunity in this regard. While
employee engagement has become a widely used business
metric routinely employed by many organizations worldwide,
most of these organizations measure engagement in isolation.
The information is used broadly as an organization "health check",
and the process is owned almost exclusively by Human Resources.
This is unfortunate.
Companies that take the time to examine the linkages between
engagement and other business metrics capture powerful
information that delivers competitive advantage. These
organizations use engagement data to understand where
engagement is a factor impacting business performance, and
where it is not, which is equally as valuable to know.
A well constructed engagement-business performance
measurement model can go even further still. It can help
guide decisions regarding the capabilities and deployment
of critical employee populations, inform the extent to which
employee segments are being utilised efficiently, and shine
a light on the extent to which existing people practices are
adding or degrading value in each part of the business.
Ultimately, having a deep understanding of what human
capital factors should be measured is as critical to a business
as understanding any other cost or revenue driver. To seize
the competitive advantage that this knowledge offers,
companies need to move from simply knowing the levels
of engagement to identifying exactly where, how and why
engagement impacts their business results at any point in time.
Finding this out is really not as hard as you might think.
Enhancing Business Performance Using
Engagement Metrics
Understanding how and where engagement is impacting
business performance in an organisation is difficult to achieve
through long and deep cyclical measurement efforts. To be
effective, measurement needs to be shorter, sharper, more agile,
and in line with changing business performance requirements.
This means reducing the scale and depth of the
measurement to focus on the areas where engagement
has the greatest potential to directly impact business
performance where and when it matters most. Companies
should therefore reconsider the annual, "all-employee"
measurement cycle in favour of more frequent "sampling
based" studies that draw inferences from smaller numbers of
respondents.
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Divining anything of great value from engagement
data independent of financial, operational, and customer
performance metrics is problematic. However, the goal of
measuring engagement is not simply to drive engagement
scores higher and higher. Therefore, businesses need to
understand how engagement itself relates to and impacts
business performance. Seeking this understanding should be
at the heart of engagement measurement, especially in the
current economic environment.
Once an organisation knows, without doubt, where
engagement is causing or varying performance, it can put
in place highly focused action plans to exploit opportunities
and correct deficiencies. There are several critical stages
to building an engagement measurement framework that
is aligned to value generation. These can be described in a
simple, five step process:
5 Step process linking engagement to
business performance
Step 1: Understand the Business and its Value Drivers
Before an organization measures engagement, it must first
clearly understand its operating model, key strategies, priorities,
and drivers of value generation in each business and/or
business unit. It needs to understand how and where employees
can and do contribute to business success by determining how
and where they create value for the business.
They must undertake analysis that identifies the key
activities performed by employees that are critical to the
success of the organisation. The output of this analysis could
be an Employee Value Chain, a high level example of which is
provided below, or a strategy map.
Step 2: Review Business Performance against
Key Metrics
Understanding each of the critical roles and activities allows for
the development of a scorecard incorporating key metrics. These
scorecards show the performance baseline for each metric
and any variations in performance across and within business
units.
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Linking Engagement to Business Performance |
They also identify internal best practice and areas of poor
performance. These metrics in the scorecards might be focused
on sales, revenue, customer, operations, or cost. They can
reflect the physical activity undertaken by roles (e.g., number of
orders processed, number of client contacts, etc.) or they can be
gross measures such as revenue per employee. These reference
points then become the basis for evaluating the links between
engagement and performance in key roles and activities.
Undertaking this process allows a business to look
closely at how employees contribute to value creation. It also
provides invaluable insight into how a strategy is executed on
a business unit level and what increased contributions highly
engaged employee groups could make along the value chain.
Step 3: Administer the Engagement Survey
Once an organization understands in very clear terms what
it is trying to do and how it means to do it as well as what
drives value generation across the business and performance
against key metrics, the engagement
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survey can be designed
and administered to help understand how engaged people
are at each phase of the value generation process, and what
factors are driving engagement.
To do this right requires expert design and administration
of a concise, highly customised engagement survey. Critical
to success at this stage is a focus on keeping the survey short,
tightly defined, and timely.
Step 4: Insight and Analysis – Turning Engagement
Data into Business Intelligence
The next step is to leverage the knowledge obtained during
the earlier phases. It involves applying a straightforward
methodology for turning the data from information viewed in
isolation into highly relevant business intelligence.
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Linking Engagement to Business Performance |
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In the example shown above, the relationship
between engagement level and queue length showed a strong
positive correlation. This analysis produced insights into
where engagement was a factor impacting performance,
where it was not a factor, and where key opportunities existed
to leverage engagement for performance improvement (in this example, high impact is achieved by focusing on those
operating units falling within the 'Growth Zone').
Before proceeding to the final stage of action planning,
these insights are then tested and validated with the business
and business units to ensure accuracy.
Step 5: Prioritisation and Action Planning – Developing
Initiative Descriptions
The final stage is all about prioritising, focusing attention and
planning on the greatest opportunities to increase business
performance using engagement.
By this stage, there will be clarity and agreement on
where engagement is causing or varying performance against
any given metric. All that remains is to work through each
opportunity, confirm the scope of the work required to effect
the desired change, and then agree who will take the required
action and within what timeframe. Each opportunity can then
be framed within an initiative description.
Each initiative description should clearly define each
individual objective and the associated business performance
improvement expected to be attained with successful
completion of the initiative. The initiative descriptions also
should detail the level of effort required in delivering each
objective, the people responsible for execution, and the
interdependencies with any other projects or operations
within the business.
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The Benefits of a More Focused Approach to
Measuring Engagement
It's hard to imagine why any company or business leader
wouldn't want to leverage the competitive advantage that
measuring engagement in this manner offers. This process
is a powerful means of delivering "excellence in execution"
that can greatly enhance business results – often more than
traditional cost-cutting and efficiency-seeking practices that
many leaders are employing today.
When applied correctly, the process for linking
engagement to business performance can add enormous
value by directing attention to the areas of the business
that matter most, helping to clearly demonstrate the
return on any investments made with respect to human
capital management, and equally importantly, by ensuring
that limited resources aren't invested in areas that easily
obtainable intelligence clearly shows don't need it.
Given that there is an ever decreasing margin (and time for)
error in more volatile markets, it makes sense to use available
data in creative, innovative ways so that every opportunity
is optimised. Linking engagement to business metrics is an
innovative step that that companies should be considering. |
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 Richard Kantor is Hewitt's Asia Pacific Talent &
Organization Consulting practice leader and can be
reached at richard.kantor@hewitt.com |
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Non-traditional expatriates lead the pack
China has a more diverse and rich pool of expatriate talent
spurred largely by the availability of strong foreign talent
already residing in China, the increasing interest among the
Chinese residing abroad to return home, and a general in-flow
of foreign talent.
The study reveals that "traditional expatriate", or Western
expatriates, are mostly hired for the top executive and senior
manager levels, whereas "non-traditional" expatriates, such
as China-hired foreigners and returnees (who traditionally
were not a part of the foreign talent pool in the 1980s when
China opened up its economy to the outside world) form a
majority at the lower levels. (see Figure 1)
This diversity has led to multiple reward packages being
designed for different groups of expatriates. Managing
multiple reward packages of the "non-traditional" expatriate
group has led to several challenges, and organizations are
struggling to streamline this.
However, despite the effort, a variety of market practices
still exist for this group.
Hire globally and pay locally
The study reports that most organizations feel it is essential to
send over senior leaders from the country of origin to extend
the company's vision and safeguard its philosophy.
This is a big change in direction from the trend a few years
ago in which organizations actively started hiring locals in
place of the expensive expatriate talent.
Organizations have returned to recruiting expatriates
but are doing so by "localizing" the compensation packages
offered - reducing the benefits and perquisites component in
traditional expatriate packages, and hiring "non-traditional"
expatriates at lower pay packages.
According to the study, 42 percent of participating
organizations in 2007 reported having a formal localization
plan in place or planned to implement one in the upcoming year.
The talent market for "non-traditional" expatriates is fairly
new and is still evolving.
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Foreign organizations that have been in China for a long
time tend to design compensation and benefits packages
that are more aligned to local packages in terms of size and
program features. Foreign organizations that are fairly new
to China or in a rapid-growth phase still tend to bring over
expatriates from overseas, while those organizations that are
more established, coupled with steady business growth (and
across more progressive industries like hi-tech), tend to seek
more "non-traditional" expatriates.
Higher increase for global experience and local skills
Despite "localization" of compensation packages, the annual
salary increases awarded in China have been high. In
Hewitt's salary Increase survey 2006-07, the overall local
salary increase in China has been the third highest in Asia at
8.3 percent.
The China Expatriate Compensation and Benefits 2007
study further revealed that expatriate salary increases were
highest among "China returnees", who received an average
increase of 7.3 percent (see Figure 2). "China returnees"
often have strong technical skills, especially in research and
development, which, when coupled with their language and
cultural skills, make them highly valuable.
It is interesting to note that in the "China returnee" group,
employees at the senior professional, supervisor and director
levels received the highest salary increase. This is due to the
shortage of leadership and technical skills in China.
Reaping the benefits.or not?
According to the study, fewer organizations are offering
costly expatriate benefits packages as in previous years.
Traditionally, organizations in China used to award three
types of premiums to expatriates: foreign-service premiums,
hardship premiums, and cost-of-living adjustments (COLA).
COLA packages can vary, but they are offered as a fixed
percentage of base pay. COLA is the most common expatriate
premium.
In 2007, of those companies that offered premiums,
traditional expatriates hired with a global package were
offered 15.5 percent of base pay as COLA, 12.6 percent of
base pay as hardship, and 13.6 percent of base pay as a
foreign-service premium.
Expatriates on regional packages were offered 13.4
percent of base pay as COLA, 10.5 percent of base pay as
hardship and 9.0 percent of base pay as a foreign-service
premium.
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However, expatriates are not necessarily offered all three
of these amounts, as companies offered a nearly 24 percent
average aggregate premium to global packages and nearly
23.7 percent to regional packages.
Of the various types of premiums, hardship premiums
are disappearing the fastest, followed by the foreign-service
premium. China's explosive growth of suburban villas and
other high-end real estate is one reason why China can no
longer be considered a hardship posting. Adverse pollution
levels and cultural differences, however, can still justify a
need for this premium in some cases. COLAS have been
consistently maintained by organizations.
Although the prevalence of premiums has experienced little
change in global and regional packages, the value of these
premiums has reported a dip. However, China-hired foreigners
and China returnees experienced a drop in both the prevalence
and value of the total premiums offered. (see Figure 3)
Housing continues to be one of the largest components
in expatriate pay. Consistent with findings from previous
years, the majority of organizations still provide housing
assistance to expatriates. |
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However, the budget varies quite significantly. Expatriates
who enjoy global packages have the highest housing budget,
ranging from US$4,000 to $7,000 (median) per month, while
the housing budget for China-hired foreigners and China
returnees ranges from US$1,000 to $3,000 (median) per
month.
During the past few years, there has been no significant
change in housing assistance practices. However, housing
assistance is most likely to be reduced significantly if
"localization" of packages continues to become more
widespread.
Organizations will, at some point, be inclined to do
away with direct housing reimbursement and offer a fixed
housing allowance, which may well be lower than the housing
reimbursement currently offered.
Tax equalization is the most popular tax assistance
practice for expatriates who are hired by regional or global
headquarters. However, organizations do not provide tax
assistance for China-hired foreigners and China returnees.
Most organizations expect them to bear the individual income
tax themselves. (see Figure 4)
Education assistance is a very popular benefit for
expatriates assigned by global/corporate or regional/ Asia-
Pacific headquarters. This factor alone can sometimes be a
deal breaker, especially if the expatriate has a large family.
Private international education in China does not come
cheap, and can sometimes equal the tuition fees of U.S.
universities. Options for education for foreign children
are limited. Also, in most cases, the prevailing medium of
instruction is Mandarin Chinese. As a result, the majority of
organizations provide private education assistance to help
cover the tuition fees of international schools for expatriate
children across all expatriate categories. The policies are
flexible enough to accommodate different kinds of school fees,
especially tuition and transportation, as long as the costs are
within a reasonable amount. |
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While benefits such as educational assistance continue
to be offered to mostly all assigned expatriates, more than
half of the organizations surveyed said they do not offer this
to all China-hired foreigners. Only top executives within this
group are eligible to receive this. For PRC returnees, most
organizations do not include education assistance as a critical
part of the benefits package because their children are more
likely to adapt to the local education system.
Some of the benefits that are being phased out include
home leave and Rest and Relaxation (R&R) leave assistance.
Fully reimbursed R&R trips to Phuket or Bali no longer form a
part of the benefits package. R&R leave is a thing of the past,
and special home leave is less common, too; most companies
offer only standard annual leave. |
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A world of opportunity has opened up for talent in China.
Although immediate shortages of talent pose a threat,
organizations are making continuous changes in their people
processes to more effectively attract, engage, and retain
talent.
The projected economic growth is going to make
overcoming people issues even more challenging in the future
if the right steps are not immediately taken by organizations.
The changing face of expatriate pay is a testimony to
China's efforts in realigning current talent strategies. |
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Lindsay (Oliver) Klump
is a senior consultant in
Hewitt's compensation
and benefits practice in
Shanghai. To learn more
about Hewitt's upcoming
2008 expatriate, China
Hire and Returnee
Compensation and
Benefits study that was
released in November,
please contact Lindsay.
oliver@hewitt.com or
+86 21 2306 6916. |
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Hewitt Quarterly Asia Pacific
is made possible through the combined skills and experience of Hewitt consultants from across the Asia-Pacific region.
For further information please contact:
Hewitt Associates
2601-05 Shell Tower
Times Square
Causeway Bay
Hong Kong
Tel: (852) 2877-8600
Fax: (852) 2877-2701
editor-hqap@hewitt.com |
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