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

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

Three key perspectives considered in a structured decision making process External Market Compliance to the government regulations and requirements Consider labor and related rewards environments where you compete for talent Determine how the environments influence or constrain rewards practices that you may wish to adopt Employee Create a compelling place to work and differentiate the organization from its competitors Understand the value employees place on the current package as well as potential future total rewards Employer Determine workforce needs in terms of structure, behavior, capabilities and performance Design and deliver rewards programs to secure workforce outcomes Provide rewards programs to support the desired strategy at an affordable sustainable cost

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

An Overview of the Market

Mercer’s Total Remuneration Survey Database About 350 companies in 2010

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 6

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

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

Comparison of Annual Base Salary (2008 – 2010) 2010 Specific industry Non-executive report – all functions regression table: Hi-tech CG Chemical All Industries PC 41 – 60 Comp2, Comp3 (A) & Comp3(T) Annual Base Salary Staff Professional Management Executive 2010 vs 2009 0.2% 2.5% 4.3% 5.9% 2010 vs 2008 0.8% 1.4% 1.9% 2.3% Source: 2008-2010 TRS All Industries

Comparison of Annual Total Cash (2008 – 2010) Staff Professional Management Executive 2010 vs 2009 6.0% 4.1% 2.6% 1.3% 2010 vs 2008 5.0% 3.2% 1.8% 0.6% Source: 2008-2010 TRS All Industries

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

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

Annual Base Salary (HK$) Year over Year Comparison for Annual Base Salary (2008 – 2010) Selected positions in typical job functions Job Function Position 2010 Annual Base Salary (HK$) 2010 vs 2009 Deviation 2009 vs 2008 Deviation Administration Office Administration Manager 483,000 3% 1% Office Administration officer 232,000 4% 0% Finance Finance Manager 616,000 2% Finance Officer 240,000 Human Resources Human Resources Manager 583,000 Human Resources Officer 267,000 Information Technology IT Support Manager 586,000 IT Support Analyst 241,000 Marketing Marketing Manager 643,000 7% Marketing Executive 234,000 Sales Sales Manager 510,000 -1% Sales Representative 202,000 Source: 2009-2010 TRS All Industries

Source: 2009-2010 TRS All Industries Year over Year Comparison for Annual Base Salary (2008 – 2010) Starting salaries for new graduates 2010 Annual Base Salary (HK$) 2010 vs 2009 Deviation 2009 vs 2008 Deviation PhD 195,000 -25% +3% Master (Business Admin.) 192,000 -2% -6% Master (Science) 163,800 -15% Bachelor (Social Science) 150,000 -4% +8% Bachelor (Business Admin.) 144,000 -8% +4% Bachelor (Computer Science) - Management Trainee (PhD) 229,500 Management Trainee (Master) 199,000 Management Trainee (Bachelor) 156,000 -1% Source: 2009-2010 TRS All Industries

Retirement Benefit in HK 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 Source: 2009/2010 HK Benefits Survey

Disability and Death Benefit in HK 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) Source: 2009/2010 HK Benefits Survey

Holiday and Vacation Benefit in HK 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 Source: 2009/2010 HK Benefits Survey

Benefit Prevalence in HK- Insurance and medical benefits High (above 75%) Moderate (25% - 75%) Low (below 25%) Group Life Insurance  Group Personal Accident Insurance Hospitalization Insurance + Major Medical Benefits Out Patient Clinical Expenses Check-up and wellness Maternity Benefits Dental Care Vision Care Critical Illness / Long-term disability Insurance Source: 2009/2010 HK Benefits Survey 18

Benefit Prevalence in HK - LTI, perquisites and housing High (above 75%) Moderate (25% - 75%) Low (below 25%) Long Term Incentive (typical: Stock Purchase Plan)  Training Sponsorship Overtime Compensation Congratulations and condolences Long Service Award Vehicle (Sales/Non-sales) Loans Allowance (Shift/Standby/Transportation/Meal/ Position/Laundry/mobile phone) Housing Club Membership Source: 2009/2010 HK Benefits Survey 19

About the Employees

Employee groups with the highest turnover By 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

Source:2010 Q2 Hong Kong Market Flash Employee groups with the highest turnover By 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

Source:2010 Q2 Hong Kong Market Flash 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

Source:2010 Q2 Hong Kong Market Flash 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

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 Personal and social expression Idealism Health and wellness Youth Free agency and independence Street-smarts Friendship Cynicism Different values of the 4 generations affect engagement. How do we provide a work experience that appeals to all generations? ..unique values, unique work styles, unique perspectives etc… Four Generations Are Being Asked to Coexist – each with different values. The challenges from a generational perspective include, among other things, differences in values and work styles. Successful organizations of the future will learn how to effective transfer the strengths from one generation to the next. For example, what if we could transfer appropriate competitiveness from Boomers, combine with appropriate authority questioning from Gen X, throw in directed ambition from Millenials – and mix this all together with Cisco culture of collaboration? How do we do that? What would be the business impact on productivity and growth? How do we harness the strengths representative across our employee generations? Born 1928–1945 Born 1946–1964 Born 1965–1980 Born 1980–2000 Source: International Labor Organization 2009 Mercer is not responsible for any opinion or statement made by third parties 25

Different Life Stages, Different Needs Retirement Enter Workforce Children leave home Marriage (dual coverage) Parenthood Start Family 20 25 30 35 40 45 50 55 60 So why is choice even important? If you think about the different life stages of your diverse workforce, they have different benefits needs at different life stages: For example, a Gen Y entering the workforce may think they’re invincible and not value insurance as much as training opportunities and looking good – going to the gym, contacts/fixing their teeth, the newest mobile phone or cool glasses If they don’t look good, they won’t get to the next life stage of Marriage Many married employees have duplicate coverage from their working spouse so could use those benefits dollars better elsewhere Those starting a family would embrace maternity, extra medical coverage, childcare and more time off to spend with their newborns And empty nesters would like to opportunity for additional medical coverage, especially if it’s portable, educational subsidies for their college-aged children and saving up for retirement. Cash Vacation Car Career - Training Life & Medical House Career Progression Work/Life Balance Pension Medical Work/Life Balance Children’s College

About the Employers

Understand Yourself as an Employer 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…..

Conclusions

Integrated Approach - Total Rewards

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

Q & A

About Mercer

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