A SERIES OF ARTICLES FRoM THE 2011 EMEA CoMPENSATIoN ...

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headline 

Navigating the new rules of 

workforce engagement 

A series of articles from the 2011 EMEA 

Compensation and Benefits Conference

table of contents 

ARTICLES 

05 

THE PAY AND THE CRISIS 

Sir Howard Davies, London School of Economics (2003–2011) 

10 

16 

20 

24 

GLOBAL COMPENSATION AND BENEFITS: 

WHAT’S WORKING 

Chris Johnson, Johan Ericsson, Raymond Brood, PATRICK Gilbert, Ilya Bonic, 

Paul O’Malley, Mercer, and Anne-Magriet Schoeman, Global Remuneration Solutions 

THE PAY-FOR-PERFORMANCE CHALLENGE 

Piia Pilv, Mercer 

OPTIMISING HUMAN CAPITAL INVESTMENTS: 

ANALYSIS-BASED INSIGHTS TO ADDRESS IMPERATIVES 

FOR CHANGE AT OECD 

Brian Levine, Mercer, and Makoto Miyasako, OECD 

COMPENSATION AND BENEFITS IN ASIA PACIFIC 

Paul O’Malley, Mercer 

CASE STUDIES 

28 

STIMULATING ENGAGEMENT THROUGH DIFFERENTIATED 

REWARD AND ENHANCED PERFORMANCE: 

THE MAERSK JOURNEY 

Alex PENVERN, A.P. Moller–Maersk 

30 

34 

THE BOMBARDIER TRANSPORTATION GLOBAL JOURNEY 

Lars Timmermann, Bombardier Transportation 

ABOUT THE AUTHORS 

34 

53

Mercer’s 2011 EMEA Compensation and Benefits Conference was held on 6–7 October in Lisbon. 

The conference focused on understanding and responding to employee needs and preferences, and also 

on making smart investments to increase workforce performance by offering competitive packages while 

containing costs. 

The aims for the two-day event were to provide the participants with valuable insights into the latest 

compensation and benefits trends, to present practical solutions that could be of benefit to their 

organisations, and to provide an exciting and stimulating environment in which to discuss and debate 

their own key HR issues. We had assembled an exciting line-up of Mercer consultants and client speakers 

who presented findings from recent research and discussed global trends and practices, drawing on their 

own experiences and sharing best practices. 

The booklet of articles from the 2011 EMEA Compensation and Benefits Conference includes seven pieces 

on a wide range of human capital topics that should be of particular interest to organisations that are 

headquartered in Europe or have operations in the Europe, Middle East and Africa (EMEA) region. 

We hope that you will find our selection of articles thought-provoking and inspiring, and that they will 

spark your interest in participating in the upcoming annual EMEA Compensation and Benefits 

Conference that will take place in Barcelona on 4–5 October 2012. 

With best regards, 

Kim Abildgaard 

Information Product Solutions Leader for Europe, the Middle East and Africa 

Martin Meerkerk 

Human Capital Leader for Europe, the Middle East and Africa 

4


Political, economic and social pressures in Europe mean 

that the climate in which remuneration decisions are made 

is likely to be difficult for some time. As such, the job of 

remuneration/compensation committees and those who 

advise them is, and will continue to be, more challenging 

than it has ever been. 

WHY PAY IS HIGH ON POLITICAL AGENDAS 

The letter from veteran US investor Warren Buffett to 

The New York Times recently, 1 in which he explained 

that his tax rate was lower than that of any of the other 

20 workers in his office, has had some interesting 

consequences. President Barack Obama has declared 

that he will propose higher taxes for millionaires as part 

of his re-election campaign – a move that is very 

countercultural in the US. There has been some 

resistance by the Republicans, but on the whole the 

proposal has been well-received, which indicates a 

mood change in the US. 

In France, we have seen the so-called billionaires’ 

revolt, in which a group of the country’s wealthiest 

people, including L’Oréal heiress Liliane Bettencourt, 

signed a petition to pay higher taxes. And in the UK, 

Business Secretary Vince Cable used his speech at the 

Liberal Democrat party conference in September to 

attack top pay – again, something that might have 

been deemed too risky in the past. There are other 

similar manifestations of the changing political mood 

on pay in other European countries. Spain, for 

example, is questioning why large pension payments 

are made to board members of Spanish savings banks 

when most of those banks are bankrupt. 

SHORT-TERM REASONS BEHIND THE MOOD 

CHANGE 

The fiscal deficits across Europe are leading 

governments to seek ways of raising additional 

revenue, and increasing top marginal tax rates is one 

option open to them. 

In addition, there is pressure on real incomes in the 

“squeezed middle” – in many countries, median 

incomes have stagnated for several years. 

This is unlikely to change given the clear need for 

“internal devaluation” in many countries – that is, when 

exchange rate devaluation is not an option, as in the 

eurozone, a country’s only alternative is to increase its 

productivity and reduce labour costs in order to remain 

competitive. Since the eurozone was established a 

decade ago, Greek unit labour costs have risen by 40% 

more than Germany’s, with the equivalent figure for 

both Italy and Spain being 25%. These countries need a 

significant internal devaluation if they are to remain 

competitive against the leading economies in the 

eurozone, which means that incomes have to fall. The 

recent demonstrations in Greece suggest that the Greek 

people understand only too well that they face declining 

living standards for some time if they want to remain in 

the eurozone, and, understandably, they don’t like it. 

1 

Buffett WE. “Stop Coddling the Super-Rich”, The New York Times, (14 August 2011) 

5


Other countries are in similar positions, and this 

creates a very difficult background against which to 

make wage decisions, because as J.M. Keynes famously 

said, “Wages are sticky downwards.” 

These problems are exacerbated by regions with soft 

economies, where employment prospects generally 

are poor and deteriorating. Growth has slowed in 

major Organisation for Economic Co-operation and 

Development (OECD) economies, such as the US, the 

eurozone and Japan. These economies bounced back 

from the 2008–2009 recession nowhere near as 

strongly as is typical after a deep recession when spare 

capacity is quickly brought back into use. That didn’t 

happen this time – hence, the weak recovery and 

current softening. Most countries are only just in 

positive growth, a position that compromises their 

ability to tackle unemployment. 

Unemployment, which shot up during the recession, has 

remained very high. In the eurozone, it is around 10%, 

but this conceals some higher figures, such as the +20% 

figure in Spain. Unemployment is a lagging indicator, 

too, so it is likely to rise further given the current 

economic slowdown. And while this should, in theory, 

reduce the pressure on pay, that is certainly not evident 

at the top of organisations. 

Added to this is the leading indicator of business 

confidence, which fell sharply at the beginning of this 

year, according to surveys throughout the US and 

Europe, with further adverse implications for 

investment and unemployment. 

WHAT CAN POLICY MAKERS DO 

In truth, policy makers have little flexibility, because 

the drivers of economic policy in both Europe and the 

US already have both feet on the floor. Interest rates 

are close to zero, and although there is some scope for 

monetary easing, this has nowhere near as powerful an 

effect in stimulating growth as reducing interest rates 

does. And on the fiscal policy side, there is no flexibility 

at all: indeed, high levels of fiscal consolidation (10% of 

GDP in the US and 4% in the UK) are required in many 

countries in order to get back into a stable position. 

So the big question in terms of the macro-economy is: 

where do we go from here It is pretty clear that the 

economy has stalled, but whether it will do so for a while 

and then recover or go further downhill is difficult to 

predict. According to some analysis by Morgan Stanley 

on the four previous occasions over the past 50 years 

when the 

economy began 

to recover from a 

recession and 

then quickly 

stalled, in two 

cases the 

economy 

entered a 

double-dip 

recession and in 

the other two it 

picked up again. So the odds are 50–50 – but one may 

lean towards the pessimistic side, considering that there 

are so few levers the government can pull to reverse the 

trend. The best estimate is that, for the time being, we 

are going to be in a pretty flat economic environment, 

with below-trend growth for the next couple of years. 

And within that scope, some countries face the 

additional challenge of trying to adjust their 

competitiveness within the eurozone. But it could be 

worse than that, and the risks are mainly on the 

downside. 

LONG-TERM TRENDS IN PLAY 

Income inequality has been increasing in many 

countries for some years: top pay has risen much more 

than average pay, and pay in the financial sector in 

particular escalated dramatically before the crisis. 

Measured according to the Gini coefficient, 2 income 

became less equal in 19 of the OECD countries 

between 1985 and 2005, with the greatest discrepancy 

seen in New Zealand. 

Income inequality rose in the UK, too, though by less 

than the OECD average. However, the Gini coefficient 

is an aggregate measure of income distribution and 

conceals a more disturbing trend. 

For example, if you look at the top 10% and the bottom 

10% of incomes in the UK between 1975 and 2008, the 

top 10% have accelerated – a trend replicated in many 

developed (and developing) countries. And the disparity 

is even higher among the top 1% of earners, with the 

top 10% of that top 1% seeing dramatic pay rises, 

pointing to a sort of “winner takes all” phenomenon 

right at the top of the income distribution curve. 

And in the banking sector, these trends are exaggerated 

further still, with relative pay (which started to rise at 

around the time of financial deregulation in 1990) now 

at an all-time high – even after the recession and 

6 

2 

The Gini coefficient is a measure of the inequality of a distribution, a value of 0 expressing total equality and a value of 1 maximal inequality. 

It is commonly used as a measure of inequality of income or wealth.


government bailouts (at taxpayers’ expense) of many 

banks. No wonder resentment about top pay in the 

financial sector runs so high. 

Some particularly egregious examples of this 

phenomenon have served to focus this resentment. 

Harvard Business School researchers found recently 

that by 2008, share prices of Bear Stearns and Lehman 

Brothers had risen by four to four and a half times what 

they were in 2000, before collapsing to zero, leaving 

shareholders with nothing or next to nothing. 3 Over the 

same eight-year period, the top five executives in each 

of those firms received more than £1 billion in cash. 

Such calculations demonstrate that things have gone 

too far and inevitably feed into policy thinking. 

And these are not isolated examples. Separate research 

shows that between 2006 and 2010, investment banks 

were paying their employees, on average, 2.6 times 

pre-tax profits. This leaves very little on the table for 

shareholders and affects share prices, which, in turn, 

feeds through into pension funds and insurance 

companies and, thus, the wealth of individual savers. 

There is only one industry in which pay as a percentage 

of revenue rivals that of investment banks – Premier 

League football clubs in the UK. According to a special 

report in The Economist in May this year, in the 2008– 

2009 season, Portsmouth paid out more than 100% of its 

revenue in wages (it has since gone bust) and 

Manchester City paid out 95%. 4 Five clubs beat UBS in 

terms of the percentage of income they paid out in 

wages. 

But the bubbling resentment about top pay is about 

more than the politics of envy. There is some interesting 

academic research 5 – led most notably by Nobel Prize 

winner Joseph Stiglitz – that gives weight to the 

argument that this sort of top-wage inflation may have 

been central to the financial crisis. In the US in 

particular, but also in the UK, median incomes 

stagnated for 10 years or longer, and people 

compensated by increasing their credit, to the extent 

that household debt as a proportion of GDP rose to 

astronomical levels. People were essentially sustaining 

their living standards through credit, leading to the 

credit explosion that created the crisis. And, of course, 

high-risk credit was made available by banks, which, in 

the short term at least, made extravagant profits as a 

result. 

So high pay is seen not just as an excrescence on the 

financial and real economy, but also as comprising a set 

of trends that are central to explaining why our 

economy behaved as it did at the end of the last 

decade. This is why pay is such a toxic topic, and why 

the days are long gone when a senior Labour politician 

could say, as former Business Secretary Peter 

Mandelson did in 1998: “We are intensely relaxed 

about people getting filthy rich.” No one in politics is 

relaxed about people making a lot of money these days. 

POLICY RESPONSES TO HIGH PAY 

Financial regulators, in particular, are taking a much 

deeper interest in pay than they used to. Regulators 

formerly began by looking at the question of incentives 

and risk, but their interest now goes well beyond that, 

and, following a clear set of political instructions, that 

interest is spreading to the nonfinancial sector as well. 

There has been a range of policy responses. Some are 

driven at a global level by the Financial Stability Board, 

instructed by the G20 finance ministers, and while 

implementation may differ in different regions, the 

changes are largely consistent. For example, regulators 

have required banks to disclose more detail on more 

people, to link incentives more closely to their risk 

appetites, to pay a larger proportion of bonuses in 

stock, to increase the deferred proportion of pay, and to 

introduce clawback mechanisms in order that bonuses 

may be clawed back if the expected profits fail to 

materialise. 

In the US, shareholders have introduced “say on pay” 

resolutions, allowing shareholders to vote on 

3 

Bebchuk LA, Cohen A and Spamann H. “The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000–2008” 

(24 November 2009), Yale Journal on Regulation, Vol. 27, 2010, pp. 257–282; Harvard Law and Economics Discussion Paper No. 657; ECGI – 

Finance Working Paper No. 287. 

4 

“Special Report: International Banking”, The Economist (12 May 2011). 

5 Stiglitz JE. Freefall: America, Free Markets, and the Sinking of the World Economy, New York: W.W. Norton & Company, 2010. 

7


remuneration committee resolutions – something that 

already existed in the UK. In some countries (notably 

the UK), finance ministries have imposed levies linked 

to bonus volumes. And some countries have imposed 

higher tax rates, which also, of course, affect 

nonfinancial employees. 

REMUNERATION/COMPENSATION COMMITTEES 

HAVE AN UNENVIABLE TASK 

Remuneration/compensation committees are 

operating in a difficult economic environment. They 

have to factor in complicated long-term trends that 

broadly show a growth in inequality, and they have to 

navigate a set of confused policy responses by the 

regulatory community. What’s more, public and 

political scrutiny of their decisions is more intense – 

witness the column inches devoted to remuneration 

issues even in the UK’s least-biased newspaper, The 

Financial Times. And yet competition remains fierce – 

the war for talent is by no means over, and the rising 

demand for particular skills at one end of the spectrum 

is helping to fuel the growing income inequality with 

people at the 

opposite end of the 

spectrum whose 

services, products or 

labour can be 

performed more 

competitively in the 

Far East or China. 

An additional 

problem for public 

companies, 

particularly in the financial sector, is the growth in the 

number of private and unregulated firms (notably 

private-equity firms and hedge funds), which don’t 

face the same disclosure constraints or exposure on 

pay decisions. 

Finally, employee expectations have not adjusted well 

to this new environment – either in the financial sector 

or elsewhere. Employees still seem to think that we will 

return to the good old days of the early 2000s, and that 

what we are going through at the moment is just an 

uncomfortable blip. But we are not going back there – 

we’re not going to get the kind of returns we saw on 

financial equity in the run-up to the crisis anytime 

soon. This is an area where people have not properly 

focused on what is going on, so they don’t really 

understand the changing trends. 

HOW CAN COMMITTEES AND THEIR ADVISERS 

HELP THEMSELVES 

First of all, remuneration/compensation committees 

need to ensure that executives understand what has 

happened to relative earnings, because most don’t. 

They also need to understand regulators’ motives and 

anticipate further interventions. Moreover, they should 

prepare a public presentation of the impact of potential 

pay decisions in advance, rather than make the decision 

and worry about how to present it afterwards. And they 

should better model the incentive effects of the pay 

schemes they propose. 

One of the things that has gone most awry over the past 

few years is the plethora of pay and incentive schemes 

that have driven the risk-seeking behaviour that has 

caused companies such serious problems. 

And those behaviours and problems aren’t confined to 

the financial sector either. Recent work by McKinsey 6 

shows that the popularity of share buybacks over the 

past 10 years has been driven by earnings-per-share 

calculations for senior executives – if the earnings look a 

bit elusive, then you solve the problem by reducing the 

number of shares. That’s not great from the 

shareholders’ point of view – you’re pushing them to 

buy back shares when arguably they should be investing 

in growth opportunities instead. That phenomenon has 

not been as well understood as it should be. 

WHAT ABOUT THE FUTURE 

The economic and social trends in Europe in particular 

will likely maintain the focus on senior executive pay 

for some time. In many countries, incomes will not rise, 

and in some places they may fall. We are seeing that 

already, for example, in Ireland, which is achieving an 

internal devaluation much more quickly than the 

southern European countries that are under pressure. 

The Irish are increasing their competitiveness quite 

quickly and have been doing so in part by absolute 

reductions in pay – especially in the public sector. 

In addition, relativities will likely be more in the 

spotlight and will require better explanations than 

those companies have typically offered to date. What’s 

more, public acceptance of high pay for high 

performance will be less certain in the future. Political 

rhetoric around pay is developing in a number of 

places and the mood is, quite simply, different. And 

public acceptance of pay for failure is now close to 

zero. So companies will have to be particularly careful 

when trying to solve a problem by deciding to let 

people go with a large severance cheque. 

8 

6 

Jiang B, Koller T. “Paying Back Your Shareholders” (May 2011), Corporate Finance Practice.


Sir Howard Davies was Director of the London School of Economics and Political Science 

from 2003 to 2011 and is one of the UK’s most authoritative commentators on the financial services industry. 

He was Deputy Governor of the Bank of England from 1995 to 1997. In 1998, he became the first Chairman of the 

Financial Services Authority, when the Labour government asked him to create a single regulator for the UK financial 

sector. He has also worked for McKinsey and Company and was special adviser to Nigel Lawson, Chancellor of the 

Exchequer. 

Sir Howard has published two books: The Chancellors’ Tales, which tells the story of how the British economy has 

been managed over the past 30 years, as told by the former chancellors of the Exchequer in both the Labour and the 

Conservative administrations, and, with co-author David Green, Global Financial Regulation. 

He is a regular commentator and journalist and a columnist for The Financial Times, The Times and Management Today. 

119

GLOBAL COMPENSATION AND BENEFITS: 

WHAT’S WORKING 

A year ago, few business leaders and economists envisioned a 

2011 with debt downgrades and a stumble in the global economic 

recovery. While many occurrences are nearly impossible to predict, 

Mercer’s global compensation and benefits experts anticipate 

– with cautious optimism – areas of growth and a slow return to 

pay increases, but they also warn about short-term setbacks and 

highlight workforce demographic and employee engagement 

challenges across geographies and workforce generations. 

Since the recession, all compensation and benefits 

professionals have needed to place even more 

emphasis on what is happening in the economy. 

In mid-2011, when organisations thought the global 

recession was in the past, several markets entered 

what many are calling a temporary soft patch, and 

even companies in relatively stable economies started 

to face new concerns related to inflation and talent 

retention. And in late 2011, developments in Europe 

added to the pressure. 

With income inequality increasing in many countries, 

a debt crisis and austerity plans in Europe, and additional 

cost pressures coming from all angles just as the 

war for talent reaches a critical juncture, the climate 

for making compensation decisions is rather difficult. 

All this comes at a time when employees worldwide 

are saying that they are motivated most by base pay 

and career advancement – and unfortunately, many 

say they are dissatisfied with what their companies 

offer. This presents a challenge in 2012, as conservative 

salary increases are expected in most regions, 

averaging about 2.7%–2.8% in Western Europe and 

the United States. 

Furthermore, to make matters worse, the reality is 

that organisations today do not operate in stable 

labour markets, as Europe’s workforce in particular is 

shrinking and the worldwide workforce is changing 

in composition, education and age. Governments 

have been increasing retirement ages in response to 

the ageing of their populations, but organisations are 

struggling to deal with the current and future implications 

of ageing workforces in their people strategies. 

Organisations should prepare to invest in training 

their older workforce segments in the right skills if 

they want to keep productivity levels up. Having four 

generations at work is obviously challenging, but 

creating synergies between generations – the baby 

boomers seem to resonate well with Gen Y, and Gen 

X with Gen Z – can result in a stronger culture and 

increased performance. A sustainable workforce is 

key to competitive advantage, and more and more 

organisations worldwide are embarking on strategic 

workforce planning as part of their business planning. 

AUSTERE TIMES AND CONSERVATIVE SALARY 

INCREASES IN EUROPE 

Employees in some European countries will 

experience another year of below-inflation pay rises 

in 2012, according to Mercer’s October 2011 Total 

Remuneration Survey snapshot survey data for Europe, 

the Middle East and Africa (EMEA). 1 Companies across 

Western Europe are predicting that their employees 

will be given pay rises averaging 2.7% in 2012. This 

represents the lowest increase across the entire EMEA 

region. 

10 

1 

Mercer’s Total Remuneration Survey Quarterly Pulse Survey analyses the pay plans of 329 multinational organisations operating across 69 

countries in EMEA. The survey provides information from multinationals on median base pay increases across all employee groups, 

including blue-collar and white-collar workers up to the management level.

Employees in Norway are set to get the highest pay 

rises of 3.1%. Austria, Sweden, the UK, Belgium, 

Luxembourg, Italy and Germany are all anticipating 

pay rises of 3%. Employers in Finland, the Netherlands 

and France are anticipating passing on increases of 

between 2.8% and 3%. Employers in Greece, Spain 

and Malta are anticipating 2.5% pay increases for 

the majority of position categories, and Switzerland 

is looking at 2.1%–2.2%. Portugal (2.1%–2.2%) and 

Ireland (2%–2.3%) have the lowest anticipated pay 

increases. Typically, pay increases are higher in the 

northern states of the European Union compared with 

those in the south. 

In countries such as Spain, the UK and Portugal, 

inflation is outpacing wage increases, and this is 

eroding quality-of-living standards. In other countries, 

such as Germany, Italy and France, wage increases 

are set to be above the rate of inflation, although in 

the case of France and Germany, the increases will be 

less than 0.5%. The 2009–2011 trend, however, is that 

inflation has been exceeding wage increases across 

Western Europe. 

In the UK, companies are budgeting for a median 

3% pay increase for staff across all employee groups. 

Inflation in the UK is running at 5%, so despite the 

salary increases, with high travel, petroleum and 

food costs, employees will continue to feel financial 

pressure. In Eastern and Central Europe, pay rises are 

higher, averaging 5.7% across the region. At the lower 

end of the scale, Latvian employees are predicted to 

receive a 3%–3.1% pay increase, while employees 

in Cyprus and the Czech Republic are predicted to 

see rises of 2.9%–3.4%. Lithuanian companies are 

budgeting for 3.1%–3.5% increases, while Hungarian 

and Polish employers are anticipating 4%. In 

Bosnia-Herzegovina and Croatia, too, pay increases 

of between 3.5% and 4% are expected, with slightly 

higher rises expected in Bulgaria (5%). Companies in 

Turkey, Russia and the Ukraine are predicting rises of 

7.8%–8%, 9.6%–10% and 10%, respectively, although 

this is more reflective of the small sample groups than 

of a regional trend. The lowest increase is set to be in 

Montenegro, where employers are anticipating pay 

increases of only 1.3%–2.5%. Companies may have 

smaller operations in these locations, and currency 

considerations could mean that higher increases may 

not actually translate into a large cost for multinationals. 

However, inflation is still a factor. 

There was a notable difference in the three Baltic states 

in Q1 2011 compared with Q3 2011, as these countries 

were severely hit by the global financial crisis but have 

bounced back, highlighted by less conservative salary 

increase predictions. By contrast, salary increases in 

Belarus, Kazakhstan and Georgia have been scaled 

back and are now lower than previously predicted, 

reflecting the economic nervousness in these states. 

INCREASED USE OF VARIABLE PAY 

A previous quarterly report issued by Mercer in June 2011 showed that companies were segmenting their pay rises in 

2011; the largest base pay increases were focused on “rainmaker” staff in an attempt to kick-start company recovery 

plans following the financial crisis. Employees in managerial roles were receiving higher pay rises than those in 

executive positions, for example. By contrast, the latest data suggest that this has finished and that a “levelling out” 

is taking place, by with base pay increases largely being applied equally across all employee groups. The data deal 

only with base pay – not variable pay. In the recent past, organisations with very limited budgets have focused on 

improving the base pay of their top performers to ensure the organisation’s survival. Now they are trying to address 

the needs of all their employees by implementing broader increases but are increasingly using variable pay to retain 

and encourage their top performers – although many are also still using their base salary increase budget to further 

reward their highest performers. 

13 11

GLOBAL COMPENSATION AND BENEFITS: WHAT’S WORKING 

THE MIDDLE EAST: MODEST INCREASES FOR 

MOST EMPLOYEES 

Employers across the Middle East are forecasting pay 

increases averaging 7.6%. Dramatic increases are 

anticipated in countries such as Pakistan (15%) and 

Yemen (10%–13%). Companies in Israel (3.0%–3.5%) 

are forecasting the lowest increases in the region, 

followed by Bahrain (4.5%–5%), Saudi Arabia (6%), 

Qatar (5.5%–6%) and Kuwait (6%). 

In the United Arab Emirates’ unique labour market 

structure, nearly 80% of employees are expatriates 

who typically work in the region for three to five 

years. These employees are highly engaged, and cash 

is the most attractive element. Emirati employees 

value cash as well, but they also view the following 

elements as important: employer brand, job title, 

career development, respect, and a work environment 

that respects religious and social commitments. 

For example, the employer brand should have high 

recognition locally and nationally, and working for 

such an employer should be seen as prestigious. As a 

result, governments and companies with strong local 

brands are seen as employers of choice. 

AFRICA: LARGE VARIATIONS IN PAY INCREASES 

This area has the largest variation in forecasted pay 

increases due to the diverse nature of the region and 

the limited number of multinationals. Companies 

in Algeria are forecasting increases of 6.9%–7.3%, 

surpassed by forecasts from South Africa (7.4%–7.8%), 

Kenya (8%–8.8%), Nigeria (10%) and Uganda 

(10%–11%). Besides base salary, employers offer cash 

allowances,13th-month cheques and fringe benefits. 

Social security benefits are based on contributions, with 

varying levels of benefit where applicable, and medical 

provisions are offered mostly for employees, spouses 

and some dependants. 

As for retirement funding, cross-border portable funds 

are a big challenge. There is a growing recognition 

of the value of nonguaranteed schemes. Company 

car allowances are extremely appreciated, and so is 

the option to buy the car from the company at a price 

below market value. Nonfinancial benefits meant 

to improve employees’ lifestyles vary from market 

to market but are highly valued. As an example, 

in Nigeria, employees are offered home electricity 

generators and related maintenance as a precious 

benefit. 

Africa’s growth and opportunities require highly skilled 

talent and engaged workforces, but challenges for 

employers and HR are numerous, from attraction 

and retention to remuneration management skills 

development and HR management competencies 

(hampered by accelerated mobility). There is growing 

emphasis on job evaluation and grading to facilitate 

mobility at senior levels across borders. 

According to Mercer’s survey, 2012 salary 

increases in the fast-moving consumer goods, 

high-tech, nondurable and service industries 

are forecast to be in line with those in the 

general market, while, on average, forecasted 

salary increases are typically higher in the 

finance/banking and energy sectors. Salary 

increases are expected to be below general 

market in the durable and manufacturing 

industry. 

ASIA PACIFIC: A BRIGHT SPOT 

Asian optimism is generated primarily by China’s huge 

economy and resources, and innovation is the source 

of growth and talent development. Multinationals 

are facing increased competition from local firms and 

should react with agility to the fast-moving changes 

in the local market. Local organisations have stopped 

looking at Western organisations for best practices 

and are trying completely new ways to get their 

workforces to perform at the highest productivity 

levels. 

Asian employers focus on presenteeism 2 and the role 

of the quality of leadership in raising engagement 

levels. In Asia, many people work for an individual – 

a leader – before working for a company. While 

Western managers tend to judge Asian managers 

relative to Western standards, they should be aware of 

local culture and the impact of their behaviour: Asian 

managers may not talk much in formal meetings, but 

they deliver. Top executives in China are receiving 

greater remuneration than their global headquarters 

leaders in Europe, and this should no longer be 

viewed with surprise, since they are the ones who 

are delivering growth. Training and development are 

of special importance to employees in China, with 

12 

2 

While “presenteeism” is often defined as attending work while sick, scholars have provided various other descriptions of the concept. For instance, 

Simpson (1998) claimed that presenteeism is “the tendency to stay at work beyond the time needed for effective performance on the job”. Presenteeism 

could therefore be considered an act of supreme engagement and organisational citizenship.


career advancement 

being the top 

engagement factor 

in this market – as 

soon as they have 

exhausted learning 

opportunities in 

one firm, talented 

employees tend to 

move on to another 

employer. 

To stay competitive in the booming Asian market’s 

war for talent, recommendations for Western 

multinationals include: 

• Drive global agendas while adjusting with agility to 

fast-changing local environments. 

• Understand local workforce needs, as they vary in 

each market. 

• Differentiate through recognition and flexibility, as 

“someone will always pay more”. 

• Focus on the “top line” before the “bottom line” in 

high-growth economies. 

• Invest in the best talent to face unpredictable Asian 

competition. 

INSIDE EMPLOYEES’ MINDS: NAVIGATING THE 

NEW RULES OF EMPLOYEE ENGAGEMENT 

Regardless of the economic climate, organisations face 

engagement problems across regions as they struggle 

to hold on to their best employees. Loyalty has been 

eroding, according to Mercer’s What’s Working survey. 3 

In markets such as the UK, more than one-third (36%) 

of employees are not committed to staying, and a large 

portion of the workforce (23%) suffers from apathy 

– that is, they are not committed to neither staying 

nor leaving and are the most disengaged of all. Also, 

interestingly enough from a generational perspective, 

those most likely to leave are the youngest employees, 

who paradoxically are the most satisfied with their 

pay and benefits. The business consequences of a 

disengaged workforce should be of great concern to 

all companies looking to remain competitive in today’s 

market. Lack of engagement can result in reduced 

growth and profitability due to declines in innovation, 

customer satisfaction, operational efficiencies, 

organisational performance and managerial 

responsiveness. 

Regardless of geographical and economic conditions, 

the talent market keeps heating up, as good workers 

always have options. Stakeholder performance 

expectations keep rising, and ongoing cost pressures 

demand the right workforce investments. Rather than 

replace key talent, many organisations are looking to 

build on their existing talent. 

To be successful at this endeavour, it is essential that 

employers first understand what’s going on inside their 

employees’ minds. What do employees value most, 

what perceptions do they have of work, what elements 

of the engagement deal are more/less important, and 

how do these elements vary by geography and age/ 

generation Based on this, organisations should then 

develop a blueprint that combines existing approaches 

with innovatory alternatives in the other components 

of total rewards to improve engagement, performance 

and productivity. 

EMPLOYEES WANT MORE TAILORED BENEFITS – 

AND FLEXIBILITY 

Employers can use their health and benefits packages 

strategically – not just to improve the health of 

their employees, but also to create a happier, more 

productive workforce. Progressive employers are also 

using flexible benefit plans, with a range of short- and 

long-term incentives, to facilitate cost sharing with 

employees while enhancing the perceived value of 

benefits. 

There is a distinct enthusiasm for changes in benefits 

provision, particularly amongst younger staff, which 

provides an opportunity for companies to better 

engage them and save costs during this period of 

financial uncertainty. Indeed, the desire of employees 

for greater choice continues to grow, although concern 

remains that employees are not sufficiently able to 

make informed decisions when the choice is available. 

Employees are looking for employers to use their bulk 

purchasing power to provide employees significant 

discounts on various products and services. 

3 

The survey was conducted between Q4 2010 and Q2 2011 amongst nearly 30,000 workers in 17 markets to examine employees’ views on 

their work. Results can be viewed overall as well as by age, gender, tenure, job level and industry. 

13


Engagement Factors: What Employees Value the Most in Europe 

Rank 

France Germany Ireland Italy 

Netherlands Spain 

UK 

1 

Base pay Base pay Base pay Base pay Base pay Base pay 

Base pay 

2 

Type of work Type of work Job security Type of work Type of work Type of work 

Type of work 

3 

Bonus/other 

incentives 

Bonus/other 

incentives 

Type of work 

Career 

advancement 

Retirement 

savings or 

pension plan 

Flexible work 

schedule 

Bonus/other 

incentives 

4 

Career 

advancement 

Flexible work 

schedule 

Good 

workspace 

Bonus/other 

incentives 

Working for 

respectable 

organisation 

Training 

opportunities 

Retirement 

savings or 

pension plan 

Supplemental Working for 

Retirement 

5 retirement respectable Career 

Paid time off 

advancement 

savings or 

plan 

organisation 

pension plan 

6 

Private 

medical 

insurance 

Training 

opportunities 

Bonus/other 

incentives 

Training 

opportunities 

Training 

opportunities 

Career 

advancement 

Paid time off 

Flexible work 

schedule 

Paid time off 

GENERATIONAL INSIGHTS AND ENGAGEMENT IMPLICATIONS 

Mercer’s What’s Working survey revealed differences by age group in what employees value. For example, compared 

with the overall workforce in their markets, the youngest groups of workers (ages 16–24 and 25–34) in Mercer’s survey 

are more satisfied with their organisations and their jobs and are more likely to recommend their organisations as a 

good place to work, but they are also much more likely to seriously consider leaving their organisations at the present 

time. 

Employers face the dilemma of whether to accept the situation or try to change the employment habits of younger 

workers – by making significant upfront investments in new employees in terms of onboarding, training and 

development as they replace employees who leave, or by directing more resources now to retaining disengaged or 

apathetic employees. 

The answers to these questions will vary by organisation, but they present economic and talent implications for all 

organisations. It is essential for each company to understand its own unique value equation and whether a business 

case can be made to retain and extend the tenure of young workers. 

16 14


More and more companies are asking their employees 

what type of benefits they prefer and providing them 

with some degree of additional choice as well as introducing 

some very simple, low-cost benefits that meet 

employees’ needs today, such as health screenings, debt 

management schemes and personal car leasing. Many 

young employees enter the workforce with student loan 

debts and try to fund house deposits, buy a car, raise 

children, and cover childcare and education costs, and 

employers could offer additional alternative benefits that 

meet such lifestyle demands. New meaningful benefits 

are immediate, cost-effective and can act as a foil for 

the low pay increases and limited career advancement 

prospects created by the poor economic conditions. 

RECOMMENDATIONS FOR BOOSTING EMPLOYEE 

ENGAGEMENT 

• Keep base pay, career planning and promotions 

within market parameters and based on performance 

– both individual and company. 

• Discover the employee value proposition – what’s 

most important to your workers – and build a 

compensation plan with that in mind. 

• Align reward programmes with business strategy, 

and use workforce segmentation to more effectively 

allocate limited rewards investments. 

• As young people enter the workforce and baby 

boomers look to exit, consider the changing generational 

diversity and the needs of different segments. 

• With budgets remaining tight, embrace total rewards 

and look at other creative ways to engage workers, 

such as career development, work/life balance and 

flexible benefits. 

For more information on employee engagement and Mercer’s What’s Working surveys, 

visit www. mercer.com/insideemployeesminds and www.mercer.com/whatsworking. 

Chris Johnson is Mercer’s UK Human Capital Leader. Based in London, he can be reached at +44 20 7178 7343 

or christopher.johnson@mercer.com. 

Johan Ericsson leads Mercer’s Compensation & Benefits Information Product Solutions in EMEA. Based in Stockholm, 

he can be reached at +46 8 505 30 899 or johan.ericsson@mercer.com. 

Raymond Brood is the Leader for Mercer’s Health & Benefits business in Benelux. Based in Amsterdam, he can be reached 

at +31 20 431 3880 or raymond.brood@mercer.com. 

Patrick Gilbert is Mercer’s Employee Research and Employee Engagement Leader in EMEA. Based in London, he can be 

reached at +44 20 7178 5496 or patrick.gilbert@mercer.com. 

Ilya Bonic is Mercer’s Global Information Product Solutions Business Leader. Based in Geneva, he can be reached 

at +41 22 869 3002 or ilya.bonic@mercer.com. 

Paul O’Malley leads Mercer’s Information Products Solutions business in Asia Pacific. Based in Singapore, he can be 

reached at +65 6222 5792 or paul.o’malley@mercer.com. 

Anne-Magriet Schoeman is the Executive Director of Global Remuneration Solutions, Mercer’s affiliate in South Africa. 

She can be reached at +27 82 469 01269 or ams@globalrem.co.za. 

17 15


Pay for performance has faced new scrutiny in 2011. The 

following quotes taken from recent publications around the 

world sum up the prevailing mood on performance-related pay: 

• “The current idea that big bonuses and high salaries result in 

better company performance is just a ‘myth’, says a new report 

from the High Pay commission in the UK.” 1 

• “While millions are still out of work, US CEOs received a 28% 

pay rise this past year. A lot of factors are driving the increase. 

Job performance isn’t one of them”. 2 

• “Executive remuneration [amongst] chief executive officers … 

in Australia is more likely to be linked to the size of the company rather than its performance.” 3 

• “Recent research conducted by the Central Planning Bureau of the Netherlands shows that the 

average income of executives of listed companies in the Netherlands increased 9% annually 

between 1999 and 2005 while economic value added and profits did not on average increase 

during the same period.” 4 

SAY ON PAY 

This year, in the US, where the Dodd-Frank Act 

introduced an advisory shareholder vote on executive 

compensation (“say on pay”), shareholders rejected 

about 2% of the remuneration policies. The main 

reasons for rejection were pay-for-performance 

concerns such as large increases in CEOs’ pay despite 

negative one- and three-year total shareholder returns 

(TSR) and large long-term incentive (LTI) grants that 

would vest based purely on time rather than being tied 

to performance measures. 

And although fewer than five remuneration reports 

were rejected or withdrawn in Europe this year, the 

main reason given was – once again – misalignment 

between pay and performance. It is therefore of crucial 

importance now that remuneration committees 

annually validate the pay-for-performance relationship 

to avoid negative shareholder and public sentiment. 

VALIDATING THE PAY-FOR-PERFORMANCE LINK 

In order to validate and improve the pay-for 

performance relationship, companies should at 

minimum: 

• Holistically evaluate the current executive 

remuneration policy 

• Measure performance across multiple dimensions 

• Benchmark both performance and pay 

• Introduce corrective mechanisms and proper 

elements of judgement 

1 

Tatton S. “Executive Pay and Company Performance – What Are We Paying For” IDS eye (6 September 2011). 

2 

Bloxham E. “How to Get Paid Like a US CEO”, CNN Money – Fortune Management (6 July 2011). 

3 

“Australian CEO Pay ‘Linked to Company Size, Not Performance’”, Odgers Berndtson (10 June 2011). 

4 

Winter J. Corporate Governance Going Astray: Executive Remuneration Built to Fail, Duisenberg School of Finance Policy Paper No. 5 

(August 2011). 

16

HOLISTIC EVALUATION OF THE 

REMUNERATION POLICY 

Companies must consider all pay elements to ensure 

that they have properly assessed the alignment 

between pay and performance. Arraying these 

elements by their timeframe and performance 

alignment helps to illustrate their importance in telling 

the story of pay/performance alignment. 

From a conceptual standpoint, companies will tend to 

achieve better alignment when the mix of awards 

provided is based largely on longer-term objectives 

and performance. 

be a reflection of the overall market’s performance. 

In some cases, TSR is influenced more by financial 

conditions affecting the broader economy or the 

industry than by the company’s performance. 

Pay for Performance (P4P) Balance Framework 

Shareholders 

Performance perspectives 

Measures 

Competitors 

P4P 

BALANCE 

Timeframe 

Target setting 

Internal goals 

MULTIDIMENSIONAL PERFORMANCE 

MEASUREMENT 

Rather than rely only on one or two key measures, 

companies today must take a multidimensional view 

of value drivers. For example, from the perspective 

of shareholders, TSR is the primary measure of 

performance. However, since shareholders have varying 

investment time horizons, opinion will differ regarding 

the appropriate timeframe. 

In addition, it is less clear from management’s 

perspective that TSR, in either the short term or the 

long term, is always a reflection of the company’s and 

management’s performance – it could, in fact, simply 

As such, other financial measures – such as operating 

income, revenue growth, return on assets, etc. – should 

also be considered in evaluations, as they may be better 

measures of performance and are arguably more within 

the control of the executive team. A multidimensional 

approach should create a balance between shareholder 

returns as well as absolute, relative and internal 

performance (compared with the prior year or budget, 

for example). 

2011 executive remuneration trends in Europe show 

that companies are already taking a multidimensional 

view of performance. The number of performance 

measures used in annual bonus plans is increasing 

– many companies use more than three, with 

nonfinancial measures now augmenting financial 

measures in order to ensure a more holistic view of 

performance. 

Due to the uneven global recovery in 2011, individual 

business units of any one company may be facing very 

different economic environments, with the biggest 

17


18 

polarisation being between growth in emerging 

markets and the decline in Europe. Therefore, new 

bonus plans are allowing for more regional, business 

unit, and operating company-specific customisation 

of measures, performance ranges and payout curves 

to ensure that the plans are appropriate for both local 

business and local HR needs. The shift away from the 

external measure of relative TSR as the only or main 

performance measure in LTI plans continues, with 

internal financial measures now much more common. 

Not only do such measures provide a better correlation 

between an individual’s performance, a company’s 

performance and the likely financial reward, but they 

also help avoid some of the problems that have beset 

the relative TSR measure. For example, it has proved 

difficult to establish and maintain appropriate peer 

groups; plus, TSR is extremely volatile in the current 

market, and the motivational value of relative TSR is 

questionable. 

Companies are also making greater use of more 

customised and strategic measures that are more 

directly aligned with their business strategies and 

better reflect the underlying economics of the business 

or industry than the traditional earnings-per-share 

(EPS) measure that was commonly used before 2010. 

Organisations have introduced these company-specific 

measures with the dual aim of helping executives and 

employees focus on how they affect company success 

and of maximising “return on reward investment”. 

BENCHMARK PERFORMANCE AS WELL AS PAY 

Annual pay reviews should include a relative 

assessment of company performance versus peer 

groups on multiple performance measures over oneand 

three-year periods to ensure that pay is aligned 

with company performance. 

For example, if a company’s actual pay level – base 

salary, annual bonus payout and vested LTIs – is in the 

third quartile compared with that of the peer group, 

then the company’s performance should also be in the 

third quartile to ensure alignment. 

As another example, the assessment illustrated below 

relates actual value delivered to executives with what is 

generated for shareholders over a three-year period. 

Individual companies that are within the zone 

demonstrate an appropriate pay-for-performance 

relationship. 

3-Year Pay for Performance 

CEO Pay 

Total base salary, short-term incentives and realised LTI 

In the chart above, the majority of companies display 

good alignment of pay and performance, while 

several appear to either pay too much for not enough 

performance, or too little for good outcomes. 

INTRODUCE CORRECTIVE MECHANISMS 

A number of companies have introduced corrective 

mechanisms in Europe in 2011 to deal with unintended 

consequences of incentive plans. Prevalent corrective 

mechanisms are clawback and malus provisions. In 

addition, remuneration committees have started to 

exercise discretion to override any formulaic outcomes 

with incentive plans that have been perceived as unfair. 

Clawbacks may be applied to an incentive award that 

has vested and has typically already been distributed 

to the executives. There are three categories of 

clawback provisions. Fraud-based clawbacks, as the 

name suggests, apply only to executives who engaged 

in fraudulent activity or misconduct that caused a 

financial restatement or some other problem in the 

company. Error-based clawbacks apply to executives 

who received an incentive payment based on 

incorrect financials. And breach of noncompete or other 

restrictive covenant clawbacks apply to executives who 

violate restrictive covenants, such as nondisclosure 

agreements. Clawbacks are prevalent both inside and 

outside the financial services industry. However, they 

have not yet been tested in practice in many European 

countries and may not be enforceable under countryspecific 

labour laws. 

Malus is an arrangement that allows a company 

to prevent vesting of all or part of a deferred 

compensation award based on company or individual 

performance that is expected to be lower than was 

anticipated when the incentive scheme was structured. 

Malus provisions are currently are used mainly in the 

financial services industry. 

TSR


The financial crisis that began in late 2007 heightened 

the need for remuneration committees to make 

discretionary decisions outside the established 

annual bonus and LTI plan rules due to flaws in target 

setting, unanticipated events and volatility of business 

performance. The new, revised, country-specific 

corporate governance codes and institutional investor 

guidelines in Europe provide that remuneration 

committees should no longer rely only on the formulaic 

incentive pay outcomes but should instead make 

appropriate adjustments to align pay-for-performance 

linkages. 

The Corporate Governance Code in the Netherlands, 

for example, clearly states that if a variable 

remuneration component conditionally awarded in 

a previous financial year would, in the opinion of the 

Supervisory Board, produce an unfair result due to 

extraordinary circumstances during the period in 

which the predetermined performance criteria have 

been or should have been achieved, the Supervisory 

Board has the power to adjust the value downwards or 

upwards. 

In Germany, the Act on the Appropriateness of 

Management Board Compensation (VorstAG) that 

came into force in 2009 provides that the Supervisory 

Board should (previously the word “may” was used) 

reduce the Management Board’s compensation to an 

appropriate level, if the company’s situation deteriorates 

to such an extent that maintaining the previous level 

of compensation would be unfair. Therefore, by 

incorporating corrective mechanisms and a judgement 

element, remuneration committees’ decisions gain 

a deeper sense of integrity and reasonableness and 

deliver a more comprehensive executive remuneration 

message. 

CONCLUSION 

Pay-for-performance analyses are not likely to be 

a cure-all, and they won’t eliminate all instances in 

which outside groups perceive a disconnect between 

performance and rewards. Instead, they are a tool 

that should be considered as a supplement to other 

best practices that represent sound governance 

and process in compensation planning. Paying 

for performance, and being perceived to pay for 

performance in all situations, can be a significant 

challenge. However, using a structured evaluation 

process and applying sound judgement and corrective 

mechanisms can continually reinforce the alignment of 

pay and performance. 

Piia Pilv is Mercer’s Executive Rewards Service Segment Leader for EMEA. 

Based in Amsterdam, she can be reached at +31 20 431 3864 or piia.pilv@mercer.com. 

Kimmo Sollo is Mercer’s Human Capital Business Leader in the Nordics. 

Based in Espoo, Finland, he can be reached at +358 9 8677 4315 or kimmo.sollo@mercer.com. 

21 19


ANALYSIS-BASED INSIGHTS TO ADDRESS IMPERATIVES FOR 

CHANGE AT OECD 

There has been a clear evolution over the past few years in 

how organisations inform their human capital decisions. 

They have been shifting focus from the use of market data 

in benchmarking pay “rates” and practices to the analysis 

of robust, organisation-level data maintained in the human 

resources information system (HRIS) and supporting 

systems in order to understand the drivers of key workforce 

outcomes. Through application of statistical models to such 

data, organisations can obtain strategic insights on human 

capital priorities. The objectives of such workforce analytics 

are to refine people strategy and to optimise organisational 

performance. 

ABOUT THE OECD 

The Organisation for Economic Co-operation and 

Development (OECD) is “an international public 

organisation” financed and governed by its 34 member 

countries. Its primary activities are to provide research 

and advice on social policies, and its workforce consists 

largely of economists, statisticians and specialised 

policy analysts. Its structure mirrors the national 

administrations it represents: it has 2,800 staff, half in 

professional and half in support roles. Located in Paris, 

its employees are, in principle, recruited from member 

nationals. Around 35% of its employees are French, 

11% British and 9% American. 

THE ENVIRONMENT AND IMPLICATIONS FOR 

THE OECD 

Significant macroeconomic and social changes are 

now calling for the reform of HR policies and practices. 

A primary change is the shift in global economic power, 

reflected in the expansion of the old G7 – the “club of 

rich countries” – into the G20. Interests of the member 

countries have broadened. Also, the funding model 

has become more unpredictable. Today, governments 

are much more demanding and an increasing amount 

of funding comes with specific projects attached – and 

it can be difficult to anticipate what those projects 

might be. The main policy work of the OECD has 

become, necessarily, more multidisciplinary, which 

means that the organisation has to work in a more 

holistic and integrated manner than it has in the past. 

Adapting to these changes carries implications for the 

organisation’s human capital strategy. Essentially, it 

needs to complement its specialists with generalists, 

those with a broader perspective; it has to use its 

financial and human resources more effectively to 

meet changing needs; and it needs to act in a more 

coherent fashion in its human capital management 

rather than in a decentralised manner. The HR team 

moved to address these imperatives through an 

analytic assessment designed to find out how people 

were moving up, through and around the organisation; 

what kinds of movements led to success and might 

be exploited to generate the right kind of expertise; 

and how the organisation could capitalise on that 

knowledge to meet the challenges ahead. Given the 

organisation’s analytic “product” and highly technical 

leadership, an analytic approach would make the most 

effective business case for change. 

20

THE VALUE OF RICH ANALYSIS 

For a professional services firm trying to temper increasing turnover amongst high performers, statistical analysis 

provided some important insights. 

Examination of the drivers of pay revealed significant value in advancement (that is, the pay increase associated with 

a promotion) as well as significant value associated with an employee’s performance. But those apparent alignments 

masked a significant concern, revealed when a more holistic examination of workforce dynamics was undertaken. 

An analysis of turnover showed that the organisation was more at risk of losing not only its highest performers, but 

also those who received higher pay increases and long-term incentive awards. Increasing apparent randomness in the 

allocation of ratings, under a fixed distribution, was the culprit, as supervisors sought to distribute a limited number 

of high ratings across their critical employees over time; employees chose to leave after receiving high ratings and/or 

high payouts that were unlikely to be achieved in the next year. 

The turnover analysis did, however, reinforce the effectiveness of the career trajectory – that is, through the impact on 

retention of both base pay growth and promotions. 

The organisation sought to more thoroughly communicate and leverage the value of career and to improve the validity 

and implementation of its performance management system. 

COMPARISON TO THE FRENCH MARKET 

A comparison between pay norms in France and 

patterns at the OECD revealed some interesting 

differences that pointed to priorities for change. 

First, though those who are changing roles are 

generally less well-paid relative to their new peers, 

the difference in pay at the OECD for those making 

such changes was reflective of a more modest pace of 

pay progression than what is generally seen in other 

French organisations. Career incentives at the OECD, 

and the related ability to engage employees through 

those incentives to commit to the organisation 

and excel, appeared to be relatively weak. Second, 

the impact of above-average performance on pay 

was weaker than what was seen elsewhere; the 

value proposition to high performers needed to be 

examined. 

RESULTS OF DEEPER ANALYSIS 

The organisation employs broadly two types of 

labour: “A grade” specialist staff – policy analysts and 

economists, who are recruited internationally – and “B 

grade” support staff. The very distinct nature of these 

groups means that there is scarcely any progression 

from B- to A-grade roles. Few people move forward and 

learn “the trade” within the OECD, and few, therefore, 

really understand the different parts of the organisation 

and how they can be brought together effectively to 

meet member countries’ changing priorities. 

The organisation has traditionally hired specialists, not 

developed them and in fact expected the majority of 

them to leave after fixed, short-duration assignments. 

There had been very little movement between 

directorates (OECD’s departments) because of the 

specialist nature of the jobs. 

A deeper dive into the drivers of turnover (what 

employees value and what engages them; see 

figure on next page) and of promotion (what drives 

employees to succeed), using statistical analysis, 

yielded even more interesting results. Despite the 

lack of frequency, those who did change directorates 

were 85% less likely to leave than those who did 

not – making this the very largest driver of retention, 

even relative to financial rewards and withindirectorate 

promotions. Such changes were also 

associated with a 137% increase in the probability 

of advancement. Those who were learning broad 

skills within the organisation were engaged by the 

opportunities and were highly successful. Expanding 

such developmental opportunities seemed to be a way 

to improve the value proposition for high performers 

and, at the same time, meet the OECD’s need to more 

fluidly meld its different areas of expertise to meet 

changing client demands, by creating more broadly 

skilled talent. 

21




Drivers of Promotion 

Human capital, rewards and performance 

Percentage difference in probability of promotion next year 

Less likely to be promoted More likely to be promoted 

-100% -50% 0% 50% 100% 150% 200% 

Promote this year 

New hire 

Changed from “temporary” 

Contract type: fixed vs. indefinite 

Annual salary (€10k+) 

General experience/age (5+ years) 

French citizenship 

In larger department (10+ employees) 

Change job or job family (within grade) 

Tenure 

Level to supervisor (1+) 

Supervisor’s own span (2+ employees) 

Took management training 

Rating: outstanding vs. satisfactory 

Rating: excellent vs. satisfactory 

Changed directorate (within grade) 

Supervisor vs. individual contributor 

-64% 

-53% 

-34% 

-33% 

-30% 

-22% 

-19% 

-15% 

0% 

0% 

14% 

30% 

46% 

68% 

108% 

137% 

176% 

The models on which these results are based control for individual attributes and organisational factors. All effects are 

significant at the 5% level unless otherwise noted. Models account for directorates, grades and job families. 

Note: The effect is significant at the 10% level. 

The analysis further revealed that autonomy drove 

significant value at the organisation, in that those 

reporting to supervisors with larger spans of control 

were less likely to leave and more likely to succeed. 

Such autonomy could do more than help address the 

OECD’s talent challenges, to the extent that it could 

drive “outside the box” thinking required by the 

member countries. 

A key challenge is to ensure that such steps do not 

compromise the depth of specialist expertise that 

is, the core of the organisation’s long-standing value 

proposition. Achieving balance will be a critical 

imperative for the OECD to continue to achieve its 

current standards of excellence and also to meet the 

challenges of tomorrow. 

MOVING FORWARD 

The external marketplace is demanding that the OECD 

provide more rounded and flexible talent. Analytic 

review of the OECD’s human capital strategy pointed 

to opportunities to achieve that goal and to reduce the 

OECD’s talent risks by expanding internal mobility and 

providing for greater employee autonomy. 

24 22




KEY TAKEAWAY 

Look across a broad set of practices to drive desired results. 

Energy 

Workforce 

structure 

Capabilities 

and sourcing 

Performance 

and 

accountability 

Recognition 

and reward 

Communication 

and connecting 

Leadership 

Economics 

More information about workforce analytics and metrics can be found at www.mercer.com/workforceanalytics. 


Piia Pilv is Mercer’s Executive Rewards Service Segment Leader for EMEA. 

Based in Amsterdam, she can be reached at +31 20 431 3864 or piia.pilv@mercer.com. 

Makoto Miyasako is the Head of the Strategy and Business Analysis Group, HR Management, at the OECD. 

Kimmo Sollo is Mercer’s Human Capital Business Leader in the Nordics. 

He is based in Paris. 

Based in Espoo, Finland, he can be reached at +358 9 8677 4315 or kimmo.sollo@mercer.com. 

Brian Levine, PhD, is a Principal and human capital strategy expert in Mercer’s Global Human Capital consulting 

business. Based in New York, he can be reached at +1 212 345 4194 or brian.levine@mercer.com. 

25 23


Regional overview 

The first thing that strikes you about the Asia Pacific region is 

that it is so diverse. So when it comes to compensation and 

benefits practice, it is impossible to generalise. Because it 

comprises such a disparate group of countries, all at different 

stages of development, nothing you say about Asia Pacific 

applies to the entire region. 

China is the second biggest market in the world, and India 

is one of the most heavily populated. Then there is a group 

of other developing markets, including Vietnam, Malaysia, 

Thailand, Indonesia and the Philippines. There are also 

the relatively advanced economies of South Korea and Taiwan. Singapore and Hong Kong 

are essentially large financial centres serving the rest of the region in addition to their local 

populations. Japan is the world’s third-largest economy, but it has the challenge of an ageing 

workforce. And Australia, although geographically closer to Asia than to any other part of the 

world, actually has very little in common with it – though it does rely on exports to China to drive 

its strong economic activity. 

GDP growth and inflation statistics for 2011 illustrate the highly disparate nature of the region. 

Country GDP growth (%) Inflation (%) 

China 9 5.3 

New Zealand 1 4 

Taiwan 4.8 1.8 

Australia 3 3.2 

Malaysia 5 3.6 

Philippines 5 4.5 

Thailand 6 4.8 

Hong Kong 5.5 5 

Vietnam 6.5 15 

Japan 0.9 0.2 

Singapore 6 4.9 

Indonesia 7.2 6.1 

India 7.3 7 

Korea 4.7 4.5 

24

One generalisation about the region that it is possible 

to make, however, is Asia’s growing importance to the 

global economy. This is reflected in many statistics, 

including a likely ranking of the world’s top cities 

(in GDP terms) by the year 2025, carried out by the 

McKinsey Global Institute. McKinsey predicts that 

15 of the world’s 50 top cities in 2025 will be Asian 

newcomers (reflecting growing urbanisation in the 

region), with 13 of the dropouts between 2007 and 

2025 coming from the West. This global shift of 

economic power is also reflected in annual salary 

increases in Asia Pacific: between 2010 and 2012 they 

have been on an upwards trajectory, with the exception 

of only New Zealand and Japan, where they are falling. 

In Vietnam salary increases have been at more than 

12% for the past two years and are expected to be 

even higher next year, and the increases in India have 

been only slightly smaller. And in these high-growth 

markets, talent is in increasing demand. 

Operating in Asia Pacific is a challenge 

Operating in Asia Pacific can be challenging for a 

number of reasons – aside from the immense diversity 

in the region. 

• Legislative changes, particularly in emerging 

countries, come thick and fast, but are not always 

clear cut: a law may come into force before guidance 

is given on how to comply. 

• The rapidly rising minimum wage in emerging 

countries (in China it is increasing at 13 % a year) has 

a knock-on effect on blue-collar pay. 

• Countries such as Singapore and Hong Kong are 

tightening their foreign labour restrictions, making it 

more difficult to secure visas. 

• New data privacy laws mean companies need to be 

very careful when transferring personal information 

across borders. 

• “Employee-friendly” legislation in countries such as 

Indonesia, China and Taiwan, makes it very difficult 

to restructure the workforce. 

A deep dive on China 

By 2012 China, the world’s second-biggest economy, 

will have enjoyed 12 years of average GDP growth of 

10 % a year, with salary rises running at an average of 

8% or 9% a year over the same period. If that growth 

rate is sustained, by 2025 it is expected that 350 

million additional people will be living in China’s cities 

– more than are currently living in the entire United 

States. In total, two-thirds of Chinese citizens – that is, 

around one billion people – will be living in these cities; 

200 cities will have more than one million inhabitants 

(Europe has only 35 cities that size); and there will be 

50,000 new skyscrapers (ten times more than there are 

today in New York) and 170 new mass transit systems 

(Europe currently has 70). 

The burgeoning Chinese middle class that this mass 

urbanisation implies has considerable implications for 

multinational corporations. Although a growing middle 

class is at first glance a good thing, it presents 

challenges. For example, local companies and stateowned 

enterprises are competing with foreign 

multinationals for talent, falling birth rates mean the 

working population is shrinking, wages are increasing 

and the standard of living is improving. Some 18 cities 

and provinces have adjusted their minimum wage in 

2011, 13 of them raising it by more than15%. And the 

twelfth “five-year plan” stipulates that the minimum 

wage should rise by 13% a year. In short, China is no 

longer a cheap source of labour – and it will get more 

expensive. 

Managing compensation and benefits in 

developing markets 

Given the picture described above, managing 

compensation and benefits in developing markets is 

difficult. The bottom line is that a Londonheadquartered 

multinational trying to compete with a 

local Chinese company for talent in China is on a 

hiding to nothing if it tries to use pay as its primary 

bargaining tool. The Chinese economy is so buoyant 

that a Chinese firm can afford to pay what it takes to 

attract and retain the best people. Companies 

domiciled in the stagnant markets of the West have to 

use different strategies if they are to compete for 

talent. 

25


the attraction of top talent, the retention of top talent 

and the development of that talent. Because they are 

typically regarded as the preserve of HR, such factors 

normally drive less than 10% of managers’ variable 

pay. But regardless of who is primarily responsible for 

attracting, developing and retaining talent, a 

company’s compensation strategy should support 

these activities, not work against them. 

So a typical compensation structure for a growth 

market might look something like the following: 

Base salary – focus on the development of new skills 

and competencies. This differs from the mature 

market approach in that it carries less emphasis on 

performance. 

Growth expectations in China mean that the best 

people have lots of opportunities – and they know it, 

and have high salary expectations as a result. But 

there is a shortage of talent, particularly leadership 

talent, and managers are often over-promoted. What’s 

more, compensation is unstructured and the benefits 

landscape is immature. Here Western firms, with their 

sophisticated talent management and compensation 

approaches, have a huge advantage over their 

developing market competitors. They can capitalise 

on the rapid and often chaotic growth in emerging 

markets by using structured development 

programmes, targeted benefits and performancerelated 

rewards to attract and retain good people. 

However, they wil succeed only if they adapt their 

approach to the particular nature of and challenges in 

any given market. Trying to impose on developing 

markets an approach that was designed for developed 

markets will fail to deliver a return on investment. 

Overall, Western compensation programmes tend to 

focus on driving and rewarding individual and 

financial performance, but in developing markets, 

where the key risk is a lack of talent, the compensation 

strategy should focus more on leadership 

development and the ability to lead, develop and 

retain others. 

So in addition to the usual financial and operational 

performance metrics, other factors should be given a 

bigger weighting than they have currently – namely, 

Short-term incentives – focus on short-term nonfinancial 

achievements. This differs from the mature 

market approach in that it places greater emphasis on 

talent management objectives. 

LTIs – focus on retention – more so than in mature 

markets. 

Cash – in general, cash is king – so be careful not to 

get the pay mix too geared towards variable pay. 

Pay multiples in different emerging markets are very 

different from those in mature markets, too – although 

again, there is a range. At one end of the Asia-Pacific 

spectrum, a manager in Australia will generally earn 

three and half times what a new graduate earns, and 

at the other end, a manager in India generally earns 

15 times what a new graduate earns. There is a whole 

spectrum of different country multiples in between. 

These very different multiples carry clear implications 

for salary progression: low percentage rises are not 

sufficient in developing markets. For example, in a 

developed market a graduate in the third year of 

development might typically receive a 20% rise. The 

equivalent rise in a developing economy is 40 %. But 

the absolute salaries are very different – £46,656 in 

the developed market, compared with £14,400 in the 

developing market. Similarly, in year seven of the 

developed-market graduate’s career, the individual 

might get a 20% promotional pay rise to a salary of 

£64,812, and a developing-market graduate would 

get a 30% promotional rise to £28,323. 

26


So the broad pay bands with narrow ranges that are 

typical of Western pay schemes do not work in 

developing markets. Companies need to use broader 

ranges – often double the amount between the 

minimum and maximum salary in a grade or role. Also, 

people need to be promoted more quickly and have 

more frequent pay rises than are common in 

developed markets. 

Talent development 

When using compensation and reward programmes to 

help develop talent in developing markets, companies 

need to start from the bottom up and must understand 

the nature of the market in which they are operating. 

Most global leadership and talent development 

programmes start from the wrong place, focus on the 

wrong “gaps” and focus on the process rather than the 

intent. 

For example, competency models tend to assume 

individuals at the same level will share a common 

profile. But people of equivalent level in different 

countries may have very different strengths and 

weaknesses. A key requirement of a manager in China, 

for instance, is the political nous to deal with local 

government officials – a skill way beyond the ken of a 

typical UK manager. Likewise, a UK manager might be 

adept at doing employee evaluations, but the Chinese 

equivalent would struggle to have challenging 

discussions with his or her direct reports. 

What’s more, employees in different countries place 

different values on different elements of reward. 

In India, for example, career advancement takes 

precedence, followed by base pay and then training 

opportunities. In Australia base pay comes first, and 

then type of work and a flexible work schedule. In 

China employees are most concerned with career 

advancement, with base pay and retirement savings 

plans ranked second and third. And in both Hong Kong 

and Singapore the order is base pay, bonus/other 

incentives and career advancement. 

Companies have to understand and accommodate 

such differences rather than taking a Western 

perspective and forcing “global” practices on local 

markets. If they don’t, their compensation and benefits 

programmes in developing markets won’t deliver a 

return on investment. They need to be designed from 

the bottom up and take account of the facts of the 

individual market concerned. 

Paul O’Malley leads Mercer’s Information Products Solutions business in Asia Pacific. 

Based in Singapore, he can be reached at +65 6222 5792 or paul.o’malley@mercer.com. 

29 27

STIMULATING ENGAGEMENT THROUGH 

DIFFERENTIATED REWARD AND ENHANCED 

PERFORMANCE: THE MAERSK JOURNEY 

It may come as no surprise that the A.P. Moller–Maersk Group 

is on a journey. With the world’s largest container shipping 

line amongst its diverse portfolio, the Group has been on more 

journeys than most. What may come as a surprise is the nature 

of the current journey – to drive a culture of pay for performance 

throughout the organisation, starting with its headquarters in 

Denmark, where an egalitarian culture often prevails. 

This has been the challenge facing Alex Penvern, Global Head 

of Group Compensation, Rewards and Executive HR at the 

A.P. Moller–Maersk Group, since he joined the team in 2008. 

Today, the company can demonstrate a clear link between 

greater engagement, differentiated reward, and enhanced individual and corporate performance. 

The A.P. Moller–Maersk Group is a Danish diversified conglomerate employing more than 

100,000 people in approximately 130 countries. With interests primarily in shipping and oil and 

gas, the various business units of Maersk are characterised by the asset-intensive nature of their 

operations. 

THE STRATEGIC VALUE OF REWARDING 

INDIVIDUAL PERFORMANCE 

In this world of multimillion-dollar ships and oil 

concessions, it is easy to discount the relatively small 

cost of remuneration. However, though reward costs 

might not be as high on the agenda as they might be 

in more labour-intensive industries, the strategic value 

of rewarding performance is definitely at the top of the 

minds of senior management. 

“Given the value of the assets they look after, the 

company has high expectations of its leaders – and 

also of people at all levels. We believe that they 

will work harder, run faster and achieve more if 

we differentiate between the best, the good and 

the slightly less good”, says Penvern. “So it is not 

only absolute performance we reward – we focus 

significantly on performance relative to peers”. 

ESTABLISHING ONE SCALABLE AND 

TRANSPARENT REWARD STRUCTURE 

This has not always been the case. Less than five years 

ago, rewards in the company were characterised 

by discretionary bonuses, often awarded with little 

transparency. One of Penvern’s first challenges 

was to create a scalable reward structure that was 

understandable and could, over time, be rolled out 

across the organisation. 

The starting point was an executive compensation 

structure that focused on a relative distribution that 

was arrived at via conversations between the CEOs of 

every business within the Group. These conversations 

are based on a range of different performance criteria, 

happening in an annual session – itself a part of the 

performance management cycle. The outcome is a 

relative performance distribution of the company’s 

highest, successful and less effective performers. 

“The company believes that our people are motivated 

by this constant striving to do even better”, says 

Penvern. “You can never rest on your laurels or spend 

too long patting yourself on the back, because you 

know how hard everyone else is running. We want 

people who thrive in this atmosphere”. 

This is reinforced by a carefully considered distribution 

of rewards to the highest performers. Since the 

introduction of the pay-for-performance scheme, fewer 

very high performers are securing a significantly larger 

share of the bonus on offer. 

28

“The highest-performing men and women receive 

nearly double the bonus opportunity that they did four 

years ago”, says Penvern. “But in order to realise that 

bonus opportunity, they need to run as fast as they can 

in order to keep up with or stay ahead of the pack and 

the market”. 

While Penvern cites the value the company creates 

in this performance culture, he believes that the 

transparency of its bonus system is just as important. 

THE LINK BETWEEN PAY FOR PERFORMANCE 

AND ENGAGEMENT 

“We used to have discretionary bonuses but found 

with those that the correlation between pay and 

performance was almost zero – surprisingly”, he recalls. 

“This was a huge problem, as we know that the lower 

the link between pay and performance, and the less 

people can see this link, the worse our employee 

engagement becomes. 

“We also know that engagement predicts individual 

performance, team performance and customer 

satisfaction – the higher the first, the higher the 

other three. These factors are also linked to the 

leader’s performance – as his or her performance 

improves, this drives up the average performance 

score within the team. External research also shows 

that engagement predicts performance, customer 

satisfaction and financial results much more strongly 

than the other way around”. 

MEASURING SUCCESS 

So, engagement is critically important to performance 

and to bottom-line results, and a major factor in 

driving engagement is pay for performance – and, 

specifically, people’s belief that there is a link between 

how they perform and how they are rewarded. 

Penvern notes this is the real measure of the success 

of the drive towards pay-for-performance. The 

number of A.P. Moller–Maersk employees who agreed 

with the employee engagement survey statement 

“I believe that my pay and performance are linked”, 

rose from 45% in 2008 to 57% in 2011, aligning A.P. 

Moller–Maersk with the top 25% of companies that 

use this as a criterion of engagement. 

This proportion rises to 80% amongst employees 

in the head office, where schemes for executives, 

directors and professional staff are fully embedded. 

Not surprisingly, the company is now looking to roll 

out pay-for-performance schemes across the majority 

of its businesses around the world, where it makes 

business sense. 

The lesson is clear. You build employee engagement 

and drive performance both by having a clear and 

transparent scheme that links pay and performance 

and by communicating this consistently in order to 

reinforce the belief that pay and performance are 

linked. It’s critical to walk the talk, and if you succeed, 

it is, as Penvern concludes“ a virtuous circle”. 

Alex Penvern is A.P Moeller–Maersk Group’s Global Head of Compensation, Rewards and Executive HR. Based in 

Copenhagen, he can be contacted at alex.penvern@maersk.com 

31 

29

THE BOMBARDIER TRANSPORTATION 

GLOBAL JOURNEY 

Between 1985 and 2005 Bombardier, the Canada-based 

aerospace and transportation company, grew rapidly as a 

result of a flurry of acquisitions around the world, each of 

them a company with its own distinct culture and history. It 

was – and remains – important to keep local names and culture, 

particularly in the transportation side of the business, because 

Bombardier’s train company customers are local and want to 

preserve local jobs and service. 

But in order to service the increasing demand from developing 

economies, particularly China and India, for mass transit 

railway (MTR) systems, Bombardier needed to address the 

siloed thinking and divisional focus that tend to go hand in hand with the local approach. As part 

of this, it embarked on a global job levelling and grading exercise five years ago to get consistency 

across different divisions and countries. 

The company’s genesis lies in the inventive genius and 

entrepreneurial spirit of a young mechanic, Joseph- 

Armand Bombardier, who, in 1922 at the tender age 

of 15, built his first “snow vehicle” (an engine attached 

to a sledge) to help people travel the snow-covered 

roads of rural Quebec. Fifteen years later, in 1937, he 

achieved his first commercial success with the launch 

of the seven-passenger “snowmobile”. Snowmobiles 

became the mainstay of the business for the next 

30 years until the energy crisis caused the market to 

collapse in 1973. Three years later, Bombardier put its 

factories and expertise to use in building an MTR to 

service the 1976 Olympics in Montreal. The rest, 

as they say, is history. 

Today, the business is split equally (in terms of 

both employees and revenue) between MTRs and 

aerospace. It employs 65,400 people worldwide and 

made revenues in the year ending 31 January 2011 

of US$17.7 billion. However, while it is still based 

in Canada, it earns 94% of its revenue outside the 

country, 75% of it in Europe – a split reflected in its 

employee base. 

The macro trends are very favourable to Bombardier 

– particularly to its transportation business. 

Climate change, oil scarcity end the price of energy, 

urbanisation and population growth, congestion, 

and ageing societies are combining to increase the 

demand for “greener” transport alternatives such as 

trains – and the company’s “green” credentials help to 

attract talent, too. What’s more, the company takes a 

famously long-term approach, partly out of necessity 

(building trains is a lengthy process) and partly out 

of choice (Bombardier remains family-owned and 

has had only three chief executives – the founder, his 

son-in-law and his son-in-law’s son – throughout its 

80-year history). 

Currently, Bombardier is one of the big three 

transportation companies: along with competitors 

Siemens and Alstom, it accounts for half the global 

market, a picture that has remained largely constant 

for many years. 

However, all this is about to change. Chinese 

competitors CNR and CSR have overtaken Siemens’ 

and Alstom’s respective 14% and 15% market shares 

this year simply as a result of meeting demand from 

its domestic market. And it is the vast, developing 

economies of China and India that offer the most 

potential for Bombardier. It is currently setting up a 

joint venture in China, with five thousand employees, 

and is bidding for several more contracts. So, just as 

it moved its headquarters from Montreal to Berlin 

to be nearer to its big European markets, it is likely 

to shift it to India in the not-too-distant future, says 

Lars Timmerman, Director, Global Compensation, at 

30

Bombardier Transportation. Servicing these big new 

customers requires a step change in management 

strategy. But striking the right balance between global 

consistency and the local approach that has sustained 

Bombardier thus far is not easy, as Timmerman found. 

The HR challenges in the raft of different countries 

where Bombardier operates are as diverse as the 

countries themselves. 

• The main consideration in Europe, for example, is the 

shortage of engineering talent, with rising pension 

demands a close second. 

• The aerospace business, which is still headquartered 

in Montreal, is characterised by aggressive sales 

people who are motivated by individual targets 

rather than team spirit and want to be aligned to the 

sector rather than the company. 

• South America is a growing market, but security 

issues loom large. 

• Russia and China, while offering valuable joint 

venture opportunities, are tricky countries to operate 

in, not least because of the difficulty of accessing 

data. 

• In Asia Pacific one of the big current preoccupations 

is how best to transfer expatriates onto local 

packages. 

• Bombardier has established shared service centres 

for finance in Romania and the Philippines and is 

now setting one up in Romania for HR too. 

• In Thailand and Indonesia the prices of rice, other 

food and rent is a big issue, and this has to be 

factored into employees’ reward packages. 

• And India is a veritable melting pot of pay practices. 

“They have everything, but there are no market 

benchmarks and it is all very diverse”, says 

Timmerman. “One company managing director even 

had a newspaper allowance written into his contract 

– but it had no value attached to it”. 

Trying to rationalise this diversity, harness the growing 

demand for the company’s products and services, and 

take account of both the long-term nature of the transportation 

business and the egalitarian and long-term 

culture of the company, and to come up with a job and 

pay framework that takes account of them all, was no 

mean feat. 

But Timmerman and his team have done it. “We 

now have a reward framework of global and regional 

processes and programmes, which serves as a 

blueprint for how we organise ourselves”, he says. 

The system essentially comprises four “global 

processes and programmes”, which are globally 

designed and fully globally governed, and four 

“regional processes and programmes”, which are 

locally designed and partly globally governed. Under 

the first there are four buckets of reward – base 

pay, short-term incentives, medium- and long-term 

incentives, and benefits and pensions. Under the 

second are another four buckets – “other direct pay 

and allowances”, which includes things like rice, 

food and fuel allowances; “benefits and pensions”, 

which covers things like health care and insurances; 

“work-time related issues”, which includes things like 

overtime, sick pay and maternity leave; and “other 

programmes”, which covers things like mobile phone 

policy and loan programmes. 

“The things we have included under our ‘regional 

processes and programmes’ are highly dependent on 

local rules and culture, and we can’t force alternatives 

on them from a global perspective”, says Timmerman. 

In order to allocate reward within that framework, 

Bombardier did a job levelling and global grading 

exercise, analysed individual countries’ data against 

that to determine whether or not discrepancies were 

valid, and from that built salary scales for more than 35 

different countries. 

“It took us two years to centralise and harmonise for 

one global review date – May 1 each year”, recalls 

33 31

THE BOMBARDIER TRANSPORTATION GLOBAL JOURNEY 

Timmerman. “We 

start the process in 

September, when 

we ask each country 

how much it wants or 

needs the following 

year and what 

evidence it has to 

support that. To those 

individual country 

profiles we add our 

own overall market 

insight, and from that 

we determine the worldwide salary increase.” 

That increase is then broken down into different 

aspects of reward, and the compensation team again 

have to strike a balance between preserving the 

egalitarian culture of the business and the need to 

reward outstanding performance. 

“Every aspect of building a train requires a team 

effort, and the view of our current CEO and his 

predecessors is that ‘we work together and we win 

together’. Therefore our short-term incentive scheme, 

for example, is more of a profit sharing scheme than a 

bonus: it is based on EBIT and free cash flow, and we 

take a bonus pool approach. This year 5% of EBIT was 

allocated as a bonus payment, and every executive, 

from the president down to the most junior executive, 

received the same percentage. However, we also make 

sure that people understand that the more people 

who are eligible for this scheme, the less money there 

is to go around: in the past people were promoted to 

director level in order to justify a pay rise for them”. 

Reducing the number of pay grades (there were 60 

in some countries) to the standard 22 has reduced 

the promotion options, but individuals can grow 

within their band. “We have had to work hard to 

communicate the fact that individuals can be paid 

between 70% and 130% of the salary accorded to their 

band. Some have struggled to come to terms with this 

flexibility”, says Timmerman. Similarly, medium- and 

long-term incentives are based on internal return on 

equity averaged across three years. The distribution is 

determined by HR, but top executives get something 

every year and one in three directors gets something 

every year (with the likelihood that most directors 

will get something at least once during a three-year 

period). “However, we also reward outstanding 

performance with discretionary one-off share awards”. 

Bombardier’s slogan is “We move people”. Its 

challenge now, says Timmerman, is to move its own 

staff between different countries as effectively and 

efficiently as it moves its passengers. 

Lars Timmerman is Director, Global Compensation at Bombardier Transportation GmbH. Based in Berlin, he can be 

contacted at lars.timmermann@de.transport.bombardier.com. 

32


Ilya Bonic, Mercer 

Ilya is a Senior Partner and the Global Leader of 

Mercer’s IPS business. Ilya has more than 15 years’ 

experience in HR consulting. He works with leading 

multinational companies to build HR information 

resources and tools that allow them to make more 

informed decisions on strategic people issues. 

Based in Geneva, Ilya has extensive international 

experience in both information business and human 

capital consulting. Originally joining Mercer in 

Australia, Ilya spent two years as the leader of Mercer’s 

EMEA information business and more than four years 

in Singapore with Asia Pacific regional responsibilities. 

With his international background and client dealings, 

Ilya is well-placed to comment on current issues and 

emerging trends for HR. 

Ilya regularly presents at various industry forums and 

is consistently invited by clients to provide their HR 

teams, line managers, and executives with insights into 

the HR issues, risks and opportunities that face them 

while managing in the competitive marketplace. 

Raymond Brood, Mercer 

Raymond is Zone Leader of Benelux and a member of 

both the Benelux leadership team and the European 

Health & Benefits leadership team. After completing 

his education Raymond started his career with ABN 

Bank. There he worked as an account manager in the 

business-to-business market and, for four years, was 

also active in the bank’s dealing room. 

In 1990, Raymond joined AEGON and became 

responsible for the client management activities of 

AEGON Asset Management. After this he started a new 

concept for AEGON’s largest insurance intermediaries. 

In 1996, Raymond joined MeesPierson, which became 

Fortis in 1997. Appointed as a board member of 

Fortis Investments, he was also responsible for the 

commercial activities and client management of the 

asset manager and the Asset Liability Management 

(ALM) department, and also led the pension 

administration department. In 1999, he was appointed 

as Chairman of the Beijer Group (Intermediary Captive 

of Fortis) and was tasked with restructuring. 

In 2003, he joined Mercer as Head of Group Benefits 

and was subsequently appointed to the Dutch 

leadership group and the European Health & Benefits 

leadership group. Raymond has a law degree from the 

University of Rotterdam and joined programmes at 

INSEAD and the Nijenrode Business School. 

Sir Howard Davies, London School 

of Economics (2003–2011) 

Sir Howard was Director of the London School 

of Economics and Political Science from 2003 to 

2011 and is one of the UK’s most authoritative 

commentators on the financial services industry. He 

was Deputy Governor of the Bank of England from 

1995 to 1997. In 1998, he became the first Chairman 

of the Financial Services Authority, when the Labour 

government asked him to create a single regulator 

for the UK financial sector. He has also worked for 

McKinsey and Company and was special adviser to 

Nigel Lawson, the Chancellor of the Exchequer. 

Sir Howard has published two books: The Chancellors’ 

Tales, which tells the story of how the British economy 

has been managed over the past 30 years, as told by 

former chancellors of the Exchequer in both the Labour 

and the Conservative administrations, and, with 

co-author David Green, Global Financial Regulation. Sir 

Howard is a regular commentator and journalist and 

is a columnist for The Financial Times, The Times and 

Management Today. 

Johan Ericsson, Mercer 

Johan leads the IPS Compensation & Benefits Centre of 

Excellence in EMEA for Mercer. Prior to this, Johan led 

the IPS business in the Nordic market and, for almost 

seven years, worked in various roles in human capital 

consulting in the Stockholm office. 

Johan has been with the firm for approximately 10 

years. He started working in the Geneva office in 

2000, where he was mainly involved in the European 

compensation survey cycle. Johan has worked on 

projects in a range of industries, including automotive, 

banking, engineering and telecommunications. 

His main areas of focus cover job measurement, 

34


compensation strategy and general rewards. Johan 

holds a Bachelor of Science (first-class honours) 

in business management from the University of 

Hull and a Master of Science in the management of 

organisations from the London School of Economics 

and Political Science. 

Patrick Gilbert, Mercer 

Patrick is a Partner in Human Capital and a business 

leader for employee research. He has more than 20 

years’ experience in organisation research. His areas 

of special focus include the design and delivery of 

employee engagement research and measuring the 

impact of employee engagement on organisational 

performance. Prior to his current role, Patrick was 

business leader for Workforce Communication and 

Change in the EMEA region. 

Patrick’s most recent position prior to joining Mercer 

was Practice Group Director for a global consulting 

firm specialising in employee and management 

surveys. His responsibilities included business 

development for the UK, the Republic of Ireland, and 

the Benelux, Nordic and Eastern European regions. 

Prior to this, Patrick worked for five years as a research 

consultant for the University of Chicago and for Rush- 

Presbyterian-St Luke’s Medical Center. And prior to this 

work, he was the Director of Professional Services for 

a consulting firm specialising in senior management 

selection and development. He has worked extensively 

with both national and global organisations and has 

published extensively in the area of organisational 

research. Patrick has a master’s degree in industrial 

organisational psychology from the University of 

Central Florida and a PhD in social and organisational 

psychology from the University of Chicago. 

Chris Johnson, Mercer 

Chris is Head of Mercer’s Human Capital business in 

the UK, which is focused on human capital strategy, 

talent, reward and human capital operations. Chris 

has more than 20 years of consulting experience in 

the UK and the US. He has assisted major clients in 

Europe, Asia and the US, in the financial services, 

pharmaceutical, retail and utilities sectors, as well 

as public organisations. Client assignments have 

mainly involved the alignment of people programmes 

with business and organisational performance, and 

significant workforce change. Immediately before 

joining Mercer, Chris was at the UK Cabinet Office, with 

responsibility for employee relations and reward across 

the UK Civil Service, where he played a leading role in 

public-sector pay policy and pension reform. 

Chris’ current clients are in the financial services, 

pharmaceutical, professional services and public 

sectors. Chris holds a degree in civil engineering from 

the University of Salford. 

Brian Levine, Mercer 

Brian is the Human Capital Strategy segment leader for 

the US/Canada region and a Principal in the Human 

Capital consulting business at Mercer. Brian helps 

organisations assess their internal labour markets and 

the processes by which employees are rewarded and 

move through organisations. Towards that end, Brian 

has more than 10 years of consulting experience in 

human capital measurement – working with company 

data to identify the drivers of rewards and turnover 

as well as significant links between human capital 

practices and business performance. 

Brian has led recent global engagements in various 

sectors, including financial services, professional 

services, pharmaceuticals, health care, insurance, 

technology, transportation, retail, non-profit and 

higher education. 

Brian frequently publishes in the professional press 

and is a popular speaker. His Workspan article (May 

2009, co-authored with David Kuhl) is an often-cited 

pay equity reference for compensation professionals, 

and he also has a recent article in the WorldatWork 

Journal (Q1 2011, co-authored with Colleen O’Neill) 

on the business risks associated with pay-forperformance. 

Brian presented at the most recent 

three annual WorldatWork conferences; he has also 

presented at the National Industry Liaison Group 

annual meeting, on the topic of leveraging compliance 

efforts to achieve diversity objectives and improve 

human capital management. He was an adjunct 

professor at Baruch College (CUNY), where he taught 

35


labour economics, and is a member of the American 

Economic Association.Brian holds a Bachelor of 

Science in industrial and labour relations and a Master 

of Science and a PhD in economics, all from Cornell 

University. 

Makoto Miyasako, Organisation 

for Economic Co-operation and 

Development (OECD) 

Makoto is Head of the Strategy and Business Analysis 

Group, HR Management, for the Organisation for 

Economic Co-operation and Development (OECD). 

Makoto is a Japanese national. He joined the OECD 

in 2007 and leads the design of people management 

strategies, overseeing the implementation of 

initiatives. Since 2007, Makoto has designed the 

policy and process of sourcing and staff development 

programmes while enhancing the overall analytical and 

advisory capacities of the HR department. His current 

projects include the implementation of a job family 

framework, the redesign of performance management 

processes and the restructuring of grading systems. 

Prior to joining the OECD, Makoto worked for the 

United Nations Office for Project Services (UNOPS), 

where he was in charge of corporate budget 

management and also played a leading role in a 

major corporate restructuring project to transition 

the business objectives and operational models of 

the UNOPS. Makoto holds a degree in public finance 

from the University of Chicago and an MBA from the 

Wharton School, University of Pennsylvania, in the US. 

Paul O’Malley, Mercer 

Paul leads the IPS business in Asia Pacific. Prior to 

taking up this position in January 2009, Paul was 

responsible for leading Mercer’s total rewards 

consulting services with clients in Europe and the 

Middle East. 

Paul has been with Mercer for 29 years and during 

that time he has worked in outsourced benefit 

administration, retirement consulting, human capital 

consulting, health and benefits consulting, client 

management and total rewards. He has also held 

internal management responsibilities. Paul specialises 

in the design and implementation of total rewards 

programmes, and in this respect has worked with 

many clients across EMEA. 

Paul is a Chartered Fellow of the Chartered Institute of 

Personnel and Development. He is also an Associate 

of the Pensions Management Institute in the UK and 

the Irish Institute of Pensions Managers. He is a former 

member of the council of the Irish Management 

Institute. 

Alex Penvern, Maersk Group 

Alex is the Group’s Global Head of Compensation, 

Rewards and Executive HR, AP Moller−Maersk 

Group. Founded in 1904, the Group is a diversified 

conglomerate that owns one of the world’s largest 

shipping companies and is involved in a wide 

range of activities in the energy, logistics, retail and 

manufacturing industries. The Group’s headquarters 

are in Copenhagen, Denmark, while the businesses 

operate in 130 countries. 

Alex joined Maersk in 2006, just as the first global 

executive compensation scheme was being created. 

Since then, Alex has assumed global responsibilities 

for compensation and rewards at all levels in the 

organisation, leading a fast-tracked journey towards 

rewards maturity for the Group. This has taken Maersk 

from the early stages of the global executive scheme to 

the current implementation of industry-specific reward 

strategies for each of the major business lines. 

A key element of the ongoing journey is the creation 

and development of a compensation and benefit 

community within the A.P. Moller−Maersk Group. Born 

in Paris to a French and Spanish family, Alex grew up 

trilingual, speaking English, Spanish and French. After 

spending his teenage years in France and the US, Alex 

received his master’s degree in international business 

from Copenhagen Business School. 

36


Piia Pilv, Mercer 

Piia is a Netherlands-based Partner and leads Mercer’s 

executive reward segment in EMEA, advising European 

multinationals on executive compensation, global 

compensation strategy, incentive plan designs, 

performance measurement and cross-border 

compensation issues. Piia joined Mercer’s New York 

office in 1996. 

Piia has more than 15 years of experience in 

international executive compensation and in the 

design and implementation of incentive plans – 

including the design, administration, communication 

and implementation of all forms of international 

share plans. Piia specialises in advising remuneration 

committees on all aspects of remuneration and 

corporate governance and works with a number 

of committees in the Netherlands, Switzerland 

and Scandinavia. Her industry experience is 

diverse and includes consulting with clients in oil 

and gas, telecommunications, financial services, 

manufacturing, life sciences, retail, FMCG, 

pharmaceutical and professional services. Piia holds 

an MBA from the London Business School and a 

bachelor’s degree in economics from Barnard College, 

Columbia University, in New York, from which she 

graduated magna cum laude. 

Anne-Magriet Schoeman, Global 

Remuneration Solutions 

Anne-Magriet is one of the executive directors of GRS, 

a South African company specialising in general HR 

management, with specific emphasis on remuneration 

management. She specialises in the Africa division, 

conducting local national surveys in 18 sub-Saharan 

countries. 

Anne-Magriet has been involved in the development 

of South African and international conditions of 

employment, remuneration structures and systems 

– mainly in the construction industry – and has 

assisted companies with various aspects of these 

systems, from feasibility to implementation. She has 

developed various computerised systems to support 

her clients’ international businesses. With a finance, 

HR, information technology and legal background, 

and 20 years’ work experience across the full HR value 

chain, she is currently investing her time to improve 

the efficiencies of the company in the survey arena. 

Lars Timmermann, Bombardier 

Transportation 

Lars is currently Director, Global Compensation at 

Bombardier Transportation GmbH. He specialises 

in the design, implementation and execution of 

global compensation processes for the Bombardier 

Transportation Group. In this role, Lars is responsible 

for ensuring that compensation packages remain 

market competitive while maintaining an internal 

equity. In addition to this work, he implemented a new 

global job evaluation system (Watson Wyatt Global 

Grading System). Lars also has a governance function 

for Bombardier Inc., Montréal/Canada, providing 

recommendations and information to the Human 

Resources and Compensation Committee of the Board 

of Directors. 

Lars has worked with several multinational 

organisations across EMEA, including Sony Europe, 

Watson Wyatt, the Daimler-Benz Foundation and 

British Petroleum. In his various roles, Lars has 

provided expertise on a number of compensationand 

benefit-related matters. For example, at Sony, 

he contributed to the set-up and then managed the 

European Employee Share Ownership Plan. He was 

also involved in the design and roll-out of a European 

Early Voluntary Retirement Programme. In addition, 

he led the HR Controlling function for some years. 

Lars holds a diploma in business administration from 

the Free University, Berlin, and studied communication 

at the University of Arts and the philosophy of sports at 

the Humboldt University, Berlin. Lars is also a certified 

windsurfing instructor and coach. 

37

For further information, please contact 

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www.mercer.com 

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A SERIES OF ARTICLES FRoM THE 2011 EMEA CoMPENSATIoN ...

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