2008 Shanghai Compensation and Benefits Study

1. Hewitt Associates | September 2008
Hewitt’s 2008 Shanghai City
Compensation & Benefits Study

2. Agenda
The Big Picture
Study Background
Compensation Trends
Pay Practices
A Word on Dealing with Inflation
Benefit Trends
Employee Turnover in Shanghai
Engaging Employees in China
In Closing
2

3. The Big Picture

4. Hot Topics in 2008/2009
Impact of
Financial Markets Meltdown, slowing Global Economy
Impact of
Inflation on Salary Increase
Impact of
High Employment Costs on
Employee Retention & Development
4

5. The Big Picture Growth in China has slowed but still continues at a brisk pace
Developed World Outlook China Outlook
Near Term Outlook Near Term Outlook
Slowing growth Growth slowing from 11.4 to 10.1% in
last quarter an expected 9.9% in 2008
High energy prices and 8.9% for 2009
Global financial crunch Exports are still growing but at a slower rate of 21.1%,
import growth also slower at 23.1%
Export sector resilient (US)
FDI climbed 41.6% in 2008
Inflation high
Export oriented businesses, non banking financial
Consumer confidence low institutions, auto and real estate lowering growth
projections
Long Term Trends
Long Term Trends Moving from export lead and capital intensive growth to
Aging population and shrinking workforce domestic consumption lead growth
Continued offshoring of manufacturing and service Continued rapid urbanization
work Rapid globalization of domestic companies increase of
Need to move up the value chain - next big thing - outbound investment
Life sciences and green energy? Continued high levels of FDI focused on domestic market
Healthcare and related services expected to grow Ongoing geographic expansion and consolidation of many
industries
5

6. China Major Economic Indicators
Output, Employment 2002 2003 2004 2005 2006 2007
2008
Jan to
2008
and Price (Forecast)
Jun
GDP
9.1 10 10.1 10.4 10.7 11.4 10.4% 9.9%
(% change previous year)
4.0%
Unemployment rate
4 4.3 4.2 4.2 4.1 4.0 (Till 4.5%
(%)
May)
Consumer price index
-0.8 1.2 3.9 1.8 1.5 4.8 7.9% 7.0%
(% change, previous year )
FDI
12.5 1.4 13.3 -0.5 4.5 13.6 41.6% --
(%)
*Data sources:
1. National Bureau of Statistics, PRC
2. National Bureau of Statistics, Shanghai
3. Ministry of Foreign Trade and Economic Cooperation, PRC
4.. 2008 forecast data is provided by World Bank website in June, 2008
6

7. Companies Still Expanding -
Target Sales Revenue Growth in Shanghai in 2009
Non-Manu Manu
75%ile 31.2% 29.4%
50%ile 20.0% 20.0%
25%ile 14.3% 10.0%
Avg. 27.3% 22.6%
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Data Source: 2008 Hewitt TCM Shanghai Study Findings

8. Companies Still Expanding -
Target Headcount Increase in Shanghai in 2009
Non-Manu Manu
30.0% 30.0% 30.0%
25.0%
25.0% 25.0%
21.6%
20.4%
20.0% 18.0% 20.0%
15.0%
15.0% 15.0%
10.0% 10.0%
10.0% 10.0%
5.0% 5.0%
0.0% 0.0%
Avg. 25%ile 50%ile 75%ile Avg. 25%ile 50%ile 75%ile
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Data Source: 2008 Hewitt TCM Shanghai Study Findings

9. What are the Implications?
Implications for Business Implications for HR
Growth at any cost is no longer Show a return on Human Capital
feasible investment
Limited resources but rising Get the right data to support your human
expectations, have to do more with capital initiatives.
less
Understanding the business is critical
Global slowdown putting additional
pressure on China to be the Execute well around the basics
company’s high performer
Target your people investments to get
Maintain a sustainable model for the highest leverage
growth
9

10. Study Background

11. 2008 Participant Companies Information
773 Participants By Business Entity
FIE - Rep Office FIE - Joint Venture
Manu Non-Manu FIE - Wholly Owned Other
100% 0.7%
8.1%
90%
80%
262
70%
67.6%
60%
72.2%
50%
40%
30%
20%
511 31.7%
16.0%
10%
3.7%
0%
Non-manu Manu
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Data Source: 2008 Hewitt TCM Shanghai Study Findings

12. Compensation Trends

13. Salaries in China Jump High in 2008
12.0%
11.4%
10.9% 10.6% 10.2%
9.5% 9.6%
10.0% 10.2%
9.1% 8.4% 8.8%
8.0% 8.0% 7.6% 8.2%
7.1% 8.1%
7.3% 7.6%
7.3% 7.6% 7.4% 8.3%
8.0%
6.0%
4.8%
4.5%
3.9%
4.0%
1.8%
2.0% 1.3%
1.2%
0.7%
0.4%
0.0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
*Data sources:
CPI GDP Salary Increases
1. National Bureau of Statistics, PRC
2. Ministry of Foreign Trade and Economic Cooperation, PRC
3. Hewitt China Salary Increase Survey 1995-2007
4. 2007 GDP and CPI figures are data of full year
13

14. Salaries in Shanghai Jump Higher Also
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
2009
2006 2007 2008
(Projection)
Manu 7.8% 8.5% 10.1% 9.9%
Non-Manu 8.2% 9.4% 11.2% 10.4%
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Data Source: 2008 Hewitt TCM Shanghai Study Findings

15. Pay Practices

16. Variable Pay is Highly Prevalent in China
120.0%
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
Variable Pay Prevalence
2007 Non-Manu 94.1%
2008 Non-Manu 95.5%
2007 Manu 84.4%
2008 Manu 93.8%
16
Data Source: 2008 Hewitt TCM Shanghai Study Findings

17. Shanghai Non-Manufacturers Pay Mix
Shanghai Non-Manu Pay Mix - Non-Sales Shanghai Non-Manu Pay Mix - Sales
100% 100%
12% 12% 13% 15% 16% 18%
90% 20% 90%
23% 23% 22% 22% 20%
5% 5% 5% 5% 5% 80%
80% 5% 4% 3% 3%
5% 4%
3% 4% 4% 4%
3% 5% 4% 4% 3%
3% 3% 3%
70% 70% 5%
60% 60%
50% 50%
40% 78% 79% 79% 78% 40%
76% 72% 74%
73% 70% 71% 71%
68%
30% 30%
20% 20%
10% 10%
0% 0%
General Professional Supervisorl Middle Sr.Manager Director General Staff Professional Supervisorl Middle Sr.Manager Director
Staff Manager Manager
Base Salary Guaranteed Bonus Cash Allow ance Target Variable Pay Base Salary Guaranteed Bonus Cash Allow ance Target Variable Pay
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Data Source: 2008 Hewitt TCM Shanghai Study Findings

18. What is the impact of Inflation on Salary Increases?
Market Reaction: Pay Attention To:
More than half of the respondent CPI should be taken into consideration
companies have taken action or will when making salary adjustment.
take action to react to the CPI However, if salary increase is directly
linked to CPI, it might intensify inflation.
inflation.
Higher impact of CPI on lower level
One third of total respondents workers
adopted a “wait-and-see” approach.
Increasing labor costs might deteriorate
Among those who have taken action, China’s investment environment, and
there are two strategies: employees could be negatively impacted.
– Allocate this budget to special groups
of employees most affected by inflation.
– Allocate this budget across the broad
population.
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19. Benefit Trends

20. Benefit for Retention Purpose - The Key Differentiator!
HR Perspective: Employee Perspectrive
Housing benefits remain the most Cash is king
popular supplemental benefits but
often times built into payroll and Employees also keenly aware of
viewed as cash healthcare benefits
– Coverage (dental, vision, critical illness,
Market appreciation for pension plans etc.)
increasing especially with an aging
workforce – Level of service (quality, access, etc.)
Interest on Savings plan more – Increasing interest in flexible choices.
obvious for its flexibility to
accommodate diversified employee Additional benefit interests:
needs AND the retention properties – Education assistance, Car benefits, EAP
program, Additional Leave, etc.
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21. Employee Turnover

22. Big Jump in Employee Voluntary Turnover
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
2001 2002 2003 2004 2005 2006 2007 2008
Average 8.3% 12.1% 11.7% 11.3% 14.0% 13.8% 14.7% 17.4%
Median 7.3% 9.8% 9.3% 9.8% 11.6% 11.3% 12.7% 14.9%
22
Data Source: Hewitt TCM Study 2001 – 2008(PRC)

23. Voluntary Employee Turnover Rate By City
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Shanghai Changzhou Wuxi Suzhou Nanjing Wuhan
Turnover Rate 17.3% 19.6% 15.9% 20.7% 8.7% 11.8%
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Data Source: 2008 Hewitt TCM Study Findings

24. 2008 Voluntary Employee Turnover Rate By Industry
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Hi-tech - Pharmace Engineeri Auto - Auto - Medical Hi-Tech - Chemical -
Retail Insurance FMCG Logistics Sourcing Funds
NM utical ng Parts Manu Dev ice Manu Manu
Turnov er Rate 29.4% 26.2% 19.7% 16.4% 16.0% 15.2% 15.2% 15.1% 14.8% 14.4% 14.4% 13.6% 13.4% 10.2%
* NM: Non Manu
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Data Source: 2008 Hewitt TCM Study Findings

25. From Total “Compensation” to “Total Rewards”
Companies are increasingly switching from benchmarking against Total Comp
to Total Reward
Compensation Benefits
Transactional Guaranteed Pay Health & Welfare
Rewards Bonus Plan Retirement
Long-Term Incentives Paid Time Off
Relational Development Environment
Performance Management Culture & Climate
Rewards Learning Work Design
Career Opportunities Flexibility
Direct Indirect
25

26. Engaging Employees in China

27. Whilst Salaries and Benefits Continue to Rise, Employee
Satisfaction Is Not Improving……
60%
Employee Satisfaction with Pay
Employee Positive Perceptions
Employee Satisfaction with Benefits
50%
45%
39%
40%
35% 37%
35%
30%
28%
20%
2003 2005 2007
Study Year
Data Source : 2007 Hewitt Best Employer in China Survey Findings
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28. Pay Communication is Critical
What Employees in China Say Best China
HR is effective in providing adequate Employers Average
information about our compensation strategies 71% 33%
HR is effective in addressing questions
concerning administration of pay and benefits 75% 38%
As a Manager, I am well equipped to explain
our reward structure to our employees 78% 42%
As a Manager, our review and rewards
systems give me all the autonomy I need to
recognize both solid performers and high performers 76% 41%
My performance has a significant impact on my pay 68% 37%
If this organization does well, I will appropriately
share in its financial success ` 73% 35%
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29. Focus on Positive Drivers of Engagement in China
Career Opportunities:
Career Opportunities
Career Opportunities • Only 42 percent of employees surveyed hold positive perceptions of
their future growth and advancement opportunities in their organization.
• The study revealed quite clearly, however, that The Best are much
more successful in outlining future career opportunities to their
employees, providing them with clear line of sight for future potential
opportunities.
Pay:
Pay
Pay • Only 28 percent of Chinese employees think they are being paid enough
relative to their performance and contribution
• Even The Best struggle with pay, where on average only 57 percent of
employees are happy with what they’re getting.
Performance
Performance Performance Assessment:
Assessment
Assessment
1. On average, only 39 percent of employees hold positive perceptions of
the organization’s formal performance management process
2. In contrast to The Rest, The Best excel in this area, with 71 percent of
employees holding positive perceptions of performance management.
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30. Questions

31. Thank You!
Should you have any questions, please contact us:
Email: peter.zhang@hewitt.com
Tel: Peter Zhang (86 21) 2306-6797
Fax: (86 21) 6391-6018

32. Appendix:
Hewitt Best Employers in China 2009
Study Introduction

33. Hewitt Best Employers Study Background
The Hewitt Best Employers in Asia 2009 study represents the fifth regional
study conducted by Hewitt
It will be conducted in the key markets of Australia/New Zealand, China, Hong
Kong, India, Korea, Malaysia, Singapore and Thailand
With close to 750 organizations registering in our last study in 2007, the Hewitt
Best Employers in Asia study has become the largest employee research
project and market practice audit in Asia Pacific
33

34. Methodology – Employee Engagement
We see three key behaviours in an engaged employee:
Stay
+ Strive
Strive
Say
Say + Stay
Exert extra effort and
Have an intense engage in work that
desire to be a contributes to business
Consistently speak positively member of the success
about the organization to co– organization
workers, potential employees
and most critically, customers
(current and potential)
34

35. Engagement Studies Have Evolved from Satisfaction and
Commitment Studies and Have a Positive Impact on Results
How much people WANT
Higher and actually DO —
Engagement
improve business results
Business
How much people WANT to
Impact Commitment
improve business results
How much people like it
Satisfaction
Lower here
Employee Research Over Time
35

36. Engagement Framework – Drivers that Impact
Engagement
People Work
Leadership Work Tasks
Manager Sense of Accomplishment
Co-Workers Resources
People Focus Work Processes
Customers
Total Rewards Opportunities
Pay Career Aspiration
Benefits Engagement Career Opportunities
Recognition Learning and Development
Company Practices
People/HR Practices
Managing Performance Quality of Life
Brand Alignment Work/Life Balance
Organization Reputation Corporate Responsibility
Customer Focus
Diversity
36

37. By Increasing Engagement …
Company Desired Business Outcome Relevant Result
Large Increased customer-oriented 5% engagement improvement =
Transportation behavior/reduced freight 14% customer satisfaction
Company damage improvement
Global Financial Improved productivity and 7% engagement improvement =
Services Company stronger attraction and 2% reduction in absenteeism;
retention 4% reduction in turnover;
3% increase in customer satisfaction
Global Package Improved service and quality 13% engagement improvement =
Delivery Company record growth, profit and on-time
performance
37

38. Best Employers in China 2009 Study Methodology
2
Analysis and
Employee Judging
CEO Engagement Process
Perspective (Employee (Independent judges,
(CEO Questionnaire) Opinion Survey ‘Blind data’, assessing
[EOS]) Engagement
Alignment)
1
3
People
Practices Hewitt Best
(People Practices Employers
Inventory™ [PPI])
Announced
(Further analysis into
what makes the Hewitt
Best Employers best)
38

39. Engagement Drivers by Market
The factors that drive engagement around the region appear similar, yet vary in
their expression and in their magnitude.
Driver 1 Driver 2 Driver 3
Performance
China Career Opportunities Pay
Assessment
HK Career Opportunities Work Processes Work Activities
Singapore Career Opportunities Career Aspirations Work Activities
India Career Opportunities Recognition Benefits
Korea Performance Assessment Career Opportunities Policies & Practices
Japan Performance Assessment Career Aspirations Policies & Practices
Performance
ANZ Career Opportunities
Assessment
Career Aspirations
Source: Hewitt Best Employers in Asia Study 2007
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40. Hewitt Best Employers in China 2007
Rank Organization Name
1 Spansion (China) Ltd.
2 Four Seasons Hotel Shanghai
3 Shanghai Johnson Limited
4 Three On the Bund
5 Federal Express—DTW Co., Ltd.
6 Intercontinental Pudong Shanghai
7 Nanfang Lee Kum Kee Co., Ltd.
8 Shangri-La’s Kerry Centre Hotel Beijing
9 Renaissance Beijing Hotel
10 Accenture (Shanghai) Co., Ltd.
40

41. Four Complimentary Reports for Every Participant
Employee Positive Perception Report Employee Comments
(EPPR) Verbatim employee comments from the EOS
Engagement score for the organization overall as well as Available three weeks after survey completion (Standard
positive perception responses to the items in the EOS Participation) or five weeks (Non-Standard Participation)
Available three weeks after survey completion (Standard
Participation) or five weeks (Non-Standard Participation)
Benchmark Report Market and Regional Reports
Comparing the information from the EPPR Your local market report and the regional report
to that of The Best and The Rest in your market
Available after the announcement of the Hewitt Best
Available after the announcement of the Hewitt Best Employers in Asia
Employers in China
41

42. Best Employers in China 2009 Study Timeline
Register you participation online Now!
Data Collection Starts (choose any four-week period) September 1, 2008
Data Collection Ends (choose any four-week period) November 21, 2008
Employee Positive Perception Available three weeks after survey completion (Standard)
Reports (EPPR) Available Participation) or five weeks (Non-Standard Participation)
Judging Period (local and regional) January and February 2009
Announcements of Hewitt From March 2009
Best Employers lists
Other Reports Available Available after the announcement of the Hewitt Best
Employers in China
ENROLL ONLINE
www.hewitt.com/bestemployerschina
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