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Predictive analytics in HR: case studies

Posted by thehrdiary on June 27, 2016 at 10:20 PM Comments comments (2)


Predictive analytics in HR: case studies

Predictive analytics - are the game changer that enables HR to not only assess how employees work, but also to predict and optimize the impact of people policies on both the employees and the business. Here are some real life examples of predictive analytics in HR:


1) Google:

Google estimates the probability of people leaving the company by applying predictive analytics. One of Google’s findings is that new salespeople, who do not get a promotion within four years, are much more likely leave the company.


2) Best Buy:

Best Buy can accurately predict how employee engagement impacts the performance of their stores. A 0.1% increase in employee engagement results in an increase of over $100,000 in the store’s annual income. The enormous impact of engagement prompted Best Buy to make its engagement surveys quarterly instead of annually.

3) Hewlett-Packard:

By using predictive models, HP generated what they called a “Flight Risk” score. This score predicted the likelihood of leaving of each of HP’s 300,000+ employees. Their findings were groundbreaking. Based on the data they could see why employees would leave HP. Higher pay, promotions and better performance ratings where, for instance, negatively related to flight risk. However, there turned out to be intricate relationships between those findings. For instance, when someone received a promotion but did not get a substantial raise, this person would still be much more likely to quit.

Girding Thailand for a greying future

Posted by thehrdiary on June 27, 2016 at 9:50 PM Comments comments (1)

Girding Thailand for a greying future


Under the shade of her tiny wood and corrugated metal hut in central Thailand, Ms Sala Phetnoy, 77, shuffles across the floor warily on her haunches.

Community volunteers drop in once in a while to coax the stroke patient to practise walking while holding onto the grab rails they installed outside her door, but there is a limit to how much they can help home-bound folks like her, under a healthcare system that focuses on patients who can visit hospitals and clinics.

Change could come soon, through a new long-term plan to care for the home-bound or bedridden elderly. The National Health Security Office (NHSO), which administers the country's universal healthcare scheme, has allocated an initial sum of 500 million baht (S$19.4 million) this fiscal year to fund home-based therapy and related care for 100,000 such patients.

Working with local administrative organisations and community healthcare volunteers, the NHSO plans to eventually expand the programme to cover all the estimated one million vulnerable elderly citizens in need of such help.

This is one of the Thai government's latest plans to cater to the greying population. By designing a system of localised care, the government hopes to control the future surge in healthcare expenditure.

Stroke patient Sala Phetnoy (above) gets some essential support in walking again from community healthcare volunteer Suwit Srasrisom in Pathum Thani province.

"When (the elderly) go to the hospital, it will cost more," Ms Orajit Bumrungskulswat, an NHSO senior director, tells The Straits Times. "A better way is for them to stay at home or in the community."

Still, experts say a lot remains to be done in one of Asia's fastest ageing economies. Data from the United Nations shows that the proportion of Thais aged 60 years and above is expected to jump from 15.8 per cent last year to 37.1 per cent in 2050.

Projections by the National Economic and Social Development Board (NESDB), the state planning agency, show that the labour force - which had 39.16 million people last December - will shrink by an average of 0.4 per cent annually from next year to 2021. That in turn could shave 0.15 percentage point off the country's economic growth potential every year.

Meanwhile, rising costs are making manufacturers eye cheaper destinations next door even when local workers are not sufficiently skilled to move on to higher-value industries. This is creating conditions for what economists call a "middle-income trap".


The International Monetary Fund, in a country report released in May last year, warned: "The challenge Thailand is facing is unusually severe.

"The pace of demographic transition is similar to that in Korea and Singapore, but those countries are experiencing it at much higher levels of income. Among emerging economies in the region, only China's transition is almost as rapid, but China is developing considerably faster than Thailand."

It surmised: "Under every conceivable scenario, Thailand will grow old before growing rich."

Unlike Singapore, which raised its reemployment age, encouraged immigration, redesigned jobs and upgraded workers' skills to try and head off the worst of a greying-induced slowdown, Thailand had been too embroiled in political turmoil to address the looming demographic change early. The most recent upheaval took place in 2014, which ushered in a military coup and the current junta rule buttressed by a military-dominated legislature. Policymakers admit they are now playing catch-up.

"This is just the start of the process," says the NESDB's secretary- general, Dr Porametee Vimolsri.

The government, for example, is considering raising the retirement age of its employees from 60 to 65, while encouraging the private sector to hire older workers.

According to a Reuters report, the state's pension bill is expected to rise from 61.37 billion baht last year to 71.23 billion baht in 2020. But academics say the system is riddled with inconsistencies and they have been calling for an overhaul for years.

Ms Aubon Suksa (above) sells packets of tissue under a pedestrian bridge in Bangkok to supplement her government stipend.

Although all elderly citizens not covered by pension plans get a government stipend, many feel the sum is too small. One of these recipients, Ms Aubon Suksa, 80, sells packets of tissue to passers-by from a canvas sheet under a pedestrian bridge in Bangkok's Siam Square shopping district. The elderly woman grimaces when asked if the 800 baht she gets a month is enough to live on.

"I use it only when I go to the hospital," she mutters. "Or I put it aside for my cremation."

Like Ms Aubon, some two-thirds of Thailand's working population make a living in the informal sector. They include farmers, motorcycle taxi drivers and casual labourers, who usually have little by way of savings unlike civil servants and private-sector employees, who are covered by pension plans or retirement savings schemes.

The government is trying to nudge this group to save more. Last August, it revived a long-frozen voluntary scheme called the National Savings Fund, where members' contributions are topped up by the state in varying proportions. Some 400,000 people signed up in the first six months - an encouraging sign that nevertheless indicates how daunting it is to provide financial security for the more than 20 million still outside the system.


A more immediate task is to review the tax system to generate income for elderly support, says Dr Jirawat Panpiemras, a research fellow at the Thailand Development Research Institute.

This would also entail tackling larger, structural issues. A greyer society needs to become more productive to stay ahead, but several conditions work against Thailand.

Agriculture, for example, employs about 40 per cent of the country's workforce, higher than less developed economies like Indonesia and the Philippines. Traditionally, the sector acts as a shock absorber in rough economic times, taking in those who cannot find work elsewhere. But that pool of underemployed labour, combined with previous administrations' generous farm support, has made Thailand's farm productivity lower than that of some of its less developed counterparts.

Meanwhile, the country is producing too many unqualified graduates, many of whom also crowd the social sciences courses to the detriment of science, engineering or other more technical fields that could power future growth. While Thailand has a low unemployment rate - 0.7 per cent in December - about half of those unemployed have a degree, says Dr Porametee. At the launch of a research incubator programme by seafood giant Thai Union Group last month, one of its executives complained that he found it difficult to find scientists to take part.

Then, there is the business of creating an elder-friendly physical environment. Ms Siriwan Aruntippaitune, an expert in the newly created Department of Older Persons, observes that the concept of universal design - which makes spaces accessible to people of all age groups and physical conditions - is still new to Thailand. Her department has worked with some local administrations to introduce elder-friendly facilities, but sometimes ends up with unsatisfactory results like ramps that are too steep to be used.


Yet there are also good models around.

The municipality of Bueng Yitho, which services 33,000 residents in the central province of Pathum Thani, runs a small-scale community health centre and physiotherapy clinic that save patients the more expensive visit to larger hospitals farther away. For elderly patients with mobility problems, the doctor keeps up to date on their condition through regular reports by community healthcare volunteers who make home visits. Treatment is free for those registered under the universal healthcare scheme.

Meanwhile, the municipality has three senior activity centres within the 15.4 sq km under its jurisdiction. Membership is capped at 300 baht a year for the elderly, including use of its swimming pool.

Elderly folk enjoying a pool version of chairball at a seniors activity centre in the Bueng Yitho sub-district of Pathum Thani province in Thailand.  ST PHOTOS: TAN HUI YEE

When The Straits Times visited one of the centres earlier this month, it found it staffed by enthusiastic elderly volunteers like Mr Lak Uttikritachai.

The 68-year-old man used to have to struggle with debt trying to support his family while selling snacks on the streets.

Today, his two daughters are grown up and supplement his 600-baht monthly government stipend with a 4,000-baht allowance.

Mr Lak, who learnt Mandarin when he was young, gives free Mandarin classes to his compatriots at the centre.

"My life is pretty good now," he says. "So I try to help others."

Former Director of Harry's Fined $40,000 for Falsely Declaring Salaries in Work Pass Applications

Posted by thehrdiary on June 27, 2016 at 9:40 PM Comments comments (0)




Former Director of Harry's Fined $40,000 for Falsely Declaring Salaries in Work Pass Applications


20 June 2016

  1. In the State Courts today, the former Vice-President of Human Resources of Harry’s International Pte Ltd, Parmjit Kaur, pleaded guilty to charges1 of consenting to the offence of making false declaration of salary in work pass applications.
  2. The 49-year-old Singaporean was convicted in Court and sentenced to a fine of $40,000.

    About the Case
  3. Investigations revealed that between April and September 2013, Parmjit, in her capacity then as the company’s President and Chief Operating Officer (COO) and subsequently the Vice-President of Human Resources2, instructed her subordinate to declare the fixed monthly salaries of 20 foreign employees as $3,100, to meet the minimum salary requirement needed to obtain Employment Passes (EPs).
  4. However, she knew that the company only intended to pay the foreign employees a monthly salary that was below the minimum salary requirement of the EP. Based on the false information provided to the Controller of Work Passes, the 20 EP applications were approved and the EPs were issued to the foreign employees.
  5. The foreign employees were issued Letters of Offer for the position of Chef de Partie, stating that they would be paid a monthly salary of $3,100. However, they would have to reimburse the company $1,600 for meals and transportation, a day after receiving their salary in their bank accounts. In fact, the meals and transportation were provided only to some employees, and where provided, the actual cost was less than $1,600. The reimbursement practice continued for several months.

    MOM Takes a Serious View of False Salary Declaration Offences
  6. Commenting on the case, Mr Kandhavel Periyasamy, Director of Employment Inspectorate at MOM’s Foreign Manpower Management Division said, “Providing false declaration of S Pass and EP salaries is a serious offence. We will take stern action against persons or companies, including barring them from applying for new work passes and renewing their existing work passes.”
  7. Since 2014, a total of 39 employers have been convicted for false salary declaration offences.

    Employers Must Make Truthful Declarations
  8. All employers must make accurate, complete and truthful declarations to the Controller in their work pass applications.
  9. Making false declarations to the Controller is an offence. Upon conviction, employers can be fined up to $20,000 and/or jailed for up to two years under the Employment of Foreign Manpower Act (EFMA). They will also be barred from employing new foreign workers and renewing their existing foreign workers.
  10. Members of the public who know of persons or employers who contravene the EFMA should report the matter to MOM at Tel: (65) 6438 5122 or email [email protected]. All information will be kept strictly confidential.

How HR can use storytelling to create customer centricity

Posted by thehrdiary on June 27, 2016 at 9:35 PM Comments comments (0)

How HR can use storytelling to create customer centricity

Post its

20th Jun 2016

Everyone in business is talking about customer centricity, but very few are getting it right.

As part of the research for our recent report, Two Years’ Warning: The Customer Centricity Crisis, we spoke to HR professionals in the world’s most successful organisations and found that even these companies are not getting it perfectly right.

Of all the functions, HR is the most worried about how their organisation deals with customers: three quarters (76%) consider their company to be ‘customer complacent’ – compared to 50% overall. Nearly all (86%) believe more needs to be done to put customers at the heart of their organisation.

In fact, it’s business-critical that action is taken now to address this issue, with three-quarters (76%) of business leaders admitting that if they don’t focus on customers, their company won’t survive beyond the next two years.

What do HR professionals need to consider?  

At the moment, two-fifths (44%) of employees feel ‘powerless’ to solve recurring customer concerns because managers are unwilling to make changes.

Fewer than half (43%) are confident they wouldn't be reprimanded if they contradicted policy to make a decision in a customer’s interest. For HR, empowering employees is going to be key, as is hiring, training, retaining and rewarding the employees with the right motives and attitudes.

HR also holds responsibility for helping leaders ensure their teams know the strategic journey their company is on, leading the charge on clarifying focus to fit with the company’s customer needs.

As a job function firmly focused on understanding people, HR instinctively knows the importance of personal relationships, especially between leaders, their teams and their customers. Indeed, those who actively engage in and champion customer centricity, hold the power for creating competitive advantage.

With all this in mind and our focus on storytelling, we’ve developed our top three ways to use stories to help kick-start this change and put the customer first. 

1. Write and communicate the business narrative 

A clear and emotionally compelling business story can help employees visualise the journey the business is on, and the part they can each play in responding to their customers’ needs on that journey.

By positioning employees as the heroes of the narrative – effectively co-authoring the outcome through their actions and behaviours – leaders and their teams can work together with real intent towards a shared, higher purpose.

To do this, the business story must be defined collaboratively, articulated, written down, and shared across the business in a way that’s relevant and meaningful for each function and team. Leaders need to personalise the story and commit to championing and role-modelling the behaviours articulated within it.

This way, the narrative is explicit across the wider organisation, and allows every employee to take ownership of the personal contribution and changes he or she needs to make. 

2. Collect and share employees’ stories to demonstrate new behaviours 

Identifying and harvesting stories of interactions between employees and customers, and linking them directly back to the content of the narrative, can be a powerful tool in embedding customer centricity.

By illustrating the real consequences of their actions and behaviours, employees can visualise and appreciate the impact that the way they do business can have on the lives of their customers. Channelled in the right way, this can be a major driver for change. And with new stories emerging all the time, you can build momentum, maintain focus on the ‘new’ and keep the core messages alive.

Stories can have a profound effect on mindsets and behaviours. They can inject a sense of empathy and spark an emotional connection between employees and their customers, enabling people to see the benefits of positive change. Stories, and the implicit messages within them, can also encourage people to follow the example of others, so encourage valuable knowledge-sharing, new behaviours and the embedding of best practice. 

3. Identify belief-building stories that build momentum

By planning for, creating and celebrating belief-building stories, you can show how genuine change is taking place, and the effect this is having on a wider scale. One of the reasons that change fails is not because people don’t want to change, but they feel the business can’t change.

Belief-building stories act as proof points of change. Positive change brings benefits – not only to the individual, but to the wider organisation. By bringing employees on board, and recognising, celebrating and ritualising their success stories, people will start to believe in change, and that what they do for their customers really matters. 

Customer centricity is the responsibility of every department, and will be achieved not just through behaviours but process and systems too. And HR is ideally placed to be the champions of change. Complacency is the enemy of an aligned and customer-focused culture. HR: it’s time to be the change you want to see in your organisation. 

Contract employees in Asia mostly higher skilled, experienced

Posted by thehrdiary on June 27, 2016 at 9:35 PM Comments comments (0)

Contract employees in Asia mostly higher skilled, experienced

Contracting professionals with specialised skills, higher education and more years of experience are increasingly the norm in Asia's workforce today.


Contracting professionals with specialised skills, higher education and more years of experience are increasingly the norm in Asia's workforce today.PHOTO: ST FILE



SINGAPORE - Contract employees are often associated with lower-skilled and junior workers but in fact a new survey has found that over half of professionals on contract have more than a decade of qualified experience.

The study by human resource firm Page Personnel found that contracting professionals with specialised skills, higher education and more years of experience are increasingly the norm in Asia's workforce today.

Reflecting similar trends in the global landscape, contract employees are also expected to work autonomously and be more flexible while on assignments, the survey found.

The study took in responses from 1,954 managers in companies deploying temporary staff and 4,092 professionals across 65 countries around the globe.

"Due to the changing economic landscape, Asia has seen an increased demand for professional and qualified contractors. Expectations of contract staff have also risen -they're expected to do more in less time, have better educational qualifications and be able to work independently," said Page Personnel Singapore associate director Mellissa Mayne.

The findings come just after the Ministry of Manpower, the labour movement and the Singapore National Employers Federation released a set of guidelines on Monday which clarified the benefits that contract staff are entitled to.

For example, the guidelines encourage employers to treat contracts renewed within a month as continuous, and grant leave benefits based on the cumulative term of contracts, for contracts of 14 days or more.

Traditionally, contracting was limited to professions considered labour-intensive and at the junior level. As a result of increased demands for project management or specialised interim hiring, contracting opportunities for qualified professionals have grown, Page Personnel said.

This has also resulted in 56 per cent of the current contract workforce qualified with 10 years or more experience.

This was seen particularly within financial services, finance and accounting, secretarial and office support as well as information technology.

Communication skills have become a major requirement from contract employees as 90 per cent of those surveyed are expected to engage with other internal business units.

Contract employees are granted more autonomy as 79 per cent of respondents reported having to work without close supervision.

South Korea mulls law to keep office out of the home

Posted by thehrdiary on June 27, 2016 at 9:15 PM Comments comments (0)

South Korea mulls law to keep office out of the home



[SEOUL] Hyper-wired South Korea is considering legislation that would ban bosses from bothering their staff at home, after growing complaints about the country's already onerous work-life imbalance.


A bill prohibiting managers from badgering staff at home was submitted to parliament on Wednesday, sponsored by 12 lawmakers from the main opposition Minjoo party.


"As more firms use social media or mobile messengers to send work orders, regardless of time, the stress inflicted on workers has reached a serious level," they said in a statement.


The bill seeks to ban firms from sending employees work-related messages by telephone, text, social media or via mobile messaging apps after official working hours.



The document specially references KakaoTalk, a chat app used by around 80 percent of the South Korean population.


The MPs' statement noted that too many workers were expected to be constantly on call, even when on holiday or late at night.


"More people are demanding rights to disconnect after work hours," it said, adding that the bill would allow workers a personal life free of workplace intrusion.


Similar legislation prohibiting e-mails after regular work hours has been proposed in countries such as France and Germany.


More than 80 per cent of South Koreans have smartphones - one of the highest penetration rates in the world.


Couple that with the country's notorious workaholic corporate culture, and you have a system ripe for abuse, the MPs say.


In 2014, the average South Korean worker clocked up 2,124 working hours - the second-highest total among OECD member nations after Mexico and far higher than the average of 1,770 hours.


In a recent report titled "Workers Who Are Scared of KakaoTalk," the Korea Labour and Society Institute said employees are forced to work about 11 extra hours a week on average using electronic gadgets.


"We have reached a point where working on weekends or after-hours - without pay - is increasingly becoming a norm," the report said.


"The use of smart devices for work blurs the boundaries between work and family life, which leads to a negative impact on work-family and work-life balance," it added.


South Korea prides itself on keeping pace with cutting edge technology, from ultra-fast broadband speeds to Samsung's high-end smartphones.


But its embrace of all things digital has come at a cost, as phones and tablets have morphed into mobile offices for employees that never close.


Some firms have taken unilateral steps to keep off-hours sacrosanct.


LG Uplus - the country's third-largest wireless operator - has threatened managers who send KakaoTalk messages to subordinates after 8:00 pm with demotion, or even dismissal.


"We wanted to help our staff enjoy their personal life in the evening, which will eventually foster their creativity," company spokesman Baek Yong-Dae said.


A gradual push-back against the gruelling work ethic that was deemed essential to South Korea's economic rise from the devastation of the Korean War has gathered pace in recent years.


Efforts to promote a life free from stress and information overload have included a series of "space-out competitions" where participants are required to "do nothing" for hours by not talking or using any electronic devices.




HR news: France - Weekend Work Emails Are Now Illegal In France

Posted by thehrdiary on May 25, 2016 at 10:45 PM Comments comments (3)

Weekend Work Emails Are Now Illegal In France

“The right to disconnect” has been codified in law.

05/25/2016 05:57 am ET


France has passed a labor law that makes sending after-hours work emails illegal.

Checking your work email on a weekend or a holiday? In France, where employees have been granted “the right to disconnect,” that’s now against the law.


Buried inside a recently enacted — and hotly contested — French labor reform bill is an amendment banning companies of 50 or more employees from sending emails after typical work hours. “The right to disconnect” amendment, as it’s so called, is aimed at minimizing the negative impacts of being excessively plugged in.


“All the studies show there is far more work-related stress today than there used to be, and that the stress is constant,” Benoit Hamon of the French National Assembly told the BBC earlier this month. “Employees physically leave the office, but they do not leave their work. They remain attached by a kind of electronic leash— like a dog. The texts, the messages, the emails — they colonize the life of the individual to the point where he or she eventually breaks down.”


Work-related burnout appears to be a growing concern for the French government. In February, French Health Minister Marisol Touraine formed a working group in an effort to define and treat work-related exhaustion. According to an April article in the French daily Les Échos, about 1 in 10 of the nation’s workforce is at a high risk of job-related burnout.

Under the new law, companies are mandated to negotiate formal policies to limit the spillover of work, specifically as it’s related to “digital technology,” into the private lives of employees. This, according to the BBC, will involve companies establishing “charters of good conduct” specifying hours, typically in the evenings and weekends, when employees aren’t supposed to send or receive email.


“The development of information and communication technologies, if badly managed or regulated, can have an impact on the health of workers,” Article 25 of the bill reads. “Among them, the burden of work and the informational overburden, the blurring of the borders between private life and professional life, are risks associated with the usage of digital technology.”


Some have lauded this clause as a win in the battle against over-connectedness.


“The right to disconnect isn’t necessarily an obligation … but it’s an opportunity — to claim a little breathing room; to realize that the world won’t stop turning, or even producing words or widgets, without one person’s constant vigilance,” wrote The New Yorker’s Lauren Collins this week.


Others, though, have warned that the law doesn’t go far enough.


Jon Whittle, a researcher at Digital Brain Switch, a U.K. project looking at the impacts of digital technology on work-life balance, told The Washington Post that some employees may feel even more overwhelmed at the thought of returning, in the morning or post-vacation, to a deluge of emails.


“I think the topic of work-related well-being is much larger than simply stopping email after-hours,” Whittle said. “Email is just a medium used to communicate. The real problem is the culture of having to constantly do more and constantly do better than competitors.”


Even advocates of the bill, such as Hamon, the national education minister, have admitted that the law has its limits. There is currently no penalty for violating the law and companies are expected to voluntarily adhere to it.


Still, the ban appears to be the one — perhaps only — part of the labor reform bill that’s been largely positively received.


The bill, referred to as the El Khomri labor law after Labor Minister Maryan El Khomri, has been enormously unpopular. Critics of the bill say it will weaken unions, threaten employee rights and enhance job insecurity for young people. In recent months, opponents have staged widespread, at times violent, protests.


Earlier this month, the French government invoked a rarely-used clause in the constitution to impose the controversial bill.


“It is my duty to move forward and make sure this text is adopted,” Prime Minister Manuel Valls told parliament after an emergency cabinet meeting, prompting an onslaught of both boos and cheers.

HR news - Singapore:- Tripartite partners issue new guidelines for retrenching workers, first revision since 2009

Posted by thehrdiary on May 25, 2016 at 12:10 PM Comments comments (2)

HR news - Singapore:- Tripartite partners issue new guidelines for retrenching workers, first revision since 2009

SINGAPORE - Guidelines on how to manage excess manpower and retrench employees have been revised for the first time since 2009, according to a statement from the tripartite partners on Tuesday (May 24).

The new recommendations include shortening the length of service of those eligible for retrenchment from three to two years, as well as who to let go.

Instead of laying off workers on such grounds as age or family responsibility, the partners ask employers to consider whether the workers can contribute to the company's future business needs.

Another major change is how to retrench workers responsibly, including which agencies to inform and when to do so.

Bosses are also urged to inform workers of the layoff as early as possible, explain the reasons for it and outline how it will be carried out.

The tripartite partners are the Ministry of Manpower (MOM), Singapore National Employers Federation (SNEF) and National Trades Union Congress (NTUC). The guidelines, introduced in 2008, were first changed in 2009, amid an economic downturn.

The partners noted on Tueday the current slowing economy and advised employers to retrench only as a last resort and to use the downtime to upgrade workers' skills or redesign jobs.

"As local workforce growth is expected to be only 1 per cent per annum until 2020, we urge employers to take a longer-term view of their manpower needs," said SNEF executive director Koh Juan Kiat.

But if they must retrench, companies are advised to inform MOM and, where relevant, the Tripartite Alliance for Fair and Progressive Employment Practices (Tafep).

They are asked to do so as early as possible so that local employees can be helped to find new jobs or receive relevant training.

Unionised companies are urged to consult their unions early, with the norm being a month before the workers are told.

Labour MP Patrick Tay, who also chairs the Government Parliamentary Committee for Manpower, welcomed the changes but was worried how non-unionised companies would handle a retrenchment.

In a Facebook post on Tuesday, he reminded companies that there are many alternatives to a layoff, such as a shorter work week and adopting a flexible wage system.

If retrenchment is the only recourse, it should be done "fairly, responsibly and sensitively". Notice should not be given during festive seasons like Chinese New Year and Hari Raya, he said.

HR news & trends: Three Compensation Challenges for Natural Resource Companies

Posted by thehrdiary on December 11, 2013 at 2:10 AM Comments comments (0)

​Shareholders’ focus on near-term returns on their investment, executive total pay increases and the link between pay and performance clearly can drive a vote against “say on pay”. Companies in all industries are reviewing performance metrics and the structure of their compensation programs to ensure that they meet shareholder, board and management expectations. This article discusses compensation challenges in a volatile economy through the lens of the natural resource sector.

Natural resource-based businesses, like mining and oil and gas, face challenges in recruiting and retaining the key talent they need to be successful. These challenges are driven by two particular characteristics of these businesses which other companies may also experience. First, share value (and shareholder return) is strongly influenced by macroeconomic factors often outside management’s direct control (in the case of resource companies this is primarily commodity price). Second, these businesses tend to be very capital-intensive and require a long time and substantial investment before they generate returns. These characteristics of resource companies drive three significant compensation challenges: retention, paying for performance and motivating long-term financial and stock price results. These challenges and the solutions to them are also applicable to companies in other long-cycle industries (e.g. chemical companies) where: (i) factors over which management has little control, can have a significant effect on shareholder returns; or (ii) there is a long time line from implementation of strategy to generation of results.

The challenges resource companies face as a result of the inherent volatility of commodity prices and some of their successful strategies can provide guidance for other companies struggling to get compensation right in a volatile economy.


Retention is always an issue in a volatile economy. When the market is strong, competition for talent can become intense which makes retaining high performing employees particularly challenging. On the flip side, when commodity prices are low, many forms of compensation, particularly share-based compensation and even more so, stock options, become less valuable. This reduces the retention power of these programs, making it easier for competitors to lure away a company’s top executive and management talent.

One of the key drivers of this intense competition for talent is that companies want to maximize production and invest capital when the commodity price is high because it has such a favourable impact on project economics and discretionary cash flow. Companies which have no choice but to recruit during a boom will almost always have to overpay the very best external hires. A better strategy may be to hire in a down market and implement effective strategies to retain employees.

In a down market there is time to carefully vet potential employees and often a number of good candidates to choose from. This is the ideal time for companies to upgrade their talent pool by replacing poorly performing employees with higher performers. As well, it is generally less costly to hire employees whose unvested share-based compensation at their current employer has a low value due to the drop in the market. Selective hiring in a down market is the easy part; retaining that talent during a boom requires forethought and the right compensation program designs.

There are three primary strategies that can help retain high potential employees: 1. having an effective succession plan; 2. ensuring that compensation programs include a mix of deferred vesting share based awards; and 3. providing a competitive mix of cash and strong share-based compensation. These latter two strategies also help to align pay and performance, consistent with shareholder expectations.

Succession planning is important for all companies, but particularly for those subject to market volatility. For resource companies, the cyclical nature of the market for talent makes it particularly important. A company may not be able to find a replacement from outside the company in the event of an unexpected departure. A good succession plan will position the company to replace key employees on in interim or permanent basis. As well, it will reduce the leverage employees have to re-negotiate compensation in a strong market. A good succession plan allows the company to replace employees when the need arises using its deep bench strength. It can also create long-term loyalty by providing transparent promotion, development and training opportunities.

Having a significant portion of compensation in the form of share based awards that vest over the long term and with overlapping vesting periods ensures that employees always have to leave significant value on the table to move to a different company. A mix of options—to provide highly leveraged upside, restricted share units—to provide retention when options are underwater, and performance share units—to provide alignment with shareholder returns, can be very effective to hold employees through both up and down market cycles.

Cash compensation also can be used to reward those short term results which position the company for success when the market improves. It can help to retain employees when share based compensation has a decreased value. However, cash incentives should not be used to subsidize compensation, if low share value is due to poor performance, or poor management of external factors.

Pay for Performance at Resource Companies

Compensation programs are most effect effective when they provide line of sight for participants. Commodity prices and other macro economic factors often have a significant and uncontrollable, effect on share price and profitability measures, so it is important to design compensation programs with an understanding of the influence of these factors. However, insulating compensation from the effect of commodity price fluctuations and other macro economic factors can produce realized compensation that is not aligned with shareholder returns, so this becomes a difficult balancing act.

This balance can be achieved by using a combination of absolute and relative performance measures. Absolute measures should reflect key drivers of shareholder value and be aligned with shareholder returns. Relative measures should reward performance which is better than the performance of appropriate peer companies (including major competitors) or an index. However, absolute measures can reward management for a general increase in the market (a rising tide lifts all boats) and relative measures can reward management who perform poorly, but better than a badly performing industry (the best of a bad lot). Companies need to use both types of measures, with sound design principles and safeguards for shareholders, to provide some compensation for outperforming competitors, some for providing consistent and strong shareholder returns and maximum compensation only if both these objectives are accomplished.

Motivating Long Term Results

The long term, capital intensive nature of resource businesses requires a long term commitment and long term decision making by executives. This is a challenge given the short term expectations of many shareholders and the short term compensation expectations of employees. One example of a very long term compensation focus can be seen in Exxon Mobil’s CEO compensation.

Exxon Mobil has a clear long term investment and performance strategy, with incentive programs which are aligned with that strategy. At least ½ of the CEO’s annual compensation is deferred in the form of restricted shares. The restricted shares vest 50% on the later of retirement and the 10th anniversary of the award and 50% on the 5th anniversary of the award. The result is that, on average, 80% of restricted shares are held for some period of time after retirement. A similar approach is used for other Exxon Mobil executives. Exxon Mobil has said that these unprecedented hold periods applied to 50% of annual compensation ensure that executives make financial and operating decisions knowing that their personal financial stake will be affected 10 years later. Exxon Mobil has clearly communicated this strategy to its shareholders, along with the long term focus of its compensation programs. It will be interesting to see if other capital intensive businesses adopt similar programs.


by Christina Medland, Meridian Compensation Partners

Auric's share price has shot up by almost 50%, since the ex-CEO of SMRT came onboard.

Posted by thehrdiary on October 10, 2012 at 1:55 AM Comments comments (0)

Auric's share price has shot up by almost 50%, since the ex-CEO of SMRT came onboard.

Worth a bet. Auric Pacific may see more interesting times following ex-SMRT CEO Saw Phaik Hwa's appointment as new CEO. We wonder if her key mandate is turning around the company for sale by the Riady family which owns 71% of the stock? After all, food is a negligible part of Lippo's vast business interests and Auric Pacific is no longer the family's flagship in Singapore. Despite the recent runup, we think it is still worth a bet at 0.77x NTA. Quietly outperforming. Since our first report in May 2012, Auric's share price has shot up by almost 50%, as the first quarterly results showed positive trends since the ex-CEO of SMRT came onboard. While it may too early to entirely attribute the results to her, 2Q12 net profit was a solid 378% ahead of the same quarter in 2011. Gross margin of 44% was also the highest since 2009, but to be fair, margins were already been improving for the last three quarters.