H E A L T H W E A L T H C A R E E R

M E R C E R | C O M P T R Y X

U N D E R S T A N D I N G P E O P L EC O S T S : Y O U R K E Y T OU N L O C K I N G T H E W O R K F O R C EA N A L Y T I C S C O N V E R S A T I O N

Patrick GutmannFrankfurt

SEPTEMBER 2016

© MERCER 2016 1

W E L C O M ET O D AY ’ S P R E S E N T E R

Patrick Gutmann

Sector Leader Europepatrick.gutmann@mercer.com

QuestionsTo submit a question, use the floating panel on thetop of your screen and click the Q&A button:

CLICK HERE TO ASK AQUESTION TO “ALLPANELISTS.”

© MERCER 2016 2© MERCER 2016 2

M E R C E R | C O M P T R Y XA G L O B A L P R O D U C T I N 3 P A R T S :

GlobalSalarySurvey

LaborCost

Modelling

The size and shape of your workforce can costmore than your competition

WorkforceMetrics

Global pay data with a database of more than3.4 million records

Model the cost of departments between differentlocations

© MERCER 2016 3

U N D E R S T A N D I N G P E O P L E C O S T S

C A S ES T U D Y

W H YP E O P L EC O S T S

M A T T E R

W R A P U P

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FACTH R i s r e s p o n s i b l e f o r e m p l o y e e s b u t r a r e l ym e a s u r e s p e o p l e c o s t s , t h e l a r g e s t e x p e n s ei t e m i n m o s t f i r m s .

P e o p l e c o s t s a r e i n f l u e n c e d b a s e d o n h o w E E s a r e :

A L L O C A T E DB YF U N C T I O N

D I S T R I B U T E DB Y L E V E L

D E P L O Y E D B YL O C AT I O N

I n d u s t r y b e n c h m a r k i n g w i t h W o r k f o r c e A n a l y t i c sc a n h e l p H R p r o v i d e e x e c u t i v e m a n a g e m e n t w i t hc r i t i c a l i n f o r m a t i o n .

© MERCER 2016

S o h o w t o g e t t h e r e ?

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M E R C E R | C O M P T R Y XW O R K F O R C E M E T R I C S

IF WORKFORCE METRICS CAN HELP IDENTIFY JUST $12MIN SAVINGS, SHARE PRICE COULD RISE 5%

Company A Improvement to Net Income:$12M

Revenue 1,800,000,000 Revenue 1,800,000,000

Net Income 250,000,000 Adj. Net Income 262,000,000

Shares Outstanding 300,000,000 Shares Outstanding 300,000,000

EPS $0.83 EPS $0.87

Multiple* 26.6 Multiple 26.6

Current Share Price $22.17 Current Share Price $23.23*Multiple: factor used by investors to express how companies are valued

© MERCER 2016 6

Q U E S T I O N : C O N S I D E R T W O C O M P A N I E S …

• SAME BUSINESS, SAME HEADCOUNT, SAME REVENUES– BOTH USE SAME SALARY SURVEY W HICH SAYS BOTH

PAY ON MARKET– PEOPLE ARE THEIR SINGLE BIGGEST EXPENSE

DO THEY HAVE SIMILAR PEOPLE COSTS?

COMPANY A COMPANY B

– Majority of EEs in Silicon Valley

– Large Salesforce

– Small but well-experienced R&Dstaff

– Big executive team, low SOC*

– Majority of EEs in India

– Relatively small Sales team

– Use lots of less experiencedEngineers

– Small executive team, high SOC*

*SOC: Span of control

© MERCER 2016 7

C A S E S T U D Y

N O T E :• M A R K E T D A T A I S A L W A Y S S H O W N I N D A R K B L U E• M A R K E T I S N ’ T “ R I G H T ”

SOFTWARE COMPANY $2B REVENUE

5,000 EMPLOYEES PARTICIPATE INMERCER | COMPTRYX

© MERCER 2016 8

C A S E S T U D Y : B A S E P AY A N A L Y S I S

ANALYSIS CONFIRMS:COMPANY A PAYS ON MARKET FOR BASE AND TOTALTARGET CASH

0

40000

80000

120000

160000

Job 1 Job 2 Job 3 Job 4 Job 5 Job 6 Job 7 Job 8 Job 9 Job 10 Job 11 Job 12 Job 13 Job 14 Job 15 Job 16

Company A Market

© MERCER 2016 9

C A S E S T U D Y : P AY A N A L Y S I S

TRADITIONAL SURVEY ANALYSIS RESULTS INA MERIT BUDGET DECISION REPRESENTING

$19M IN COST

CO A.TARGET CASH

PAYROLLMERIT BUDGET PAYROLL RISE

$625,000,000 3% $18,750,000

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Revenue per FTE(in USD)

C A S E S T U D Y : F I N A N C I A L A N A L Y S I S

WHAT YOU PAY AND HOW MANY EEs YOU HAVE = PAYROLL COST4% DIFFERENCE REPRESENTS $25M HIGHER PAYROLL COST

125,000

110,000

0

20000

40000

60000

80000

100000

120000

140000

Company A Market

EE Weighted Average(in USD)

400,000425,000

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

Company A Market

31.3%

27.5%

0%

5%

10%

15%

20%

25%

30%

35%

Company A Market

Payroll as a % of Revenue

4%

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C A S E S T U D Y : L E V E L A N A L Y S I S

LOWER SPAN OF CONTROL REPRESENTS $20M INHIGHER PAYROLL COSTS!

Level Analysis: % of Headcount Span of Control

5.0%

74.4%

18.0%

2.6%4.7%

79.2%

14.6%

1.5%0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Support Professionals Management Executives

Company A

Market

3.9

5

0

1

2

3

4

5

6Company A

Market

$625M $605M Δ $20M

BUT, SPAN OF CONTROL CAN VARY BY FUNCTION!

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C A S E S T U D Y : S O C B Y F U N C T I O N

Level Analysis: Management Span by Function

2.3

3.84.1

7.9

10.7

8.2

3.53.2

4.13.5

8.5

10.9

6.9

7.8

2.4

3.7

0

2

4

6

8

10

12

Finance HR IT Ops Services R&D Mkt Sales

Company A

Market

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C A S E S T U D Y : L E V E L A N A L Y S I S -P R O F E S S I O N A L S

BUT REMEMBER, THE MARKET ISN’T RIGHT!

Level Analysis: % of Headcount

4.0%

12.0%

35.0%

32.0%

15.0%

2.0%

5.4%

18.2%

29.8% 30.5%

13.0%

3.0%

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

P1 P2 P3 P4 P5 P6

Company A

Market

2,4M 16,4M -18,3M -6,5M -11,9M 7,1MΔ $10,5M=

© MERCER 2016 14

C A S E S T U D Y : F U N C T I O N A N A L Y S I S - H E A D C O U N T

Level Analysis: % of Headcount

6.0%

2.0%

8.0%

2.0%

15.0%

38.0%

7.0%

22.0%

4.2%1.4%

5.6%4.0%

21.6%

42.0%

5.5%

15.7%

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

Finance HR IT Ops Servcies R&D Mkt Sales

Company AMarket

Level Analysis: % of Payroll

4.0%1.0%

5.0%1.0%

8.0%

48.0%

8.0%

25.0%

3.0% 1.3%5.0% 4.0%

17.0%

38.0%

7.0%

24.7%

0

0.1

0.2

0.3

0.4

0.5

0.6

Finance HR IT Ops Servcies R&D Mkt Sales

Company AMarket

© MERCER 2016 15

C A S E S T U D Y : L O C A T I O N A N A L Y S I S - H E A D C O U N T

1.1% 0.5%

67.7%

5.4%

0.7%

6.8%

13.7%

3.0%2.9%0.5%

60.0%

3.7% 3.5%5.5%

19.9%

2.4%

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Canada Mexico United States China India S&E Asia Europe Africa

Company A

Market

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C A S E S T U D Y R E S U L T S

H R i d e n t i f i e sa b u s i n e s s

p r o b l em f o re x e c s

H R t a k e so w n e r s h i p o f

w o r k f o r c eo p t i m i z a t i o n

H R c o n t r ib u t e sb u s i n e s ss o l u t i o n s

© MERCER 2016 17

M E R C E R | C O M P T R Y XW O R K F O R C E M E T R I C S

Payroll as a % of Revenue (Last FY):by Sector and

by Company Size

26.0%

37.8%

24.4%

37.1%

27.1%

35.8%

41.7%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Systems

Software

Semiconductor

Professional Services

Large Companies (>50k ee's)

Medium Companies (5k-50k ee's)

Small companies (<5k ee's)

© MERCER 2016 18

M E R C E R | C O M P T R Y XW O R K F O R C E M E T R I C S

F U L L AN A LY T I C A L C APAB I L I T YY O U V S . YO U R M A R K E T

LOCATIONLEVEL FUNCTION DEMOGRAPHICSFINANCIAL

P R O F I L E Y O U R O R G AN I Z AT I O NAG AI N S T T H E C O M P E T I T I O N

© MERCER 2016 19

Q U E S T I O N S ?

Patrick GutmannSector LeaderEurope

QUESTIONSPlease type your questions in the Q&A section of thetoolbar and we will do our best to answer as manyquestions as we have time for.

To submit a question while in full screen mode, use theQ&A button, on the floating panel, on the top of yourscreen.

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