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 E C O S T S : Y O U R K E Y T O U N L O C K I N G T H E W O R K F O R C E A N A L Y T I C S C O N V E R S A T I O N

Patrick Gutmann Frankfurt

JUNE 2016

© MERCER 2016 1

W E L C O M E T O D A Y ’ S P R E S E N T E R

Patrick Gutmann

Sector Leader Europe patrick.gutmann@mercer.com

Questions To submit a question, use the floating panel on the top of your screen and click the Q&A button:

CLICK HERE TO ASK A QUESTION TO “ALL PANELISTS.”

© MERCER 2016 2

G l o b a l S a l a r y S u r v e y

L a b o r C o s t

M o d e l i n g

D A T A F E A T U R E D T O D A Y H I G H L I G H T S M E R C E R | C O M P T R Y X

O n - d e m a n d a n a l y t i c s a n d i n d u s t r y p e e r b e n c h m a r k i n g f o r 2 0 + c r i t i c a l m e t r i c s i n c l u d i n g p a y r o l l c o s t , p r o d u c t i v i t y , o r g a n i z a t i o n a l l e v e r a g e a n d t u r n o v e r

W o r k f o r c e M e t r i c s

G l o b a l p a y d a t a w i t h a d a t a b a s e o f n e a r l y 3 m i l l i o n r e c o r d s f o r 2 5 0 + j o b s

E n a b l e s i n s t a n t v i r t u a l o r g a n i z a t i o n d e s i g n t o m o d e l p a y r o l l c o s t s i n 8 5 + c o u n t r i e s a r o u n d t h e w o r l d

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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 E S T U D Y

W H Y P E O P L E C O S T S

M A T T E R

W R A P U P

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FACT H 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 y m 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 e i 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 AT E D B Y F U N C T I O N

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

D E P L O Y E D B Y L 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 s c 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 h c 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 X W O R K F O R C E M E T R I C S

IF WORKFORCE METRICS CAN HELP IDENTIFY JUST $12M IN 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 WHICH 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&D staff

– Big executive team, low SOC*

– Majority of EEs in India

– Relatively small Sales team

– Use lots of less experienced Engineers

– 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 IN MERCER | COMPTRYX

© MERCER 2016 8

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

ANALYSIS CONFIRMS: COMPANY A PAYS ON MARKET FOR BASE AND TOTAL TARGET 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 A Y A N A L Y S I S

TRADITIONAL SURVEY ANALYSIS RESULTS IN A MERIT BUDGET DECISION REPRESENTING

$19M IN COST

CO A. TARGET CASH

PAYROLL MERIT BUDGET PAYROLL RISE

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

© MERCER 2016 10

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 COST 4% 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)

400,000 425,000

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 IN HIGHER 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

3.8 4.1

7.9

10.7

8.2

3.5 3.2

4.1 3.5

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

© MERCER 2016 13

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 7,1M Δ $10,5M =

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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

© MERCER 2016 16

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 s a b u s i n e s s p r o b l e m f o r

e x e c s

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

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

H R c o n t r i b u t e s b u s i n e s s s o l u t i o n s

© MERCER 2016 17

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

Financial

Level Location

Function Demographics

Prof i le your organizat ion!

Track pay levels, cost structures, headcounts, turnover, demographics, promotions and top performers across your organisation and compare with the market

© MERCER 2016 19

Q U E S T I O N S ?

Patrick Gutmann Sector Leader Europe

QUESTIONS Please type your questions in the Q&A section of the toolbar and we will do our best to answer as many questions as we have time for. To submit a question while in full screen mode, use the Q&A button, on the floating panel, on the top of your screen.

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© MERCER 2016 20