1. Aon Hewitt | March 2012
Reward Planning Workshop
Planning the reward agenda for the year ahead

2. Agenda for today
Introductions and workshop structure
Headline trends update
• 2012 economic environment
• 2012 HR environment
• Effectiveness of and changes to reward programmes
• Top 10 HR priorities for 2012-2014
Break-out sessions
• Fresh thinking and new practices in pay / negotiation strategies
• Line managers and their impact
• Improving the relationship with the CEO and raising HR to board level importance
Plenary feedback
Any other Qs and wrap-up
We hope you enjoy the morning!
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3. The 2012 economic environment
Aon Hewitt’s 2011/12 Salary Increase Survey reported actual median increases of 3.2% and
2012 projections of 3.2%.
Despite recent falls, inflation has been eating into these modest salary increases for some
time:
– A major challenge for many organisations continues to be balancing the management of
employees' pay expectations while preventing fixed costs from spiralling out of control.
Over the course of 2011 GDP increased by only 0.9%, much slower than the 2.1% growth
seen in 2010 (ONS):
– Economic output shrank by 0.2% in the Q4 of 2011, representing a significant decline from the
0.6% growth in the previous quarter.
– Another quarter of negative growth would officially put the UK economy back into recession.
54% of respondents to Aon Hewitt’s 7th European HR Barometer expect a significant impact
on business results from the economic slowdown (23% in 2011):
– 65% believe their organisation has responded to short term market conditions without impacting
on long term business objectives.
– 43% believe more than half of the measures undertaken to cope up with the slowdown have
been successful, 25% believe all have been successful.
Data sources: Aon Hewitt 7th European HR Barometer Trends and Perspectives 2012-2014
Aon Hewitt 2011 / 2012 Salary Increase Survey 2

4. The 2012 HR environment
Ambitious ‘people plans’ remain in place despite economic uncertainty.
The pressure on cost reduction ranked as the factor most influencing HR policies and practices by
38% of respondents (1st or 2nd):
• 87% view the tough economic environment as an opportunity, rather than a threat, to show the added
value and efficiency of HR to support the business
• 81% of HR are happy in their current role and have no wish to change employer
• 33% expect a significant impact on HR programmes (21% in 2011)
The top 3 performing HR activities (on or above target):
• Employee data privacy policy implementation (81%)
• Industrial relations (79%)
• Overall HR strategy (77%)
The bottom 3 performing HR activities (below target):
• Work-life balance programmes (71%)
• Mapping and management of competencies (66%)
• HR metrics (65%)
Data source: Aon Hewitt 7th European HR Barometer Trends and Perspectives 2012-2014 3

5. Effectiveness of reward programmes
• Significant improvement in programmes being considered as ‘fully fit for purpose’ since 2007
• Tactical implementation and effective delivery of plans are the areas of concern.
60%
2007 All Respondents In Need of Revision
2011 All Respondents In Need of Revision 54%
53%
2007 All Respondents Fully Fit for Purpose
51%
2011 All Respondents Fully Fit for Purpose
50%
47%
45%
42%
41%
40%
40%
34%
% of respondents
33%
30% 29%
27% 27%
24% 24% 24% 24% 24%
21%
20%
20% 19%
18% 18% 18%
15%15% 15% 15%
11% 11%
10%
0% 0%
0%
Broad based long-term Succession planning Talent identification Job Evaluation Broad employee bonus Performance Market Pay data Employee
incentives (e.g all management process plans (e.g. profit Management process management Relation/Union
employee share plans) sharing) Environment
Data source: Aon Hewitt Reward Fundamentals study 4

6. Changes to reward programmes
Variable pay: Extension of and introduction of new bonus plans, changing plan measures and increasing
bonus opportunities.
Pay and grading: Changes to the number of grades, the width of pay bands, and greater use of job family
concepts in reward.
Pensions and benefits: Due to a combination of regulatory and demographic changes, increased focus
on cost management and improving the motivational impact of benefits programmes.
Data source: Aon Hewitt Reward Fundamentals study 5

7. The Top 10 HR priorities for 2012-2014
60%
54%
2012 2011
50%
50%
46%
44%
40% 38%
37%
% of respondents
30%
27%
23%
19%
20%
17%
13%
12% 12% 12% 12%
10% 10%
10%
0% 0% 0%
0%
Build a pipeline Improve Improve talent Better Implement an Workforce Improve Prepare the Transform HR Develop one
of leaders for employee retention at measuring and integrated HR planning to assessment of organisation to to overcome its coherent HR
the future engagement every level of rewarding IT system better anticipate what HR does face possible fragmented policy
and satisfaction the organisation employee throughout the business needs and how it adds recession organisation by framework for
performance organisation value to the activity the entire
business organisation
Data source: Aon Hewitt 7th European HR Barometer Trends and Perspectives 2012–2014 6

8. Break-out sessions
Group Subject
A Fresh thinking and new practices in pay / negotiation strategies
B Line Managers and their impact
C Raising HR to board level importance
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9. Break-out Group A
Fresh thinking and new practices in pay / negotiation strategies in
the current ER and engagement climate

10. Business context and emerging reward themes
Organisational change – declining Pay for contribution & market –
Reward themes
Business drivers
markets; strategic shifts; innovation renewed focus
and re-skilling; re-targeted growth
(with a firm lid on Opex) Prioritising – key talent
Quality and customer care – Success-sharing – all employees
understanding the value drivers
Global standards and consistency
Efficiencies – smarter, more flexible
working in the face of continuing price Focus on Total Package
competition
Seizing opportunities – changing
Changed engagement landscape – employee landscape; economy ‘flat on its
multi-generational; declining DB back’: reshape the employment deal?
pension populations; out-dated and
strained ER / IR frameworks; is the Segmentation – specific talent pools /
goodwill starting to fragment? sector skills
Legislative / regulatory changes – Increasing choice – even if a little
big HR implications
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11. Fresh thinking and new practices? Our experience
Keeping a lid on base pay escalation:
• Broadening the focus away from salary and inflation
• Improving the ROI (‘give and take’)
• Closer market alignment (reigning back over market pay, use of job families etc)
Properly differentiated (and more use of) variable pay:
• More for the best, possibly less for on-target performance, higher thresholds
• Measures more closely aligned to ‘where I work’
Optimising benefits programmes for employers as well as employees:
• More flexibility / choice
• Greater harmonisation / addressing protections
• Co-ordinated campaigns to fill the communications and engagement vacuum on pay
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12. Break-out Group B
Line managers and their impact – how do we ensure we are
getting the best out of line manager involvement in reward and
performance

13. Line managers and their impact
Line managers are under pressure
• Expected to interpret key messages to their teams about strategic direction, vision, values and hard targets AND transmit
these to employees so they are clear about what they need to do, motivated and inspired.
• They need to do this in a constantly changing and challenging environment.
• Low or zero pay increases make the pay/performance conversation even harder.
Mergers &
Market uncertainty acquisitions
Making sense
of corporate
messages
Line Manager
Influencing
consequences
Customer Regulatory
confidence changes
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14. Line managers and their impact
Research* drawn from 4,500 managers, including 300 CEOs and 550 HR managers found:
• Over four in ten managers (43%) consider their line managers to be ineffective.
• 39% of managers in low performing business thought their line managers were effective
– 80% in high performing organisations.
• The average expenditure on management training per manager was £1,275 pa for low
performing organisations
– £1,738 pa for high performing organisations.
• Accredited learning and qualifications such as MBA’s were rated as having the best impact on
management performance
– However the majority of organisations relied on short courses and on-the-job
experience as their main training method.
In the UK only 1 in 5 managers has had any form of formal management training.
* Chartered Management Institute / Henley Business School 13

15. Line managers and their impact: our experience of what makes a difference
Organisations who are ‘good’ at this:
1. Invest significant effort in manager specific training
– And make managers invested in the outcome
2. Have a strong company message and clear ‘branding’ of reward
– Not just a one off “initiative” – reward and performance conversations need to be
part of the fabric of the organisation
3. Have strong and highly cooperative HR/Manager relationships
– Access to ongoing support and guidance is critical
4. Provide sufficient resources and tools
– But do not overload with ‘process’
5. Communicate to manager community regularly
– Make managers feel ‘special’
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16. Break-out Group C
How reward can support HR to improve the relationship with the
CEO and raise HR to board level importance

17. Raising HR to board level importance
24% ranked the level of cooperation between the CEO and HR Director ‘very high’ (1st or
2nd), the highest proportion.
The top 4 reported HR needs for 2012 all relate to the relationship between HR and senior
leadership:
• Greater and timely HR involvement in strategic business decisions (46%)
• Increased business related experience (35%)
• Improved execution of activities (35%)
• Attracting new talent within HR (31%)
‘Improving the assessment of what HR does and how it adds value to the business’ is:
• Considered the second most important issue in terms of the HR ‘delivery gap’ (37%)
• A top priority for less than a fifth (13%)
58% disagreed that HR has a limited margin of manoeuvre to influence the business
agenda
• 37% agreed
Data source: Aon Hewitt 7th European HR Barometer Trends and Perspectives 2012–2014 16

18. Raising HR to board level importance: strategic thinking
Commercial Focus Strategic Alignment
Does the HR function truly
understand business plan To what extent is the
changes and how they are Reward agenda aligned to
perceived across the your business strategy?
organisation?
Service Excellence The CEO ‘Radar’
Is the HR function sufficiently How successfully does the
skilled to understand and HR function act as an early
provide the right balance warning system, proactively
between process-driven and managing regulatory risk?
proactive activities?
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19. Raising HR to board level importance: influencing corporate culture
Trust Capability to implement
What is the perception of HR
within your organisation? Are How successfully does
you considered “process your business manage
police”? reward and performance?
HR Support Workforce trends
How successfully does
To what extent do your your Reward agenda reflect
current HR policies, processes changes in business,
and practices support your demographics and
Reward agenda? workforce trends?
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20. Raising HR to board level importance
Strategic thinking
• The Reward agenda should be aligned to the organisation’s business strategy.
• HR should be on top of any changes to business plans and how they are being accepted
across the organisation.
• HR needs to move away from purely ‘process driven’ HR (eg) MI reporting must be proactive,
robust and relevant. Skilled specialist (C&B) teams are essential.
• HR departments that stay abreast of an ever-changing regulatory environment (employment
practices), can be the CEO’s early warning system. Proactively managing regulatory risk means
the potential for harm to the company, and therefore the CEO, can be minimised.
Influencing corporate culture
• HR’s ability to instill trust at all levels is key. The influence begins to decline when HR become
“process police”.
• The effective management of reward and performance should be sound.
• HR policies, processes and practices should be set up to support the reward agenda.
• Succession planning is key to ensure an effective system to pinpoint high-potential talent and
probable successors.
‘Why HR and the CEO Should Be Joined at the Hip’ – John Bell 06/09/2012 (http://www.weknownext.com/blog/why-hr-and-the-ceo-should-be-joined-at-the-
hip?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+weknownext+%28Next%29)
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HR Advocate 16/09/2011 (http://hradvocate.biz/2011/09/16/no-surprises/)

21. More information
Aon Hewitt makes a significant ongoing investment in reward, performance, talent and employee engagement research.
We regularly publish research reports, white papers and articles that we make available to our clients.
Our compensation database covers 180 countries, over 680 globally consistent positions and over 6 million incumbents.
That’s more than any other compensation data provider worldwide.
Mike Curtis Related research:
Principal Consultant | Performance, Reward & Talent Sales Incentive Survey
+44 (0)207 086 9037
Total Compensation Measurement™
Salary Increase Survey
Jackie Waller
Principal Consultant | Performance, Reward & Talent Reward Fundamentals
+44 (0)172 788 8394 Aon Hewitt worldwide
Steve Munday
Join us on:
Senior Consultant | Performance, Reward & Talent
+ 44 (0) 207 086 9213
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