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Pay as Global Influence Balance and Impact in
Hungary byAllen D. Engle, Sr.-József Poór
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• This material is exclusively for participants of
  Pay as Global Influence Balance and Impact
• in Hungary, 15 October, 2004
• Prepared by

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IntroductionAgenda

• Introduction
• Pay as Global Influence Balance and Impact in
  Hungary
• New Business Metrics and Pay for Hungary?
• Conclusions

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Introduction
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SpeakerAllen Engle
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SpeakerJózsef Poór

• József Poór, Managing Director in Mercers
  Budapest office as a specialist in international
  business, people management, organizational
  changes and transformation. He has been
  management consultant since 1986. He has advised
  or carried out trainings at different MNCs, local
  companies and public bodies in and outside
  Hungary.
• József Poór is experienced in organizational
  change and effectiveness, people management
  across a broad range of topics
• Reshaping organizational, job and grading
  structures,
• Pay and Compensation
• Strategic review of a management and
  organizational system
• Coaching and Assessing Top Management Team
• Supporting culture change in MA situation
• He has worked in the telecom, manufacturing,
  construction material, FMCG, oil and banking
  industries. He has managed consulting
  engagements in Hungary and most Eastern European
  countries.
• He holds an Bsc in industrial economics and Msc
  in Management from University of Economics, PhD
  from Hungarian Academy of Sciences. He has the
  following business certifications ISO-Lead
  Assessor, Certified Management Consultant,
  Processional Trainer.
• He is a qualified teacher, Professor of
  Management at University Pécs (Hungary) and is a
  regular speaker at national and International
  conferences on a wide range of change and people
  topics.
• He is native Hungarian and fluent in English and
  speaks German, Rumanian, Russian, French as
  well.

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Pay as Global Influence Balance and Impact in
Hungary byAllen D. Engle, Sr.
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Opening questions

• Is it Fair to Pay a Bonus When Share Prices are
  Falling?
• Do Leaders Act Alone to Create Firm Performance?
• Does Your Firm Measure Performance Today or Money
  Flows in the Past?

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Old management or new leadership?

• New Leadership as Complex Influence
• Communication is in Multiple Directions at
  Different Times

• Old Command and Control
• Communication is One Way and Downward

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Old Management or New Leadership (cont.-1)

• Simpler, Sequential Work Relationships
• Clear Work Forms
• Insiders Work for the Firm, All others are
  Outsiders

• Multiple, Complex Work Relationships
• Various Forms Such as Joint Ventures
  (Competitors, Suppliers or Even Customers)
• Outsourcing
• Government Partnerships

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Old Management or New Leadership (cont.-2)

• Simpler Performance Environment
• Local or Regional Economic Interdependency

• More Complex Performance Environment
• Global Economic Interdependency, Tightly Coupled
  Systems

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Old Management or New Leadership (cont.-3)

• Performance Indicators in Good Economic Times
• Attribute Success Too Much to Leaders?

• Performance Indicators in Bad Economic Times
• Attribute Lack of Success Too Much to Leaders?

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Implications of new influence leadership
environment for pay

• In One Word - BALANCE
• Systems Designed for Shared, Group Rewards
• Focus on Intermediate Performance Outcomes as
  Well As the Bottom Line
• Shorter Performance Review Cycle Times
• More Activist Role for Board of Directors

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Implications for pay shared, group rewards

• Set up Group Goals
• Identify Key Performance Requirements
• Operational Level - Customer Service
• Intermediate Level Synergism/Efficiency
• Top Level Direction and Coordination

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Implications for PayShared, Group Rewards

• Evaluate and Measure Performance Processes and
  Outcomes
• Allocate Awards According to Critical Roles of
  All Three Groups in Performance Achievement
• EXAMPLE Customer Service Goal
• Top 25 Mid 25 Op 50

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Implications for Pay Intermediate Performance
Goals

• 1- Plans,
• 2- Processes,
• 3- Firm Capabilities,
• 4- Firm Competitiveness,
• 5- Economic Performance and
• 6- Stock Market Response (Bottom Line)
• Balance Pay to Include the first Five Successes
  even in the Light of Disappointing Bottom Lines

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Implications for Pay Leadership Performance
Review

• Performance Review Every Two to Three Months Time
  By More Activist Board of Directors Subgroup
• Driven by Scandals and Successful Lawsuits
• Legal Revisions Enhance the Fiduciary
  Responsibilities of Board, Pressure from Large
  Institutional Investors on Board

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Issue Financial Measurement or Performance
Measurement?

• Detailed, Widely Understood, Historical
  Information Flows on Past Economic Performance
• Less Complete, Less Understood Information Flows
  on Present or Future Process and Outcome
  Performance
• MIS-HRIS to Measure Value Chain Activities as
  Well as Financial Consequences
• BALANCE Process with Financial Indicators

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New business metrics and pay for
Hungary? byJózsef Poór
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Changes in reward management
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Decreasing percentage differences between salary
increases of managers and subordinates

• Salaries of head of organization or senior
  management
• have increased more significantly, in comparison
  to administrative and blue collar positions
• Nowadays,
• this difference has decreased to 1 or less

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Significant ownership differencesin pay and
compensation

• Foreign companies offer on average
• 60 higher salaries than locally owned companies
  for the same positions.
• The difference indicated is significantly higher
  even twofold or threefold differences are not
  uncommon
• for upper and middle managers and for some
  special positions, than for subordinates

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Employment localization and pay

• It appears that
• the trend of strong involvement of Western expat
  has been stopped.
• Their total package including their cash and
  non-cash based remuneration items cost
• in an amount of between 200000 and 400000 USD
  depending on their tier level and family status
  as well.

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Pay and compensation ranking of different job
families
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Ratio between base and variable salary at
Hungarian private companies
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Typical Pay Mix at top level Hungary vs. Western
Europe and the U.S.

• At CEO level, the Hungarian market indicates that
  pay mix is approaching Western European
  compensation practice, with a gradual increase in
  variable compensation (i.e., bonus and long-term
  incentives) as a percent of total pay

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Pay Practices in HungarySelected Highlights at
top level

• Variable pay as part of a total remuneration
  package is increasing, representing a significant
  portion especially at management levels and above
• At large organisations (i.e., turnover greater
  than 1 billion Euro), top executive total
  remuneration practices are closely aligned with
  Western European and U.S. provisions
• At top executive level, the prevalence of
  long-term incentives is increasing
• In this environment, benefits such as company
  cars have always had an especially high prestige
• With a decrease in inflation rates, benefits are
  becoming increasingly important as a motivational
  tool (e.g., flexible benefits)

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Hungarians in expat positions

• Managers delegated
• to other Eastern-European countries earn 20-30
  more than their local counterparts filling a
  similar position
• to Western countries earn target country based
  salaries or balance sheet payment

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Benefits help effective management of diverse
workforces
By lower inflation rate benefits become an
important motivational tool
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Usage of employee surveys
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Key tools of employee motivation
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Conclusions and QA
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Have we Found the Right Solution?