Rewarding loyalty

Written by: Jason Hovet, Petr Vykoukal
Photo by: Vojtěch Vlk

While salary growth remains steady, both employers and employees are finding better value in benefit packages. “Carpe diem” doesn’t apply here, as the most common benefits are now more forward-looking.

GONE ARE THE DAYS of switching jobs for a raise, as many candidates currently on the job market have been forced to take a pay cut, and are also left with a weakened CV. “People have definitely learned the hard way,” says Robert Poulson, country manager for recruiter Job Shop. “You’ll see a lot more loyalty now,” he adds. Bidding on job candidates is not really practiced anymore, and, according to Petr Žídek, senior consultant at Synergie Recruitment, managers with a few years experience that want to find the same position in a different company can now expect a lower starting salary – although an exception often occurs when a person is headhunted. For most employees, the best way now to advance their financial situation is staying and developing within the same company.
According to PricewaterhouseCoopers’ annual Pay Well salary survey, salaries continue to rise steadily, although the growth has dropped slightly. In the survey years (measured from July to June) between 2002-04, the real increase of wages was 6.9%, 6.3% and 5.6%, respectively. For the last survey period (ending June 2004), the largest raises went to employees in construction and banking, says Dana Formánková, a manager in PwC’s human resources services, which prepares the survey. While banks have traditionally paid well – Komerční banka and ČSOB, with average salaries of CZK 33,800 and CZK 31,500, were among the top six best-paying employers in a general survey (conducted in October 2004) by Mladá fronta Dnes – construction companies are increasingly upping their compensation levels, backed by a continued boom in building. Larger increases should continue, if major constructions companies like Skanska and Metrostav are any indicator. Also in MfD’s survey, these two firms report planned pay raises between 6-7% in 2005. On average, companies taking part in the PwC’s survey – 112 mostly large, international companies across most sectors of the economy – plan to increase salaries by 5.2% this year, about twice as much as the current inflation rate.
To be sure, salary differences remain, perhaps most notably between Czech and international companies. “You still see a big difference in pay in multinationals,” says Scott Marlowe, country manager for Hay Group, a consultancy that conducts another large salary survey. According to Hay Group’s findings, multinational companies pay between 35%-58% more than Czech firms at the middle and top management level. At about the same level are regional differences between salaries in Prague and the rest of the country. According to Ladislav Janoušek, Global Information Service Leader at Mercer HR Consulting, “the highest difference is in salaries of financial managers, which can reach 60%, average for all positions is about 30%. The lowest differences are for sales representatives and in quality control.”
There also are contrasts among sectors. Besides banks and telecoms – Oskar, with an average salary of nearly CZK 50,000, topped MfD’s best-paying employer list – the pharmaceutical sector is one area with salaries usually a fifth higher than average, according to various surveys. The discrepancies between sectors is shrinking, though. “The biggest trend is consolidation of salaries,” says Marlowe. “Five years ago, there were enormous differences between sectors. The difference is much smaller now,” he adds. Typically, manufacturing is an area that pays less – 10% less, according to PwC. This could change as investment in the sector has put a strain on the labor market (see sidebar, p. 18). “There’s a growing need for people with specialized skills in manufacturing,” says Poulson of Job Shop. According to Žídek, filling positions like plant manager or specialized engineers can be a tough job in itself.

Dana Formánková

Equal pay
Looking closer at employers, Žídek notes that the salary for a given position across a sector is more or less the same, with only slight variances. Likewise, consultants claim that companies are working more at pay equality between different departments. “There’s a drive towards internal equity,” says Marlowe from the Hay Group. At Glaxo-Smith-Kline, HR director Jana Byczkowská confirms this. Although market level and employee performance get precedence, she points out that, “we now look at internal equity when doing salary reviews.” Many companies now employ compensation and benefit managers, whose job is to monitor pay issues, including a nominal salary scale. Companies will have their work cut out for them, however, as PwC finds the gap between departments is actually growing. “Significant differences can be found among managers and directors. Eight years ago, the difference among the average monthly salaries of department managers was CZK 20,000 maximum, now it is about CZK 50,000,” says Martina Štěpinová, one of the authors of PwC’s Pay Well study. In 1996, the losers were HR directors, while the winners were sales directors. The latter have stayed at the top, earning 10% more than a financial director; technical directors now have the lowest salaries among management. Other supporting managers – like HR and marketing – are also slightly below sales and finance managers.
Compensation above and beyond salary, however, is starting to take a more leading role in recruitment and retention. “Benefits are becoming a big issue. Employees are not looking for [average benefits],” says Lucie Bayer, director of the recruitment firm May Consulting. Poulson, from Job Shop, agrees. “Many benefits have been taken for granted,” he says. “Some are seen as givens.” These include meal allowances and working tools like a car, notebook, or telephone, and even an extra week holiday – although interestingly, in PwC’s HR survey from 2004, 90% of respondents said their managers weren’t able to fully use this perk as a result of being too busy. “At a management level, a telephone isn’t even a benefit anymore,” says PwC’s Formánková, underlining the “routine” aspect of this one-time extra. Understandably, benefits which bring a tax advantage are also common now, and a number of employers have introduced financial (pension and life insurance) and healthcare benefits in recent years.
” Financial and healthcare are long-term benefits, which ensure a certain level of security and are future-oriented,” says Štepánka Doležalová, HR director at Linklaters, a law firm that has introduced benefits in these areas over the past few years. At Česká pojišťovna, as well, the emphasis is being put on this. “We are moving from smaller perks to investment benefits,” says spokesman Václav Bálek, adding that the move is better in the long run. This is basically repeating what employees and job-seekers are saying. “What we hear [from job candidates] now is much more about job security, employers’ market position and future plans,” Bayer says. This also follows a trend of employers using benefits more wisely. “Companies before were doing benefits in a piecemeal fashion,” says Marlowe, usually introducing something only for tax reasons. “A lot of companies were offering a lot of small benefits but found it was adding costs. They are looking at it more strategically now,” he adds.

Petr Žídek

Freedom of choice
Another development is the now common practice of companies tracking the use of benefits. At Johnson & Johnson they’ve found 70% of employees take full-advantage of the benefits offered. They’ve even enacted changes based on such findings. “We used to pay the full amount for language lessons, but we found that not all employees were really going,” says HR director Eva Snopková, adding they adjusted by turning to co-payments. At ČSOB, the benefits program was reassessed a few years ago. According to HR director Přemysl Štenc, the survey found different results according to age and location. These included the (arguably obvious) trend for younger employees to be more interested in sports and educational benefits (language and computer courses), while older employees were concerned primarily with cultural and health benefits. Interestingly, however, was that pension schemes received more interest from younger employees. While it’s difficult to please all employees, ČSOB – like a number of other companies – started using a cafeteria-style program of benefits in 2003. The system, which is gaining popularity (see sidebar, p. 22), basically gives employees a budget and allows them to choose their own benefits.
Cafeteria-style benefits are also a better way to track employee benefit preferences, helping keep employees in one place. “This is a more sophisticated aspect of retaining people,” says Irena Brichta, general director at consultancy Hudson. While employees generally choose their benefits online, the system is getting easier – and more mobile. A new addition is giving employees a payment card to fund their benefits. “I see a big future for the wide-use of these cards,” says Václav Kouřim, HR director at pharmaceutical AstraZeneca, which has used the system for two years. “You can have your budget with you and pay wherever there is a terminal.”
Employers are also getting more sophisticated in terms of paying out bonuses. Martina Mastná, a consultant from Hill International recruitment agency, confirms that the “year-to-year increase in salary is becoming lower, while companies tend to motivate employees by improved bonus systems.” The typical 13th salary is becoming a thing of the past, with PwC reporting its use in only 40% of companies. “It’s being redesigned to link it to performance,” Formánková says. Most companies are now working with performance-based awards – nearly nine out of 10, according to PwC. But saying is a lot different than doing, and a lot of companies have needed to improve their system (see sidebar below). “It has been mismanaged,” says Marlowe at Hay Group. “Bonus percentages are a smaller part of salaries, but that money is tied much more to performance now.”

Base salary for selected positions

Job description	Base gross monthly salary in CZK
	lower quartile***	median***	upper quartile***
Head of Sales and Marketing	128 000	158 000	220 000
Marketing Manager *	79 000	93 000	118 000
Sales Manager *	70 000	84 000	96 000
Finance Manager *	47 000	77 000	103 000
Key Account Manager	58 000	67 600	80 000
HR Manager *	41 000	61 000	92 000
Production Manager *	33 000	46 000	62 000
Brand Manager	34 600	39 800	50 300
Senior Accountant	28 400	37 000	46 200
Analyst Programmer	25 300	34 000	43 200
Production Line Supervisor	25 000	30 000	34 700
Market Analyst	24 000	29 000	32 500
Network Administrator	21 200	26 400	30 000
Personal Administration Officer	21 400	24 800	29 700
Warehouse Supervisor	21 700	24 200	30 300
Accountant	19 700	23 800	29 000
Process Engineer	20 700	23 800	26 100
Sales Representative **	14 100	20 800	23 900
Secretary	15 800	19 000	21 500

* these positions report to the head of the respective department
** another cca 30% of salary is in the form of variable pay or sales incentives; variable part for other positions is significantly lower
*** quartiles are dividing the observations into four equally sized files, e.g. within the lower quartile lies the lowest 25%, above it is the rest; with the median dividing the file into two equal parts

Source: Total Remuneration Survey (TRS) 2004, Mercer Human Resource Consulting, a.s.

Production under pressure

Lucie Bayer

The number of new investments setting up in recent years have helped the job market – even causing labor shortages in some areas – but typically haven’t had much effect on salaries. It’s no surprise, as lower wages is one of the investment incentives the Czech Republic offers.

Manufacturers continue to begin operations in the country, obviously, outside of Prague where salaries are generally lower – with the exception of central Bohemia. The expansion has caused some holes in the job market. “The market has undergone a lot of change and has put pressure on the labor supply,” says Robert Poulson, head of Job Shop, a recruitment agency, mentioning positions like quality or production managers. This has caused recruiters to expand their networks. “On the agency side we had very few recruiters in the regions a couple of years ago, and most of the suppliers had hardly any specialization,” says Lucie Bayer, director of May Consulting. “Now we have a network based all over the republic.”
Of course, the difficulty of filling positions is quite natural. “If you look at any new company arriving in the past 12 months, you’ll see that there will always be problems to fill some positions,” says Irena Brichta, director at the consultancy Hudson. She uses the example of companies working to fill supply-chain management positions a few years ago, which was relatively new then. “There’s a limited universe [for these positions],” she says. Brichta explains that it’s also a question of whether candidates are motivated to change jobs. In the field of manufacturing, this could even mean moving house. “Some manufacturing companies are providing housing allowances and are very successful with this,” Bayer says.
Another area of new investments, outsourcing centers, is also causing problems for recruiters to fill positions in, for example, finance and accounting, according to Petr Žídek, senior consultant at Synergie Recruitment. Job Shop’s Poulson agrees. “Such positions require specific skills, and in combination with languages, they are even more difficult to hire for,” he says.

Jason Hovet, Petr Vykoukal

IT fuels the market

Natálie Záhorská

The number of new IT projects – DHL chief among them – in Prague, as well as Brno, has caused a labor shortage in the sector, creating a candidates’ market.

“Companies have to react much more quickly [in attracting workers] than in the last few years,” claims Nátalie Záhorská, division manager for IT & Telco at Grafton. Part of the reason is DHL’s new European IT service center, which started in Prague last September. Once the project is finished, 1,000 IT positions will be filled. The project is putting a big strain on the job market, and consultants note that companies are losing employees to DHL. Hays, a recruiter working with DHL, has even had to create a special department for the center. “We don’t have enough applicants,” says Zuzana Bobková, an IT consultant with Hays.
However, top specialists are doing better today even while companies try to act more sensibly with salaries – trying not to repeat the salary madness that the first IT boom brought around the turn of the millennium. IT salaries remain high with project managers or IT managers, for example, earning between CZK 60,000 and CZK 100,000 or more. A new trend, though, is more specialists turning to consulting and offering their services to the highest bidder, according to Richard Walker, senior consultant in charge of the IT division at Synergie Recruitment. Furthermore, the market is seeing some specialists head to western countries following EU expansion. These developments promise a better negotiating position for IT experts. “This year we’ll probably see strong upward pressure on salaries,” Walker predicts.
More IT candidates are also looking at benefit packages. “Employers have to attract new employees not only by a comparable or higher salary,” Grafton’s Záhorská advises, “but also by offering attractive jobs. For example, being able to work on interesting projects where they could grow technically.” More training is one benefit – and sometimes necessary, since (besides being in short supply) not all candidates have the requisite skills. Záhorská points out that more companies are now willing to train new and existing employees. All of this is good news for graduates. “Companies are still interested in hiring fresh grads with some IT experience and are prepared to train them,” Záhorská says, adding that these “newly released” students are cheaper for firms, as well.

Jason Hovet

Managers’ salaries – a public matter?

Last year a new law on capital market trading ended the age-old debate on whether or not top managers’ salaries should be published.

Thanks to the law, starting this year the income of heads of firms whose shares are traded on the stock exchange are public information. The annual reports of these companies must show in detail the income of each manager and supervisory board members. This new legal requirement won’t cause much enthusiasm among them. “I’m in favor of shareholders knowing the total income of management members,” says Martin Roman, chairman of the board and general director of ČEZ. “But I don’t know if it’s important to know the amounts for individuals. This has no significance for shareholders.” Nevertheless, as Miroslav Ševčík, the director of the Liberal Institute and chairman of the board of Toma (whose shares are traded on the stock exchange), points out, the income of statutory bodies of publicly-traded firms are already public information. “These sums are approved at general meetings, they’re in the minutes and on file at the Center for Securities and at the Commercial Register,” Ševčík says.
The main argument against detailed publication of managers’ salaries is concern about envy. In the past, publication of only estimates of some managers’ salaries caused problems, not directly for them but for their families and children in school. According to Roman, a similar encroachment on privacy could lead to a “division” of managers from society. “In the west, managers often have nearly no contact with society. But so far Czech managers don’t live in gated communities, their children don’t go to private schools. But I’m afraid that it will change precisely because of this measure,” Roman notes.

Pick your own benefits

Václav Kouřim

As companies start working to improve their use of benefits while keeping satisfaction levels high, cafeteria-style programs are becoming increasingly prevalent.

“Cafeteria-style benefit programs have become very popular with employees in the last few years,” says Scott Marlowe, who has worked on remuneration issues in the Czech Republic for seven years and was recently named country manager at the consultancy Hay Group. Also Ladislav Janoušek, Global Information Service Leader at Mercer HR Consulting confirms that: “In 2003 only 8% of companies in our survey were using cafeteria-style benefits, a year later this number grew to 30%.” This program, similar to flexible benefits, basically gives employees the opportunity to pick their own benefits.
Among pharmaceutical companies this has become quite common. “We are already using the cafeteria system for the second year,” says Václav Kouřim, HR director at AstraZeneca. Employees are given a list of benefits they can select from, such as supplementary pension insurance, or education. In the system, everyone is given a fixed annual budget and can allocate their benefits online, where conditions are also listed, for example, the law requiring a minimum 1% employee contribution to pension insurance. “The system is perfect because workers can select benefits according to their needs,” Kouřim adds.
Employees at Glaxo-Smith-Kline also seem to appreciate the program more, according to HR director, Jana Byczkowská. “This system is more effective,” she says. From an employers’ side, the system is valuable not only in cost savings but also for tracking purposes, which both pharma companies mention. “You then know which benefits are important to people and which are not,” says Byczkowská.
For all its advantages, “cafeteria style” isn’t an option used by everyone yet. “The majority of companies are still not using it,” Marlowe, from Hay Group, says. According to Irena Brichta, director of the consulting firm Hudson, “Not every company has either the time or strategic priority to focus on this.” Many companies spoken to by The Prague Tribune, however, have it on their agenda. “We are considering it,” admits Ernst & Young HR director Monika Vegh, adding that future benefits should “fit individual employee needs.”

Jason Hovet, Petr Vykoukal

Earning one’s rewards

Scott Marlowe

At management levels, nearly nine out of 10 companies pay performance-based awards, according to PricewaterhouseCooper’s (PwC) Pay Well 2004 survey.

Performance bonuses are also increasingly affecting companies’ support and administrative staffs, whereas it used to be mainly a tool for management and sales teams – 73% of companies now use these awards for support staff (up from 66% the year before) and 65% use them with administration staff (61% in 2003). However, employees might see the way performance awards are used change in coming years as companies try to make the system more effective.
Scott Marlowe, the new country manager for Hay Group, a consultancy, explains how his team recently helped a client move from a system that rewarded employees based on both individual and company performance. “This was considered de-motivating as people often felt company performance was something they couldn’t influence,” recounts Marlowe. He added that employees feared some managers were “tougher” than others at yearly reviews. “They moved to a system that spent more effort setting targets each year,” Marlowe says, placing targets in three areas: financial, strategic and personal development. The first is usually set by the company, but the others come out of brainstorming sessions. “What makes this good is the emphasis it puts on setting clear targets at the beginning of the year,” Marlowe believes.
It sounds simple, but it is most often those targets that prove the hardest to measure. In Hay Group’s example, the target areas looked at short- and long-term success. As is common in many international companies, financial targets were handed down by the parent company. Personal development goals, though, are one-on-one and concentrate on improving an employee’s strengths and weaknesses. With strategic targets, the company focused on how it needed to change in the coming years – to improve contact with partners and customers, in this case – and what initiatives an individual department could contribute. The good thing here, notes Marlowe, is that management works as a team, which not only safeguards company strategy but assures employees that targets and pay-outs among departments are balanced.
In any performance pay system, transparency is key and employee feedback should be done regularly throughout the year. Marlowe also advises keeping the system simple. “The purpose of the system is to give employees the feeling that they can influence their own pay themselves through their actions, and therefore to encourage certain types of behavior by rewarding it,” he says.

Jason Hovet