2014 Benefits and Retention Practices Report 1 st Tier Cities

Transcription

1 Consulting 2014 Benefits and Retention Practices Report 1 st Tier Cities Mainland China Nov. 2014

2 About This Report Aon Hewitt has tracked employer sponsored benefits in China for more than a decade. As rare benefits from yesteryears become market norms today, employees increasingly rely on employers to provide market-competitive benefits in addition to pure cash compensation. But what is everyone else offering? To help answer this question, Aon Hewitt collects plan-by-plan benefit specifications from employers across China via a comprehensive questionnaire every year. Over 770 local and foreign companies from diverse industries completed the survey in The charts below summarize the profile of this year s survey companies from China s 1 st tier cities. Companies by Size of Workforce Companies by Industry 8.2% 4.5% 1.7% 0.8% 30.8% 10.9% 8.0% 26.8% 16.1% 41.9% Below ,000 1,001-5,000 5,001-10,000 10,001-25,000 Over 25,000 specified 9.9% 5.8% 18.1% 6.6% 9.9% Auto Chemical Retail Finance Technology Machinery Pharmaceutical Other This report summarizes detailed plan by plan specifications at over 510 companies - including 226 leading companies - operating in China s 1 st Tier Cities: Beijing, Shanghai, Shenzhen and Guangzhou,. These results are designed to equip you with the data and insights you need to shape your organization benefits program from a business perspective. We have also highlighted year-by-year trends and important legislative updates to keep you informed of the latest benefit developments in China. This report focuses on benefit provisions for local employees. Policies and provisions for foreign employees are documented in a separate report. The percentages shown in this report represent proportion of participating employers having each particular benefit specification. In certain cases, the sum of responses may exceed when companies provide more than one response to a given question. A glossary is provided to help you understand some of the benefit terminologies commonly used in this report. The currency denominated in this report is RMB Yuan. 1

3 Market Segmentation In this report, benefit provisions at leading companies are compared side-by-side with the general market to better illustrate market trends. Company Group Number of Companies Companies Operating in 1 st Tier Cities (including leading companies) 515 Leading Companies in 1 st Tier Cities 226 Employee Category Where suitable, benefit levels are also analyzed separately for the following employee categories: Employee Categories Top Management Middle Management Supervisor/ Senior Professional Professional General Staff Manual Worker Data Suppression Rules To protect the confidentiality of company data, we provide data analysis using the following guidelines: Data Presented in Report Number of Data Points 25%ile, 50%ile, 75%ile 8 Average 4 2

4 Executive Summary 3

5 Others Wealth Risk Benefits Prevalence Leading Life 53.0% 66.4% AD&D 83.7% 87.2% Employer Liability Insurance 24.7% 23.0% Supplemental Medical Insurance 85.7% 92.5% Boutique Medical 16.3% 23.0% 97.9% Health Check-up 99.6% Critical Illness 71.5% 79.6% Pension Plan Supplemental Retirement Plan 16.9% 24.3% Savings Plan 5.8% 10.2% Housing Plan 33.6% 39.4% Wellness 58.8% 63.7% Work-Life Balance 64.1% 67.7% Annual Leave 82.3% 88.9% Full Pay Sick Leave 71.5% 76.1% Additional Holidays 17.1% 22.6% Company Car 22.0% 30.5% Personal Car Assistance 27.0% 28.8% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Aon Hewitt s comments: Around 36% first tier city companies had changed the employee benefits in the past year, the main reason of the changes is employee satisfaction and improving competitiveness ranked on the second place The most concerned issues on employee benefits are cost pressure and lack of appreciation by employees on offered benefits About 99% first tier city companies agree that the employees needs diversification on benefits and 41% first tier city companies have provided employee paid benefit items on voluntary basis. There is still an increasing trend on flex benefits in China Written communications and Health promotion & wellness programs are the most popular ways of increasing employee benefits accountability Almost 52% first tier city companies increased the budget of employee benefits this year. 21% companies are planning on some employee benefit changes to increase competitiveness and employee satisfaction next year Executive Summary 4

6 Risk Benefits Group Insurance Benefit Prevalence /Leading Typical Market Practice Trend Life 53.0%/66.4% Flat amount or multiples of salary Typically RMB200, ,000 or 36 months of pay Trend is stable AD&D 83.7%/87.2% Flat amount or multiples of salary Typically RMB200, ,000 or 36 months of pay Prevalence is increased Employer Liability Insurance 24.7%/23.0% Flat amount or multiples of salary Typically insured amount RMB300,000 or 36 months of pay Decreased Executive Summary 5

7 Risk Benefits Supplemental Medical Benefit Prevalence /Leading Typical Market Practice Trend Supplemental Medical Insurance 85.7%/92.5% OP & IP: 91.2% of prevalence, typically 100% reimbursement for both OP&IP, and sum insured amount : RMB10,000-20,000 Hospitalization cash allowance: 66.4% of prevalence, RMB80-150/day, and up to 180 days Maternity: 72.1% of prevalence, 100% covered cap at RMB6,000-8,000 Child medical: 67.3% of prevalence, 50% reimbursement are common practice, cap at RMB10,000-20,000 Spouse medical: 25.2% of prevalence, 50% covered, IP &OP cap at RMB20,000 Increased on prevalence but level stays the same Boutique Medical 16.3%/23.0% This benefit is provided to employees with certain level and above Typically, open foreign hospitals ;open VIP service and special treatment area in public hospitals; No restriction on social medical prescription drugs Prevalence is increased Health Check-up 97.9%/99.6% 88% companies provide to all employees 76% companies provide the same standard to all employees and typical amount ranges from RMB300 to 500 Typical budget is at the same level compared to last year Critical Illness 71.5%/79.6% Typically, the benefit is provided to all employees Lump sum payment is common practice for critical illness from RMB100, ,000 Increased due to increased percentage of getting critical illness in China Executive Summary 6

8 Wealth Accumulation Plans Benefit Prevalence /Leading Typical Market Practice Trend Pension Plan 16.9%/24.3% Over 90% of the plans are defined contribution plans Typically employer contribution: 5% of base salary Vesting: grade vesting is the most prevalent practice; 5-8 years fully vested; Major operation model may include EA Model (40%) and Group Insurance company / Non-EA Trust (53%) Mostly provides to all employees Increasing trend on EA-plan due to new tax incentive policy issued at the end of % of companies provide investment choices to employees Savings Plan 5.8%/10.2% About 70% of the companies providing savings plan do not require employee contribution Typically employer contribution: 5%- 10% Vesting: grade, cliff or rolling vesting, most common starts vesting year number is 3 years Major operation model includes non- EA Trust and book reserve Mostly provides to all employees Trust based savings plan is the most popular model Housing Plan 33.6%/39.4% Common practice including housing allowance and supplemental housing fund Employer contribution: 5% of base salary for supplemental provident housing fund, 10% of base salary for housing allowance,12% of base salary for housing fund Vesting: Immediate vesting or graded vesting starts from the 3 rd year Major operation model may include Book Reserve, Local Provident Housing Centre, or payout with monthly payroll Stable trend on housing benefits Executive Summary 7

9 Wellness & Work-Life Balance Benefit Prevalence /Leading Typical Market Practice Trend Wellness 58.8%/63.7% Top 3 common plans as the followings: - Health Seminar - Physical Fitness - Mental/behavioral health coverage Most Companies provide the wellness plan for all employees. Increased as more companies gradually accepting health management concept Work-Life Balance 64.1%/67.7% Top 3 common plans as the followings: - Encourage use of vacation time - Flexible working hours - On-site Gym facility Increased due to employees more care about working environment and personal life Executive Summary 8

10 Other Benefits Benefit Prevalence /Leading Typical Market Practice Trend Annual Leave 82.3%/88.9% days. Vary by service years or levels. - Manager and above: days - Professional: days - General Staff: days - Manufacturing worker: days Most companies allow staff to carry forward up to 5 days of unused holidays to next year Trend is stable Full Pay Sick Leave 71.5%/76.1% 8-14 days Decreased by one day Additional Holidays 17.1%/22.6% Typically, companies provide 1-2 additional holiday during festivals Trend is stable Company Car 22.0%/30.5% Eligibility: Usually by all employees Models: Buick, GM, Audi, BMW and Volkswagen Companies usual car-related expense including taxes, maintenance, insurance, fuel/petrol or parking Trend is stable Usually includes reimbursement with cap, cash allowance and mileage assistance Personal Car Assistance 27.0%/28.8% Eligibility: Usually by position or level Amount 2,000-7,000/month varies by levels Trend is stable Millage assistance usually covers RMB per mileage. Executive Summary 9

11 Policy Updates

12 Policy Updates Jun Insurance Association of China has required all the insurance companies to use the new criterion of impairment assessment in life insurance claims from Jan. 1 st 2014 The new criterion changes the number of impairment degrees from 7 to 10. Eight kinds of impairment, including burn, paralysis and injury-caused hypothermia, are added into claims scope. In addition, the new criterion has a more detailed classification for all the impairments and sets impairment degrees according to their severity. Jan New tax incentive regulation granted to employer-sponsored retirement programs (EAs) in China Effective January 1, 2014, the employer's total contribution is capped at 8.33% of the prior year's total salary. For specific employees, such as long-term employees, the contribution may be higher as long as the plan has been approved by the labor authority. Employee contributions are tax exempt up to 4% of the prior year's total salary, capped at three times the City Average Wage. Earnings are tax exempt. Effectively, EAs are subject to an EET tax model (exempt contributions, exempt investment income and capital gains, and taxed benefits). Employers that have not yet established an EA plan may wish to include it in their total rewards strategy. Jan Accounting Standards for Business Enterprises is revised by Treasury Department of China to standardize the accounting treatments on employee compensation The revised standards is effective in Jul 1, It specifies the scope of employee compensation which includes short-term compensation, benefits provided to employees left company, benefits for dependent, beneficiaries. Also, the revised standards emphasizes the definition of employees- full time employees, part time employees, contractors, assigned employees and outsourced employees. Feb The Chinese government has released regulations on the use of dispatch (temporary agency) workers. The Provisional Regulations on Labor Dispatch, effective March 1, 2014, confirm that the cap on the number of dispatch workers hired in auxiliary positions is 10% of the total workforce. Employers must negotiate with the union over the list of auxiliary positions. Employers who hired dispatch workers prior to March 1, 2014 have two years to comply with the 10% limit. During periods of restructuring or economic downturns, dispatch workers may return to the temporary agency; the agency is required to pay these workers the minimum wage while they have no work. The labor dispatch law and regulations do not cover representative offices. Sep Supreme People s Court s new supplementary guidance for trial of work-related injury insurance has come into force The guidance detailed lists possible reasons for injuries, as well as the times and places of happenings that can support the injuries to be work-related. For instance, if an injury cannot be proved as workunrelated or if an injury happens during the employee s business trip, it should be thought as workedrelated. This new guidance more clearly explains some vague rules in the old guidance. Executive Summary 11

13 Benefits Strategy

14 Benefits Strategy Companies are concerned about rising benefit costs and are focusing on employee communication to achieve higher returns from their benefit investment Over 50% of respondents indicated they increased benefit spending per head over the past year. Companies are concerned about rising benefit costs and the lack of appreciation by employees for benefits on offer. To address this, nearly 80% of companies surveyed have employed some form of employee communication to raise benefit awareness among employees. In 2013 survey, 31.6% of all companies sponsor voluntary group insurance, and according to the data collected in 2014 survey, the percentage of voluntary group insurance sponsors increases to 41.0%. This section summarizes how companies operating in 1 st Tier Cities approach benefits from a strategic perspective. Q1. Has your company made changes to its benefit plan in the past 12 months? No 64.3% Yes 35.7% companies cite employee satisfaction (71.2%), market competitiveness (55.4%) and benefits integration/optimization (39.1%) as the top 3 reasons behind making changes to benefits. 70.7% of these companies added new benefit items or increased benefit levels. Q2. Which benefit items were affected by the change? 1. Medical Checkup 6. Wellness 2. Group Insurance 7. Short Term Incentive 3. Supplemental Medical 8. Supplemental Housing Plan 4. Work Life Balance 9. Business Travel 5. Leaves 10. Training and Education Assistance Benefits Strategy 13

15 Q3. Who is the champion of benefit initiatives at your company? 11.5% 11.1% 21.2% Local HR Regional HR 56.3% C-level management Other Most companies take a localized approach to benefits and focus on competitiveness within the Chinese market. It is therefore unsurprising to see that benefit decisions are made locally by HR at over half of the participating companies. Still, many companies will consult a regional center of excellence on benefit initiatives Q4. Does your company consult a regional center of excellence on benefit initiatives? Q5. What is your company s benefits philosophy? 5.8% Attraction and retention 84.7% Market competitiveness 82.3% 48.5% 45.6% Meet employees needs 70.7% Align with global policy 24.9% Yes, Internal CoE Yes, Third-party CoE No Be the leader in the market 5.0% Benefits Strategy 14

16 Q6. Has your company s benefit budget per employee been increased over the past year? 1.2% 2.6% 7.9% Q7. What is your company's benefit (both mandatory benefits and supplemental benefits) budget as a percentage of total annual base salary? 3.8% 11.0% 45.5% 36.8% 42.9% 25.4% 23.0% No Change Increase by 0% - 10% Increase by 10% - 20% Increase by 30% - 40% Decrease 20% - 30% 30% - 40% 40% - 50% 50% -60% more than 60% Benefits represent a significant investment for companies. Our survey finds that companies are concerned with rising benefit costs (93.0%) and the lack of appreciation by employees for benefits on offer (86.8%). Written communications Q8. What types of resources have you either implemented or increased in usage over the past 1 year to increase employee benefits accountability? 47.4% One way to raise awareness of employee benefits is to improve employee communication through channels such as written communication and employee meetings. Majority of companies (76.4%) had actively measure how educated employees are on their benefit offerings over the last year, and 60.6% of them feel employees have become more educated. Health promotion and wellness programs Employee meetings Self-service technology None On-site educational seminars 14.4% 22.3% 20.8% 39.6% 38.1% Benefits Strategy 15

17 Q9. Do you feel that different segments of your employee population demand vastly different benefits? Q10. Does your company sponsor voluntary group insurance policies? 1.4% 21.1% 29.9% 47.7% 59.0% 41.0% Strongly Moderately Somewhat at all Nearly all companies feel that employees have different benefit needs. One way to address this issue would be to offer voluntary group insurance policies through which employees can purchase coverage they desire. The most popular voluntary insurance programs are medical and AD&D insurance for employees, their children and their spouses. Besides, employees can purchase voluntary or upgrade insurance plan with lower price under company group insurance policy. Q11. What types of voluntary group insurance policies does your company sponsor? Children Medical Spouse Medical Employee Medical Employee AD&D Spouse AD&D Children AD&D Employee Term Life Spouse Term Life Children Term Life Parent Medical Parent AD&D 6.0% 4.9% 3.5% 11.5% 10.5% 10.1% 9.5% 19.8% 22.7% 22.3% 27.6% Parent Term Life 1.9% Benefits Strategy 16

18 Retention

19 Retention Strategy and Mechanism Companies rank pay and accelerated promotions as the most effective retention tools We notice that Accelerated promotions and Provide better work life balance is moving up in the rank list of most effective retention practice. However, retention bonus has down from rank 2 in 2013 with 51.3% and 53.0% of all and leading companies respectively to rank 5 in In addition, opportunity to learn new skills in current job would be an effective retention tool as well, which were ranked very closely with retention bonus with 43.3% in all companies.. Most Effective Retention Practice Most Effective Retention Practice Top 5 % of Companies Leading Pay above market 73.6% 72.1% Accelerated promotions 48.0% 47.8% Provide better work life balance 45.6% 44.7% Separate merit budget of key staff 45.2% 47.8% Retention bonus 44.5% 47.3% Retention Strategy & Mechanism 18

20 Compensation & Benefit Policies Compensation & Benefit Policies Existing Approach Considering Consider implementing in next 2 years Separate merit budget for key staff 53.6% 17.1% 29.3% Leading 59.7% 12.4% 27.9% Long term incentives, stock plans 36.9% 7.0% 56.1% Leading 50.4% 4.9% 44.7% Car benefits 40.8% 3.1% 56.1% Leading 49.1% 1.8% 49.1% Retention bonus 31.5% 21.0% 47.6% Leading 38.5% 19.0% 42.5% Pay above market 25.0% 17.5% 57.5% Leading 28.8% 13.3% 58.0% Boutique medical 16.3% 21.8% 61.9% Leading 23.0% 22.6% 54.4% Supplemental housing fund 24.3% 6.8% 68.9% Leading 26.5% 6.7% 66.8% Supplemental retirement plan 16.9% 8.9% 74.2% Leading 24.3% 7.1% 68.6% Flexible Benefits 6.8% 31.3% 61.9% Leading 10.6% 23.9% 65.5% Savings plan 5.8% 8.4% 85.8% Leading 10.2% 9.3% 80.5% Housing loan 5.8% 1.9% 92.3% Leading 5.8% 1.3% 92.9% Retention Strategy & Mechanism 19

21 Career Opportunities Career Opportunities Existing Approach Considering Consider implementing in next 2 years Opportunity to learn new skills 87.4% 6.2% 6.4% Leading 90.7% 4.0% 5.3% Cross functional mobility 81.9% 8.3% 9.7% Leading 87.6% 5.3% 7.1% Oversea assignments or training 62.9% 8.0% 29.1% Leading 72.6% 6.2% 21.2% Education Assistance 52.6% 11.8% 35.5% Leading 63.3% 7.5% 29.2% Succession planning communication 42.7% 29.5% 27.8% Leading 54.0% 20.4% 25.7% Accelerated promotions 39.6% 23.3% 37.1% Leading 48.2% 19.5% 32.3% Tailoring jobs to match individuals abilities 15.1% 12.6% 72.2% Leading 15.0% 9.3% 75.7% Retention Strategy & Mechanism 20

22 Quality of Life Quality of Life Existing Approach Considering Consider implementing in next 2 years Timely formal communication plan with management 74.8% 13.6% 11.7% Leading 80.5% 9.3% 10.2% Employee Satisfaction Survey 72.8% 14.2% 13.0% Leading 81.0% 8.4% 10.6% Provide better work life balance 64.9% 14.9% 20.2% Leading 67.7% 12.4% 19.9% Good Office Location 55.0% 4.9% 40.2% Leading 58.0% 3.5% 38.5% Mentoring Programs 48.5% 19.6% 31.8% Leading 58.8% 14.6% 26.5% Flexible Working Hours 34.2% 19.6% 46.2% Leading 39.8% 19.5% 40.7% 360 Degree Appraisal of Management 41.9% 18.8% 39.2% Leading 48.2% 14.2% 37.6% Telecommuting 20.2% 8.9% 70.9% Leading 23.9% 9.3% 66.8% Retention Strategy & Mechanism 21

23 Retention Bonus A retention bonus is typically paid out every year and is based on a fixed rate of the eligible employee s base salary. A retention bonus is a form of deferred compensation that promises a payment to eligible employees for working at the company over a defined timeframe. The government provides favorable tax treatment for annual bonuses and as such, most companies will ask employees to bear responsibility for income tax on this benefit. Over 30% companies provide this benefits and most of them only provide this plan to certain groups of employees. Prevalence Companies Leading Companies 69.7% 30.3% 62.4% 37.6% Plan Eligibility Plan Eligibility By Position Level Participation Eligibility Other (Key Talent, High Potential) % of companies Leading 60.3% 64.7% By Position Level 17.9% 17.6% Employees 12.8% 11.8% Sr. Mgt. Mid. Mgt. Supervisor/Sr. Prof. Professional Gereral Staff 86.7% 89.3% 53.3% 64.3% 40.0% 35.7% 26.7% 17.9% 6.7% 3.6% By Business Unit 9.0% 5.9% Leading Retention Bonus 22

24 Percentage of Entitled Employees Average 17.6% 17.4% Median 5.6% 9.6% Leading Companies Companies Service Year Requirement for company % of Companies Leading Immediately 21.2% 20.0% After probation 16.0% 17.6% After X service years 51.9% 48.2% Average %ile %ile %ile Other (Case by case, blank) 10.9% 14.2% Frequency of Plan Offer % of Companies Leading One time plan 36.5% 40.0% Roll out every retention period 34.0% 27.1% Roll out every year 28.8% 32.9% specified 0.6% - Retention Bonus 23

25 Amount of Retention Bonus Type Leading 1. Flat amount One-time plan Prevalence 16.0% 17.6% Average 76,235 85,000 25%ile 20,000 22,500 50%ile 40,000 40,000 75%ile 60,000 50,000 Roll-out every year/retention period Prevalence 11.5% 11.8% Average 116,250 58,914 25%ile 19, %ile 41, %ile 175, Fixed rate of annual base salary One-time plan Prevalence 20.5% 22.4% Average %ile %ile %ile Roll-out every year/retention period Prevalence 51.3% 48.2% Average %ile %ile %ile Vesting Schedule Vesting Schedule % of Companies Leading Graded vesting 21.2% 23.5% Cliff Vesting 60.9% 55.3% Other (i.e. rolling vesting, case by case) 14.7% 17.7% specified 3.2% 3.5% Retention Bonus 24

26 Individual Income Tax Treatment IIT Treatment % of Companies Leading Company pays income tax 3.8% 3.5% Employee pays income tax 96.2% 96.5% Retention Bonus 25

27 Risk Benefits

28 Group Life Insurance Typical practice is 36 times monthly base salary or a flat benefit of RMB 200, ,000 Some group life insurance policies in China cover disease death only (rather than deaths from all causes). Often, employers will bundle this type of life insurance policy with AD&D insurance (Accidental Death and Dismemberment) to provide comprehensive life insurance coverage to employees. 26.7% of life insurance plans among companies in 1 st Tier Cities cover disease death only. We notice that more companies start to face a issue of renewing life insurance for the employees who had critical illness in the past policy year. These employees cannot be covered in the life insurance or the insured amount is limited at a very low level in the renewal insurance contract. Guaranteed renewal for life insurance may be a solution to help employees go through their difficult times. Of course, guaranteed renewal may increase current premium rate in a certain range. Prevalence Companies Leading Companies 47.0% 53.0% 33.6% 66.4% Plan Eligibility Companies Leading Companies Others 5.1% Others 4.0% employee s 94.9% employee s 96.0% Group Life Insurance 27

29 Amount of Sum Insured Flat Amount Multiples of monthly pay Leading Leading Prevalence 51.6% 37.3% 48.4% 62.7% Top Management Average 556, , %ile 200, , %ile 300, , %ile 500, , Middle Management Average 334, , %ile 127, , %ile 200, , %ile 400, , Supervisor / Sr. Professional Average 276, , %ile 100, , %ile 200, , %ile 400, , Professional Average 241, , %ile 100, , %ile 200, , %ile 300, , General Staff Average 233, , %ile 100, , %ile 200, , %ile 300, , Manual Worker Average 215, , %ile 100, , %ile 200, , %ile 250, , Group Life Insurance 28

30 Group AD&D Insurance Typical practice is 36 times monthly base salary or a flat benefit of RMB200, ,000 Group AD&D (Accidental Death and Dismemberment) insurance is the second most prevalent risk benefit behind supplemental medical insurance and is usually offered to all employees. Companies usually insure a greater sum under AD&D than under life insurance. We notice that Life Insurance Company and Property & Casualty Insurance Company use different standards in AD&D insurance coverage which leads the covered conditions and insured amounts different between the two types of insurance companies. Also, the latest revised Accidental Disability Compensation Standards is effective on January 1, It is not mandatory for group AD&D products yet. Prevalence Companies Leading Companies 16.3% 12.8% 83.7% 87.2% Plan Eligibility Companies Leading Companies Others 5.1% Others 3.6% employee s 94.9% employee s 96.4% Group AD&D Insurance 29

31 Amount of Sum Insured Flat Amount Multiples of monthly pay Leading Leading Prevalence 67.3% 50.3% 32.7% 49.7% Top Management Average 547, , %ile 200, , %ile 400, , %ile 600, , Middle Management Average 395, , %ile 200, , %ile 375, , %ile 500, , Supervisor / Sr. Professional Average 353, , %ile 200, , %ile 300, , %ile 400, , Professional Average 331, , %ile 200, , %ile 300, , %ile 400, , General Staff Average 320, , %ile 200, , %ile 220, , %ile 400, , Manual Worker Average 298, , %ile 150, , %ile 200, , %ile 400, , Group AD&D Insurance 30

32 Employer Liability Insurance Typical practice is 36 times monthly base salary for death and 48 times monthly base salary for disability Employer liability insurance insures against loss that an employer may suffer from his legal liability for work-related injuries or deaths of employees. Some policies also cover accidental medical expenses, salary continuation and legal expenses. The majority of policies (61.4%) provide a benefit equal to a multiple of monthly pay. When the insured benefit is a flat amount (typically RMB300,000), we notice that employers buy the same level of coverage for all levels of employees. Prevalence Companies Leading Companies 24.7% 23.0% 75.3% 77.0% 24-hour Coverage Sum Insured- Multiples of Monthly Pay 8.7% Companies Death Benefit % of Companies Leading Average %ile %ile %ile % Disability Benefit Average %ile %ile %ile Employer Liability Insurance 31

33 Dependent Life/AD&D Insurance Employers typically do not provide dependent Life/AD&D coverage but may allow employees to purchase coverage through voluntary group policies When provided, dependent life/ad&d insurance is usually provided to children and spouses. The typical benefit is RMB50,000 for children and RMB150,000 for spouses. Although there are very few companies extend coverage to parents now, the AD&D on voluntary basis for parents gains its popularity in the market. Prevalence Child 7.8% 9.7% Spouse 4.5% 5.8% Parents 0.9% 0.6% Leading Companies Companies Sum Insured Child Insurance Leading Term Life AD&D Average 45,625 45,833 25%ile 45,000 45,000 50%ile 50,000 50,000 75%ile 50,000 50,000 Average 72,105 61,538 25%ile 50,000 50,000 50%ile 50,000 50,000 75%ile 100, ,000 Dependent Life/AD&D Insurance 32

34 Sum Insured Spouse Insurance Leading Term Life AD&D Average 145, ,444 25%ile 50, ,000 50%ile 150, ,000 75%ile 200, ,000 Average 150, ,000 25%ile 62, ,000 50%ile 150, ,000 75%ile 200, ,000 Group AD&D Insurance 33

35 Group Travel Insurance Typical practice is either 36 times monthly base salary or a flat benefit of RMB400,000 As China s business travels expand their footprint globally, more companies are investing in global travel insurance (rather than domestic). Besides death and disability coverage, employers also turn to travel insurance to protect against personal property/ travel document loss, emergency medical treatment, emergency evacuation and repatriation of moral remains. Companies may provide different level coverage under group travel insurance per the requirements of travel destinations. Prevalence Companies Leading Companies 67.6% 32.4% 62.8% 37.2% Plan Eligibility Companies Leading Companies Others 22.8% employee s 77.2% Others 20.2% employee s 79.8% Group Travel Insurance 34

36 Geographic Coverage Companies Leading Companies Domestic Domestic 32.3% 28.6% Global Global 48.5% 46.4% Overseas 19.2% Overseas 25.0% Group Travel Insurance 35

37 Amount of Sum Insured Leading 1. Multiples of Monthly Pay Prevalence 10.2% 13.1% Average %ile %ile %ile Flat Amount Prevalence 89.8% 86.9% Average 648, ,907 Top Management 25%ile 300, ,000 50%ile 500, ,000 75%ile 1,000,000 1,000,000 Middle Management Average 640, ,953 25%ile 207, ,000 50%ile 460, ,000 75%ile 975,000 1,000,000 Supervisor / Sr. Professional Average 631, ,953 25%ile 200, ,000 50%ile 420, ,000 75%ile 950,000 1,000,000 Professional Average 618, ,953 25%ile 200, ,000 50%ile 400, ,000 75%ile 875,000 1,000,000 General Staff Average 645, ,171 25%ile 215, ,000 50%ile 450, ,000 75%ile 1,000,000 1,000,000 Group Travel Insurance 36

38 Supplemental Medical - Outpatient and Inpatient Typical market practice is 100% reimbursement up to a RMB20,000 annual cap This plan provides reimbursement for the co-pay portion of inpatient and outpatient expenses that are normally deducted from the individual account under social insurance. Premium rates are determined based on the claims experience of the company. Employer paid supplemental medical insurance premium is treated as taxable income to the employee. Benefit payment is tax-exempt. This benefit plan is very popular in current market. Covered items and services are usually aligned with social security provisions so more expensive medical expenses (such as VIP rooms at public hospitals) may not be covered. Insurance companies can cover additional medical treatments through the more expensive boutique medical plan (covered in a later section). Prevalence Companies Leading Companies provided 14.3% 8.8% provided, 85.7% 91.2% Plan Eligibility Companies Leading Companies Others 7.2% Others 6.3% employee s 92.8% employee s 93.7% Supplemental Medical OP and IP 37

39 Reimbursement Rate - Outpatient Companies Leading Companies Other 10.7% 100% reimburse ment 57.0% 90% reimburse ment 32.2% Other 11.2% 100% reimburse ment 48.5% 90% reimburse ment 40.3% Reimbursement Rate - Inpatient Companies Leading Companies Other 17.8% Other 16.0% 100& reimburse ment 82.2% 100% reimburse ment 84.0% Supplemental Medical OP and IP 38

40 Reimbursement Annual Maximum (RMB) - Outpatient Reimbursement Maximum Leading 1. No cap Prevalence 30.6% 21.8% 2. Separate annual maximum Prevalence 21.7% 21.8% 25%ile 10,000 10,000 50%ile 10,000 10,000 75%ile 20,000 16, Overall cap for outpatient and inpatient Prevalence 45.8% 54.9% 25%ile 20,000 20,000 50%ile 20,000 20,000 75%ile 20,000 20, Other Prevalence 1.9% 1.5% Reimbursement Annual Maximum (RMB) - Inpatient Reimbursement Maximum Leading 1. No cap Prevalence 32.5% 24.3% 2. Separate annual maximum Prevalence 19.4% 18.9% 25%ile 10,000 10,000 50%ile 20,000 20,000 75%ile 20,000 20, Overall cap of outpatient and inpatient Prevalence 45.8% 54.9% 25%ile 20,000 20,000 50%ile 20,000 20,000 75%ile 20,000 20, Other Prevalence 2.3% 1.9% Outpatient and Inpatient 39

41 Hospitalization Cash owance Typical practice is RMB100/day up to maximum of 180 days per year This policy is offered, together with impatient insurance, in form of reimbursement when employees get hospitalized. Over 60% companies provide hospitalization cash allowance to employees. This benefit is usually offered to all employees. Of those who provide this benefit, over 70% companies set maximum days. Prevalence Companies Leading Companies 39.0% 61.0% 33.6% 66.4% Plan Eligibility Companies Leading Companies Others 11.1% Others 11.3% employee s 88.9% employee s 88.7% Hospitalization Cash owance 40

42 Maximum Days Companies Leading Companies None 23.2% None 24.7% Maximum days per inpatient 11.8% Maximum days per annum 65.0% Maximum days per inpatient 10.0% Maximum days per annum 65.3% Plan Design Plan Design Leading Benefit amount per Day 25%ile %ile %ile Maximum days per annum 25%ile %ile %ile Hospitalization Cash owance 41

43 Maternity Typical practice is 100% reimbursement up to an annual cap of RMB8,000 Coverage is usually limited to social security provisions and employees rarely get to claim up to the RMB8,000 annual cap. The typical maternity benefit only covers government hospitals. Employees wishing to receive maternity treatment at private clinics or VIP rooms at public hospital must pay outof-pocket. Over 60% companies provide this benefits to employees. This benefit is usually offered to all employees. The insurance premium is treated as taxable income to the employee. Prevalence Companies Leading Companies 39.8% 60.2% 27.9% 72.1% Plan Eligibility Companies Leading Companies Others 8.1% Others 6.1% employee s 91.9% employee s 93.9% Maternity 42

44 Reimbursement Rate Companies Leading Companies <100% 11% <100% 12% 100% reimburse ment 89% 100% reimburse ment 88% Annual Cap Annual Cap Leading No cap Annual cap Prevalence 22.6% 15.3% Prevalence 77.4% 84.7% 25%ile 5,000 6,000 50%ile 8,000 8,000 75%ile 8,000 8,000 Maternity 43

45 Critical Illness The typical benefit is a lump-sum of RMB100,000 payable upon diagnosis of a pre-defined critical illness Critical illness insurance pays a lump-sum benefit or provides reimbursement to the beneficiary upon diagnosis of a critical illness or condition. Lump-sum benefit is more popular. In 2007, the Insurance Association of China published standardized definitions for 25 common critical illnesses. A typical critical illness insurance policy in China will cover around conditions, including heart disease, blindness, deafness, kidney failure, organ transplant and Alzheimer's disease. Over 70% companies provide this benefit to employees. This benefit is usually offered to all employees. Premium is treated as taxable income to employees. Prevalence Companies Leading Companies 28.5% 71.5% 20.4% 79.6% Plan Eligibility Companies Leading Companies Others 9.0% Others 6.7% employee s 91.0% employee s 93.3% Critical Illness 44

46 Plan Type Plan Type Leading Reimbursement Prevalence 37.5% 36.1% Lump-sum payment Prevalence 57.3% 61.7% Both Prevalence 5.2% 2.2% Benefits Coverage Reimbursement Reimbursement Leading 1. No annual cap Prevalence 72.4% 63.8% 2. With annual cap Prevalence 27.6% 36.2% 25%ile 20,000 20,000 50%ile 80, ,000 75%ile 100, ,000 The typical reimbursement ratio is 100%. Benefits Coverage Lump Sum owance Lump Sum owance Leading Lump Sum owance 25%ile 73, ,000 50%ile 100, ,000 75%ile 131, ,000 Critical Illness 45

47 Dependent Medical 55.7% of 1 st Tier Cities companies and 67.7% of leading companies provide some form of dependent medical coverage to employees This plan provides reimbursement of inpatient and outpatient expenses to employee s eligible dependents. Dependent medical is typically provided to children only. Employers typically do not provide spouse medical coverage but may allow employees to purchase this medical insurance through voluntary group policies. Very few companies extend coverage to parents. Prevalence Dependent medical 55.70% 67.70% Child medical 55.30% 67.30% Spouse medical 18.10% 25.20% Parents medical 2.70% 1.60% Leading Dependent Medical 46

48 Dependent Medical - Child Typical practice is 50% reimbursement with an overall annual cap of RMB20,000 This plan provides reimbursement of children s inpatient and outpatient expenses to employees. More than 50% of companies provide this benefit. More than 90% of companies providing this benefit do not require employees to pay for the premiums. Prevalence Companies Leading Companies 44.7% 55.3% 32.7% 67.3% Plan Eligibility Companies Leading Companies No restriction 9% No restriction 7% Family plan 18% Below some age 74% Family plan 16% Below some age 77% Dependent Medical - Child 47

49 Reimbursement Rate - Outpatient Companies Leading Companies Other 30.2% 50% reimburse ment 69.8% Other 29.6% 50% reimburse ment 70.4% Reimbursement Rate - Inpatient Leading Companies Companies Other 34.7% 50% reimburse ment 65.3% Other 33.6% 50% reimburse ment 66.4% Supplemental Medical OP and IP 48

50 Reimbursement Cap Reimbursement Cap Leading 1. No cap Prevalence 29.5% 19.7% 2. Overall cap for both outpatient and inpatient 3. Set separate maximum Prevalence 61.1% 69.7% 25%ile 10,000 10,000 50%ile 20,000 20,000 75%ile 20,000 20,000 Prevalence 7.6% 9.3% Outpatient cap 25%ile 10, %ile 10,000 10,000 75%ile 10,000 10,000 Inpatient cap 25%ile 20,000 50,000 50%ile 30,000 50,000 75%ile 40,000 50, Other Prevalence 1.8% 1.3% Employee Cost Sharing Cost Sharing Leading 1. Cost Shared by Employee Prevalence 7.4% 8.6% 100% 38.1% 46.2% 50% 33.3% 38.5% Other 28.6% 15.3% 2. None Prevalence 90.5% 88.8% 3. Other Prevalence 2.1% 2.6% Dependent Medical - Child 49

51 Dependent Medical - Spouse Typical practice is 50% reimbursement with an overall annual cap of RMB20,000 This plan provides reimbursement of spousal inpatient and outpatient expenses to employees. Only 18.1% of companies provide this benefit. Among those, more than 70% place no restriction on participation eligibility of spouse benefits. Among the companies providing spousal medical benefits, more than 40% require employees to share the premiums. Among companies requiring employee cost sharing, 67.5% require employees to pay for the full amount of the premiums. Prevalence Companies Leading Companies 18.1% 25.2% 81.9% 74.8% Dependent Medical - Spouse 50

52 Dependent Medical - Parent In rare cases where parental medical coverage is provided, an age limit between 60 to 65 usually applies This plan provides reimbursement of parental inpatient and outpatient expenses to employees. Less than 2% provide this benefit. The main reason for the low prevalence of parental medical plans is the lack of suitable products at attractive price. Among the companies providing parental medical coverage, 37.5% of all companies and 33.3% of leading companies ask employees to pay for the premiums. Prevalence Companies Leading Companies 1.6% 2.7% 98.4% 97.3% Dependent Medical - Parent 51

53 Boutique Medical Boutique medical plans typically provide direct billing service, enhanced drug and hospitalization coverage, higher policy limits and dental coverage This plan provides coverage not being limited to social medical insurance and covers a much wider range of treatments and drugs. Many leading companies have begun to offer boutique medical plans to local executives to remain competitive in the talent market. Busy executives may appreciate shorter wait times and more personal medical care at private clinics or VIP areas in public hospitals. 16.3% of all companies and 23.0% of leading companies provide this benefit. Prevalence Companies Leading Companies 16.3% 23.0% 83.7% 77.0% Coverage Benefit Items % of Companies Leading Private/Foreign hospitals 72.6% 73.1% VIP wards in public hospitals 94.0% 90.4% No restriction on drugs usage 81.0% 78.8% Enhance medical check-up items 47.6% 42.3% Overseas hospital visit 34.5% 30.8% Boutique Medical 52

54 Dental Dental plans typically provide preventive care, basic treatment, major treatment to employees Dental benefits provided to employees are generally comprehensive, ranging from preventive care (such as dental examination, X-ray) to major treatments (such as root fillings). It is not limited to social medical insurance of dental treatment. This benefit is not very popular in the current market, only 4.5% of all companies and 3.1% of leading companies provide this benefit. Prevalence Companies Leading Companies 4.5% 3.1% 95.5% 96.9% Plan Eligibility Companies Leading Companies Others 21.7% employee s 78.3% Others 28.6% employee s 71.4% Dental 53

55 Reimbursement Reimbursement Leading 1. Preventive Care Prevalence 73.9% 85.7% 100% 58.8% 50.0% Other 41.2% 50.0% 2. Basic Treatment Prevalence 73.9% 57.1% 100% 64.7% 25.0% 80% % Other 35.3% 25.0% 3. Major Treatment Prevalence 52.2% 57.1% 100% 50.0% - 50% 50.0% 50.0% Other % Reimbursement Cap Reimbursement Cap Leading 1. Overall cap for both outpatient and inpatient 2. Set separate maximum Prevalence 56.5% 42.9% 25%ile 3, ,000 50%ile 13,500 4,000 75%ile 20,000 12,000 Prevalence 34.8% 57.1% 25%ile %ile %ile 1,650 1, Other Prevalence 8.7% 0% Boutique Medical 54

56 Medical Check-up Medical check-up is the most popular supplemental benefit 97.9% of all companies and 99.6% of leading companies provide medical check-up to employees and over 85% of plans are almost always offered to all employees. The typical budget for medical checkup is RMB200 to RMB300 per employee per year. Recently, some companies provide executives with boutique medical check-up plan to maintain executives health, increase their satisfaction and also save their time on medical check-up. The typical boutique medical check-up covers comprehensive and customized check-up items, specific advices of the onsite doctor and etc. Prevalence 2.1% companies 0.4% Leading companies 97.9% 99.6% Budget per Employee per Check-up (RMB) Cost Budget Leading Same to all employees Prevalence 67.2% 66.4% 25%ile %ile %ile Other (i.e. by job level, gender, etc.) Prevalence 32.8% 33.6% Medical Check-up 55

57 Wealth Accumulation Plans

58 Supplemental Retirement Plan Most supplemental retirement plans in China are Defined Contribution (DC) plans. Over 90.0% of the plans cover all employees, while the rest cover employees with certain grade or service year. Employers contribute 5% to 8% of monthly pay to DC plans and require employees to stay for 5 to 10 years before giving employees full entitlement to employer contributions Supplemental retirement plans can be classified into two types, Defined Benefit (DB) Plan and Defined Contribution (DC) Plan. DB plans are plans that the benefit is defined in advance, while DC Plans are plans that the rate of contribution is predetermined. Contributions are made at regular intervals (usually monthly) into an account. The amount of benefit payable is the result of the accumulation of contributions and investment earnings credited up to the date of leaving service. Prevalence Companies Leading Companies 16.9% 24.3% 83.1% 75.7% Supplemental Retirement Plan 57

59 Plan Type Companies Leading Companies Non-EA Plan 57.5% EA Plan 42.5% Non-EA Plan 60.0% EA Plan 40.0% Plan Eligibility Companies Leading Companies By Criteria 6.9% By Criteria 5.5% Employee s 93.1% Employee s 94.5% Participation Eligibility Waiting Period Leading Immediate after hire - Prevalence 34.7% 37.2% After probation - Prevalence 44.0% 41.2% By services year - Prevalence Average 25%ile 50%ile 75%ile Supplemental Retirement Plan % %

60 Employee Contribution Requirement Companies Leading Companies Required Required 40.0% Required 35.3% Required 50.7% 52.9% Voluntary 9.3% Voluntary 11.8% Employee Contribution Amount Leading 1. Fixed amount per month - Prevalence 8.9% 9.1% 2. Fixed rate of monthly pay - Prevalence Average 25%ile 50%ile 75%ile 75.6% 3.7% 2.0% 4.0% 5.0% 75.7% 4.2% 2.5% 4.0% 5.0% 3. Fixed rate of monthly pay minus social pension contribution - Prevalence 4. Other (i.e. link with service year or job grade) - Prevalence 4.4% 6.1% 11.1% 9.1% Employee Contribution Annual Maximum The majority of respondent companies (76.2% of 1 st tier cities and 74.2% of leading companies) do not set a cap for employee contributions. Supplemental Retirement Plan 59

61 Employer Contribution Amount Leading 1. Fixed amount per month - Prevalence Fixed rate of monthly pay - Prevalence Average 25%ile 50%ile 75%ile 57.3% 7.4% 5.0% 5.0% 8.0% 60.8% 6.8% 5.0% 6.0% 8.3% 3. Fixed rate of monthly pay minus social pension contribution - Prevalence 8.0% 7.8% 4. Matching with employee s contribution - Prevalence 8.0% 7.8% 5. Varies by employee level or service year - Prevalence 20.0% 15.8% 6. Other (i.e. link with performance bonus ) - Prevalence 6.7% 7.8% Employer Contribution Annual Maximum The majority of respondent companies (71.4% of 1 st tier cities and 73.8% of leading companies) do not set a cap for employer contributions. Supplemental Retirement Plan 60

62 Vesting Schedule for Employer Contribution Leading Immediate vesting - Prevalence 18.7% 15.7% Cliff vesting (vesting year) - Prevalence Average 25%ile 50%ile 75%ile 20.0% % Rolling vesting (vesting year) - Prevalence 4.0% 2.0% Graded vesting - Prevalence First vesting years Average 25%ile 50%ile 75%ile 57.3% % % of account balance at first vested years Average 25%ile 50%ile 75%ile 35.5% 30.0% 30.0% 50.0% 35.7% 30.0% 30.0% 50.0% 100% account balance vested years Average 25%ile 50%ile 75%ile Distribution of Employer Contributions under Special Circumstances Most companies pay full employer contributions to employees upon employee retirement from company or death/disability before retirement. Most companies will only provide vested employer contributions upon employee termination. Supplemental Retirement Plan 61

63 Plan Operation and Administration Leading EA Model 49.3% 43.1% Insurance company / Trust company 38.7% 41.2% Company book reserve 10.7% 15.7% Company special bank account 1.3% 0.0% Taxation The majority of participant companies (88.0% of the 1 st tier cities and 90.2% of leading companies) report they will ask employee to pay individual income tax for employer contributions to supplemental pension plans. The tax can be deducted from employer contributions or through payroll. Investment Among plans which invest the funds, 51.1% of plans provided by all companies and 62.5% of plans provided by leading companies provide investment choices to employee. Supplemental Retirement Plan 62

64 General Purpose Savings Plan Employers typically contribute 3% to 12% of pay and require employees to stay for 3 to 10 years before giving employees full entitlement to employer contributions Savings plans are similar to retirement plans in most aspects of plan design except for withdrawal condition. While retirement plans only allow for withdrawal at retirement under normal circumstances, savings plans are more flexible, which can accommodate a wide variety of withdrawal conditions such as home purchase or child education assistance. Savings plan serves as an effective retention toll for the company and at the same time helps to control cost within the budgeted funding level of the company. Prevalence Companies Leading Companies 5.8% 10.2% 94.2% 89.8% General Purpose Savings Plan 63

65 Plan Eligibility Companies Leading Companies By Criteria 10.0% By Criteria 8.7% Employee s 90.0% Employee s 91.3% Participating Eligibility - Waiting Period Leading Immediately after hire - Prevalence 36.7% 43.5% After probation - Prevalence 30.0% 30.4% By services year - Prevalence Average 25%ile 50%ile 75%ile 33.3% % General Purpose Savings Plan 64

66 Employee Contribution Companies Leading Companies Required 23.3% Required 17.4% Required 63.3% Voluntary 13.4% Required 69.6% Voluntary 13.0% Employee Contribution Amount Leading Fixed amount per month - Prevalence Fixed rate of monthly pay - Prevalence Average 25%ile 50%ile 75%ile 100.0% 5.4% 2.5% 5.0% 5.0% 100.0% 6.5% Fixed rate of monthly pay minus social pension contribution - Prevalence Employee Contribution - Annual Maximum Among companies requiring employee contribution, 54.5% companies of 1 st tier cities and 57.1% leading companies do not set cap for employee contributions. General Purpose Savings Plan 65

67 Employer Contribution Amount Leading 1. Fixed amount per month - Prevalence 6.7% 4.3% 2. Fixed rate of monthly pay - Prevalence Average 25%ile 50%ile 75%ile 56.6% 6.9% 5.0% 6.5% 10.0% 47.9% 6.8% 4.5% 6.5% 10.0% 3. Fixed rate of monthly pay minus social pension contribution - Prevalence Fixed rate of monthly pay minus employee social housing fund contribution - Prevalence 6.7% 8.7% 5. Matching with employee s contribution - Prevalence 6.7% 8.7% 6. Varies by employee level or service year Prevalence 23.3% 30.4% Employer Contribution - Annual Maximum The majority of respondents (57.1% companies of 1 st tier cities and 59.1% leading companies) do not set cap for employer contributions. General Purpose Savings Plan 66