Australian Salary Movement Index

Australian Salary Movement Index Authors: Steven Paola and Trevor Warden Hay Group July 2013: Reporting Period 1 March 2012 28 February 2013 Page 1 of 26

Contents Page 01 Executive Summary 3 02 Trends and Pay Challenges 5 03 Reward Movements and Forecasts 7 04 Bonuses 10 05 Pay Comparisons 12 06 The Global View 19 07 Recommendations 21 08 Appendix 22 Definitions About the Report About Hay Group About the Authors Further information and contact details Page 2 of 26

01 Executive Summary The Australian Salary Movement Index report is an annual overview of the Australian reward climate collated by management consultancy, Hay Group. The report combines Hay Group s considerable consulting expertise as well as data obtained from Hay Group s PayNet database the most comprehensive and detailed database available in Australia. This report is based on results from more than 440 organisations and 282,000 jobs for the reporting period to 28 February 2013. Volatility has been the dominant theme characterising the Australian economy over the past 12 months. Major household brands, manufacturers and retailers have struggled to stay profitable and some have even decided to close their doors most notably the recent announcement by Ford. Project investments have contracted in the Mining sector by around $150 billion (Source: Bureau of Resources and Energy Economics, May 2013). Business confidence has also slipped into negative figures (Source: NAB Business Confidence Index April 2013). Hay Group s findings about pay trends across all major industries and all job levels reflects this volatility. Across the board, pay increases are smaller than in recent years, approaching the lowest levels seen in the wake of the GFC. Perhaps the most telling sign that the boom times have ended is that the gap in pay increases between the Resources sector and the rest of the market, after rapidly widening for a number of years, is now starting to narrow. This mirrors the weakening conditions in the Resources sector; impacted by the high Australian dollar, global volatility and the sharp fall in commodity prices. This more austere trend is predicted to continue. From the data collected by Hay Group, the forecasted pay increases for the coming 12 months across all sectors will be 3.5 per cent, and 4.3 per cent for the Resources sector. Just 12 months ago, the forecasted pay increase for the Resources sector was for 6.25 per cent growth, illustrating just how quickly this sharp adjustment for the industry has occurred. The pay forecasts (predictions) vs. actual movements in past years have been a lot closer, highlighting again that the current market we are operating in is volatile. This forecast should still see most Australians earning above forecasted inflation levels, and receiving higher increases compared to overseas markets. However, workers expecting generous increases may be disappointed, and employers now need to think outside the pay square when it comes to attracting, engaging and retaining talent. However, there are still pockets of the market which continue to buck this trend and attract considerable pay premiums. The hottest jobs in terms of pay can be found in Western Australia, primarily in technical roles in the Resources sector (Mining and Oil and Gas) which continues to show the greatest salary growth. In fact, recent analysis found that Australia s Oil and Gas industry has the world s highest paid workforce (Source: AFR May 23); such wage costs are one of the big challenges facing Australia s Resource sector. Page 3 of 26

Industries such as Banking and Utilities are also attracting premiums above the average. However, Financial Services jobs also tend to have a high degree of performance based risk, so employees need to meet or exceed targets to receive higher total pay. In sectors such as Fast Moving Consumer Goods, Leisure and Hospitality, Not for profit, Business Services and Education, average actual salaries were between six and 11 per cent below that of the national average, creating a challenge for these sectors to retain top talent and drive productivity through reward strategies. Mapping the differences in pay across the country shows Western Australia, especially regional areas, is far ahead of the eastern states. When compared to the national average salary, jobs in regional Western Australia earn 21.9 per cent higher (compared with 16.8 per cent the previous year). Interestingly, similar mining related jobs in remote Queensland earn a premium of just 3.4 per cent; perhaps because these are located closer to regional centres so mining companies find it easier to attract workers. Among the capital cities, Perth workers are the highest paid with a pay premium of 6.8 per cent above the national average. Across the other side of the continent, workers living in two of the most expensive cities in the world are now simply average or below average in terms of their earnings. Sydney workers are now earning the national average, while Melbourne workers earn around 3.1 per cent less than the national average. Yet, Australia s inflation rates are still lower than the salary increase rates, unemployment is still comparatively low and some sectors and job functions continue to have skill shortages. This puts employees, especially talented employees, in a good position to negotiate, and it also means employers need to rethink the way they reward and motivate people if pay is no longer a tempting carrot to dangle. Page 4 of 26

02 Trends and Pay Challenges Hay Group has analysed pay practices for over 30 years in Australia and has seen many interesting trends in how organisations reward their people. The pay packet is perhaps the most tangible way organisations can communicate what is valued, attract the best people, recognise employee contribution and motivate improvements. So it is vital not simply to set the bar correctly, but to continually monitor and adjust pay on an ongoing basis. Hay Group observed that pay increases during the recent 12 month reporting period were fairly steady, with comparatively modest increases for the boom industries such as Resources, Construction and Financial Services. Since the low pay increases seen in 2009, pay movements have tracked upwards for most industries, with Resources and Financial Services experiencing the steepest trajectories compared with the rest of the market. In 2012, this trend appears to track much more slowly, and the Resources sector is returning to a growth rate that is more in line with the rest of the market for the first time since 2006. This slowing trajectory of pay increases for the Resources sector, compared to the rest of the market, is set to continue a reflection of the slowing pace of capital expenditure which means fewer projects in the pipeline. Yet due to dramatic pay rises over recent years, many roles in Mining and Oil and Gas will continue to sit well above average in terms of actual pay levels for some time. Challenges for Australia s reward climate While at a macro level, Australia s economy and national debt remain in a relatively good position within the global economic picture, a closer look reveals there are a series of contributing factors creating volatility and impacting the reward climate. The Resources sector, responsible for much of Australia s economic growth over the past six years, has been impacted by recent global pressures and the strong Australian currency. Although still high, prices for commodities such as iron ore have fallen sharply and investments in capital expenditure are signalling a dramatic slowdown. And outside of the Resources sector, the prevailing weaker business confidence has resulted in a more conservative approach to salary movements. Another pressure on the reward climate is the cost of living and inflation. In a recent study by the Economist Intelligence Unit, Sydney ranked the third most expensive city to live in the world, while Melbourne was fifth (Source: EIU worldwide cost of living survey 2013). It is telling to note that ten years ago, before the mining boom and when the dollar was historically weak, no Australian city even featured in the top 10. Page 5 of 26

The combination of the strong dollar and high cost of living has resulted in a decline in consumer confidence that is greatly impacting many organisations in the Retail, Hospitality and related sectors. Inflation (Consumer Price Index) rose 2.5 per cent in the year to March 2013, driven by rising education costs, housing costs, pharmaceutical products and fuel (Source: ABS National Accounts, March Qtr. 2013). The strong appreciation in the Australian dollar, which has remained above or near parity with the US Dollar since mid 2011, continues to impact sectors such as Manufacturing, Tourism, Retail and Services industries eroding profit margins and increasing costs. A decade earlier it was half that value, illustrating the rapid rate of change and the challenge for those industries exposed to currency fluctuations. Despite media reports of employee downsizing among Australian firms, unemployment barely grew over the preceding year to April 2013. The seasonally adjusted unemployment rate stood at 5.5 per cent in April 2013 (a marginal change compared with 5.4 per cent in September 2012). For many sectors, a lack of skilled labour is pushing up salaries (a prime example is in technical roles in the Resources sector). Low unemployment also leads to employees looking to job hop especially those that are considered to be an organisation s best talent. As seen across the Resources sector in the past five years, talent shortages can drive up pay values to unsustainable levels. Firms need to be careful not to solely rely on salary increases to retain talent and reduce turnover as this can create inappropriate pay grades and unrealistic expectations. In the face of these challenges, companies need to move beyond pay combining a range of strategies including reward, engagement and work climate to attract and retain talent for the long term. Further recommendations will be discussed in Chapter 7. Page 6 of 26

03 Reward Movements and Forecasts The Australian Salary Movement Index looks at reward movements from two different perspectives Fixed Annual Reward (regular fixed income), and Total Annual Reward which includes incentives such as bonuses and commissions. Fixed Annual Reward (FAR) Movements The Hay Group definition of Fixed Annual Reward (FAR) is the sum of base salary, fixed allowances, benefits and superannuation. It does not include variable cash. (Refer to Appendix for remuneration definitions). Fixed pay increases across sectors Fixed Annual Reward across the Industrial & Service (all organisations excluding financial services) market rose on average by 4.3 per cent over the last 12 months, a relatively steady movement slightly above the 4 per cent forecast (Source: ASMI July 2012). The data in Figure 3.0 Five year average Fixed Annual Reward movements, illustrates the steadily increasing movements since the global financial crisis in 2010, which have curtailed slightly in 2013. 7.0% Hay Group s Average Annual Movements in Fixed Annual Reward Fixed Annual Reward Annual Movement (%) 6.0% 5.0% 4.0% 3.0% 2.0% 6.3% 6.4% 5.4% 5.1% 4.8% 4.3% 4.1% 4.5% 4.3% 3.9% 3.6% 2.7% 2.8% 2.9% 2009 2010 2011 2012 2013 Financial Industrial & Service Resources Figure 3.0 Five year average FAR annual movements Fixed Annual Reward moved 3.6 per cent in the Finance sector (a more austere rise compared with 2012, but still above the pay movements of the post GFC 2010 2011 period). The most telling pay movement Page 7 of 26

was that seen in the Resources sector with a comparatively modest increase of 4.8 per cent, compared to previous dramatic rises of 6.4 per cent and the Hay Group forecast of 6.25 per cent just 12 months ago. This is the first time that pay increases in the Resource industries have approached those of the general market since 2006. This unexpected change is reflective of the high volatility experienced in the sector, attributable to fluctuating foreign demand and commodity prices, among other factors. Total Annual Reward (TAR) Movements Total Annual Reward combines the Fixed Annual Reward (fixed pay) plus any short term incentives that can be in the form of bonuses, profit sharing and sales commission. (Refer to the Appendix for remuneration definitions). Total Annual Reward pay increases across sectors Total Annual Reward across the Industrial & Service market rose on average by 4.1 per cent over the last 12 months. The data in Figure 3.1 Five year average Total Annual Reward movements, illustrates a different picture to that of the Fixed Annual Reward movements. Hay Group s Average Annual Movements in Total Annual Reward Total Annual Reward Annual Movements (%) 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 5.7% 4.9% 4.4% 2.1% 8.8% 5.0% 4.5% 5.5% 4.9% 5.7% 5.3% 4.1% 2.2% 1.0% 0.0% 0.1% 2009 2010 2011 2012 2013 Financial Industrial & Service Resources Figure 3.1 Five year average TAR annual movements Bonuses are still a key component of salary design. For the reporting period to February 2013, bonus payments across most industries have remained relatively constant over the past year. The Resource sector saw a 5.3 per cent increase in Total Annual Reward. Page 8 of 26

A notable exception to this trend was the Financial Services sector which experienced a major slowdown with their incentive payouts. This reflects the global nature of the Financial Services industry which has been impacted by major monetary pressures in Europe. Other factors at play are that incentives are heavily measured against financial performance hurdles and while the actual incentive dollar amounts for the Financial Services sector is similar to that of the general market, Financial Services companies have more employees with incentive based pay than organisations in other sectors, hence the movements tend to be more volatile when viewing pay that includes incentives. Fixed salaries to increase by 3.5 per cent while increases for Resources slowly converge Hay Group forecasts salary adjustments of 3.5 per cent in Fixed Annual Reward for All Industries (Industrial & Service and Financial Services) and 4.3 per cent in the Resources sector in the coming year (See Figure 3.2). This is the lowest expected rise since the GFC, a sign of the cautiousness within the Australian market. However, Hay Group envisages higher increases to extend to critical or technical roles in all resource related industries, most notably at the professional job levels. Fixed Annual Reward Annual Movement (%) 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% Hay Group s Average Annual Movements in Fixed Annual Reward 5.4% 5.1% 4.3% 2.8% 2.7% 6.3% 6.4% 4.8% 4.1% 4.5% 4.3% 4.3% 3.9% 3.6% 3.5% 2.9% 2009 2010 2011 2012 2013 2014 Financial Industrial & Service Resources Figure 3.2 Forecasted FAR movements The Hay Group PayNet Database did not record any sign of pay freeze policies in the reporting period. In other words, salaries increased across the board, but by a smaller percentage in some industries. Yet Hay Group is seeing these pay increases steadily becoming smaller each quarter, so the outlook may include some pay freezes as the lack of visibility of pipeline opportunities begins to bite. Page 9 of 26

04 Bonuses Incentivised pay still important Our market data suggests incentive pay was a crucial means of rewarding staff in the year to 28 February 2013. The prevalence of performance based bonus payments in the design of pay for many Australians is high around 62 per cent of admin and operational roles and 85 per cent of executives have a bonus component of some form within their total package. As well as serving as an important talent and risk management strategy, the increase in variable pay acts to incentivise outcomes and reduce the fixed costs of reward if targets are not met. Hence, organisations are saying we are happy to pay more if you are more productive or deliver what the business expects of you (and more). Bonuses paid compared with targets When comparing actual incentive payments to the target set in 2012, no employee group was able to achieve their target payouts (as shown in Figure 4.0). Incentives are continuing to be used within the marketplace as a vehicle for achieving better performance but the payout rates have remained steady over the past few years. 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 6.2% 2.8% Actual Payouts vs 2012 Targets (%FAR) y g ( ) 7.8% 4.2% 13.0% 9.3% 37.9% Admin/Operations Grads to 1st level mgr Managerial Executive Work Groups 32.0% 2012 Target Payout Rate Figure 4.0 Comparison of actual payouts vs. 2012 targets for four different groups of employees across All Sectors As evident in Figure 4.0, target levels differ significantly for different job levels, with executive levels receiving the highest bonus component, and the greatest level of risk. This continues the common practise of rewarding executives relative to company goals and performance. The increased line of sight Page 10 of 26

between pay and performance means the split between fixed and incentive pay is more distinct with bonuses typically making up 37.9 per cent of the fixed package. The use of incentives has not changed drastically over the past few years. The prevalence of incentive targets for employees is relatively similar amongst organisations in the Industrial & Service (71 per cent) and Financial Services sectors (74 per cent). Yet the actual payout rates are very different. In the Industrial & Service sector, 58 per cent of employees received a bonus payment, while in the Financial Services sector 82 per cent of employees received bonuses. This means incentives reach many more employees and are more prevalent within the Financial Services industry than in other industry sectors. Hay Group s research has found that organisations that communicate reward effectively to ensure employees understand what they are rewarded for and link this to performance are the ones that are more likely to have an improved shareholder return and lower staff turnover. Page 11 of 26

05 Pay Comparisons Comparison by Industry Sector Hot Sectors Resources and construction jobs still command a premium Salaries in the Resources and Construction industries remain very high compared to the general market. Mining (28.5 per cent), Oil and Gas (18.5 per cent), Construction (13.8 per cent) and Industrial Metal (10.4 per cent) are leading the way commanding double digit premiums in total pay packages above the rest of the market (refer to Figure 5.0 below). 2013 Industry Pay Premiums base on Total Reward values 30% 28.5% 25% 20% 18.5% 15% 13.8% 10% 10.4% 6.5% 5% 4.7% 0% Mining Oil & Gas Construction Industrial Metal Banks Utilities Chemicals Telecommunications & Media 1.0% 0.3% Figure 5.0: Hot industry sectors paying a premium for talent in 2013 (Total Annual Reward) Twelve months ago this picture was quite different both in terms of percentage amounts and order of industries. Mining commanded a pay premium of 20.5 per cent, Construction was second with 18.8 per cent and Oil and Gas earned a premium on 16.5 per cent. This shows the extent to which pay for Mining and Oil and Gas workers has increased relative to other industries. Despite lower than expected pay increases in these industries, the starting point in which these increases are based on (FAR) are a lot higher, therefore the dollar amount is bigger also. Page 12 of 26

Hay Group expects that even though Mining and Construction industries will continue to experience volatility and pay increases will continue to closer to the general market, actual pay differentiation against other sectors will remain fairly similar in the coming year. Weaker Industry Sectors Not for profit, Education and Public Sector jobs below average By contrast, Figure 5.1 reveals the lower pay in a number of other sectors. Average total annual reward in the Fast Moving Consumer Goods is lower than the general market by 5.9 per cent followed by Building Materials and Agriculture, Forestry and Fishing. The greatest pay differentiation was seen in Not for profit (9.6 per cent below), Public Sector (10.2 per cent) and Education with 11.3 per cent below the market. 0.0% 2013 Industry Pay Premiums base on Total Reward values % Difference in Total Annaul Reward 2.0% 4.0% 6.0% 8.0% 10.0% 5.9% 6.2% 8.0% 9.1% 9.6% 10.2% 12.0% 11.3% FMCG Food & Drink Building Materials Agriculture Forestry & Fishing Leisure & Hospitality Not for Profit Public Sector Education Figure 5.1 Fixed Annual Reward salary differentiations in weaker industries (comparisons against the market median) Organisations that have the highest number of employees in Australia are more than likely to be the lowest payers with the FMCG, Education, Public Sector and Hospitality industries all between 5 and 11 per cent below market average. For other industries such as Manufacturing, Tourism and Retail that have been affected by high exchange rates on currency, global volatility and subdued household spending as Australians brace themselves for rising living costs, pay increases are expected to be lower. This means organisations should pay careful consideration to the sectors in which it competes for talent, which may differ for different groups of jobs. Page 13 of 26

Hot Jobs The flow on effect of the resources boom is the demand for key skills and hot jobs. As a result of fierce competition for talent in these sectors, pay values are being driven upwards. Resources jobs set the pace Mining operations was the hottest job family in 2012/13, followed by Petroleum Engineering. As shown in graph (5.2), Mining related jobs are clearly leading the rest of the market. Jobs in Mining Operations, Exploration and Petroleum Engineering command Total Annual Reward premiums over 30 per cent while mining engineering jobs attracted premiums of around 27 per cent. This highlights the skill shortages apparent within these industries, as well as the high pay rates these types of roles can command due to the specialised knowledge the individuals must have in order to perform the duties properly. In general, where the demand is high for these specialist roles, skilled workers are in short supply. 50.0% 2013 2013 High High and and Low Low Payers Payers by Job Family by Job Family 40.0% 38.6% 30.0% 31.7% 30.3% 27.2% 20.0% 10.0% 0.0% 10.0% 6.3% 12.2% 20.0% Mining Operations Petroleum Engineering Exploration Mining Engineering 15.7% 16.7% Call Center Merchandising Education Social and Other Caring Work Figure 5.2 Comparative pay differentiation in higher paying job families vs. all jobs in the market At the other end of the scale, jobs in Merchandising, Education and Social Caring Work ranked lowest with pay levels between 11 16 per cent below the market. Specialised skills in hot demand The shortage of specialised and technical roles driving pay growth When looking a little deeper into the specific types of hot jobs, the specialised technical based positions within the Resources, Construction, and Utilities industries are attracting the premiums across all work Page 14 of 26

levels. Figure 5.3 shows just how dramatic this year on year increase has been with technical roles at all levels commanding much higher premiums compared with their non technical colleagues. This demonstrates where the investment in human capital has been spent and also how valuable these specialists are. As expected the professional levels are the most differentiated. Technical roles of this nature contain specific knowledge which is immediately utilised within operations. As the technical roles become more senior, their usefulness as a technical expert to the business diminishes as managerial roles require more expertise in terms of leadership and less in terms of deep technical knowledge. 35.0% 30.0% Pay Differences of Technical vs Non-technical Positions 2012-2013 (TAR) 29.5% Differential Percentage 25.0% 20.0% 15.0% 10.0% 8.2% 19.3% 13.4% 7.0% 18.3% 2012 2013 5.0% 0.0% Operations Grads to 1st level mgr Managerial Work Groups Figure 5.3 Pay movements of technical roles Most common jobs It is clear that resource based jobs are winning in terms of pay. At the other end of the spectrum, there are also those jobs with a pay differential close to or below the national market average (See Figure 5.4). This graph shows that many roles that are common across all industries and organisations are commanding only small percentages above the national average. A clear picture emerging is the earning power of the skilled technical specialist compared to other professionals. Twelve months ago, the 2012 Salary Movement Index found there were more common jobs sitting below the average, including Marketing, Sales, HR and Customer Service. This year these jobs are now back in line with the rest of the market. It is interesting to see Health and Environment jobs earning above the average, compared with the lower premiums for Legal, IT, HR and Marketing. At the other end of the spectrum Admin and Research and Development roles are under the market average. Page 15 of 26

14.0% Common Common Job Job Families DIfference Difference from from all Jobs all (TAR) jobs (TAR) 12.0% 11.4% 10.0% 8.0% 6.0% 4.0% 2.0% 2.1% 1.8% 1.6% 1.6% 1.4% 1.1% 1.0% 0.8% 0.0% 0.0% 2.0% 1.1% 4.0% 4.4% 6.0% Health & Envir. Legal Production IT Marketing HR Finance Logistics Sales Corporate Affairs Admin R&D Figure 5.4: Total Annual Reward comparisons for common job families Comparison by Geography Highest premiums in remote Western Australia Figure 5.5 shows jobs in regional Western Australia command the highest differentiation 21.9 per cent larger Total Annual Reward salaries compared to the nation s average for all geographies. In 2012, the difference was 16.8 per cent and in 2011 it was 13.4 per cent, suggesting the gap in Total Annual Reward in regional Western Australia is widening rapidly (Source: Hay Group ASMI July 2012 & Nov 2011). There is clearly still a need to pay well above the average to attract workers to the most remote parts of Australia. Meanwhile, jobs in regional Queensland earn a premium of 3.4 per cent in Total Annual Reward. This contrast with Western Australia is probably due to the fact that Queensland mining jobs are located close to regional centres, rather than in remote parts of the state. For this reason, workers do not require such high wages as enticement to overcome geographic (and social) isolation. It is significant that all geographies where pay is above the market median correlate with resources, oil and gas and construction investments a clear illustration of the pay practices that followed the boom. Page 16 of 26

ce from Regional (21.9%) WA Perth (6.8%) NT SA Adelaide (-3.2%) Regional (-2.7%) Regional (3.4%) QLD VIC NSW Regional (-2.8%) Brisbane (-0.4%) Regional (0.0%) Sydney (0.0%) Melbourne (-3.1%) TAS (-6.4%) Figure 5.5 Geographical Total Annual Reward differentiation The growth in Western Australia is also evident in the State s most recent employment figures. The Department of Education, Employment and Workplace Relations (DEEWR) has reported that over the year to December 2012, employment increased significantly in Western Australia, up by 53,200 (or 4.2 per cent), compared with the national employment growth rate of 1.0 per cent. The WA labour market is tighter in terms of availability of skilled workers than the national average, and employers are still experiencing some difficulty in attracting workers with specialist skills and extensive experience. (DEEWR Skill Shortages Western Australia July December 2012 report). By contrast, labour market conditions in Victoria weakened further over the year to December 2012, with notable declines in manufacturing, construction, and support services employment. The unemployment rate rose to 5.5 per cent in December 2012. Over the period, the participation rate fell to 65.1 per cent (Source: DEEWR Skill Shortages Victoria July December 2012). In terms of how these labour market figures relate to pay movements, the data reveals a widening gap between Perth and other cities, especially Adelaide and Melbourne. These differences seem to correlate with differing labour market conditions in each state, rather than the comparative cost of living (considering that Melbourne is Australia s second most expensive city to live in and fifth most expensive city in the world). Compared with the year on year figures, this trend is very clear. In 2012, Melbourne based workers earned Total Annual Reward 1.17 per cent below the national average, and today this has slipped to 3.1 per cent. Meanwhile, Perth based worker's total earnings moved from 1.8 per cent to 6.8 per cent above Page 17 of 26

the national average. There may be a need to differentiate pay package rates for jobs in Perth depending upon the role and situation. Although Sydney is a more expensive city to live in, compared with Brisbane, individuals are earning comparable salaries in the Hay Group PayNet database. Employers may like to consider the geographic location of a role when considering pay, but there is no obvious link to suggest that workers located in cities with a higher cost of living, receive higher pay as a result. Interestingly, a recent study by Hay Group comparing international pay across the world s largest cities found that Sydney workers are the 4th highest paid workforce in the world behind Geneva, Zurich and Oslo (Hay Group International Comparison Report 2012). Another key reason for the pay difference in Western Australia is that employees in Perth and Regional WA are receiving incentive payouts that are closer to target than that of other locations (See figure 5.6 below). Although the incentive target percentage may not be higher than all other states, the starting point in which the incentive is based on (FAR) is a lot higher, therefore the dollar incentive amount is bigger also. 14.0% 13.0% Actual Payouts vs 2012 Targets (%FAR) - Managers 12.0% 10.0% 8.0% 6.0% 9.3% 10.0% 8.0% 9.0% 9.0% 2012 Target Payout Rate 4.0% 2.0% 0.0% All Geographies Perth Regional WA Figure 5.6 Perth and Regional WA payout rate is closer to target then other geographies Page 18 of 26

06 The Global View Mature Markets According to Hay Group s global PayNet databases, the Australian market is well positioned when compared to other mature markets such as US, UK and also NZ. In 2013, Australia s salary forecast predicts a 3.5 per cent increase, ahead of the US, UK and NZ (all predicting less than 3 per cent rise) across all levels in the market (Refer to Figure 6.0 below). Australian general market pay movements in 2012 were well ahead of these markets, in particular those seen in the US and UK where the challenging economic climate resulted in small movements of 1.5 per cent in the US and marginally higher 1.7 per cent in the UK. Countries such as the US and UK are beginning to recover as is indicated with the increase forecast rates, but still remain slower than Australia. 4.5% Established Markets Movement and Forecast Comparison 4.0% 4.0% 3.5% 3.5% 3.5% 3.0% 2.9% 2.7% 2.8% 2.5% 2.0% 1.5% 1.5% 1.7% 2012 Movements 2013 Forecast 1.0% 0.5% 0.0% Australia US UK NZ Figure 6.0 Median general market salary movements and forecasts comparison between mature markets Page 19 of 26

Regional Markets India had largest real wage outcomes in 2012 Hay Group s PayNet database showed that in the developing regional markets, India recorded the highest wage growth in 2012 (11.7 per cent) and also has the highest growth forecast among these regional economies. China s pay growth was close behind with 9.0 per cent, followed by Malaysia (5.7 per cent) and Indonesia (5.5 per cent). Compared to the forecast, India's high rate of pay growth was above expectations the forecasted movement in 2012 was 10 per cent. Similarly, China's forecasted growth of 9 per cent was also exceeded in the last 12 months (Source: Hay Group Australian Salary Movement Index July 2012). It is interesting to see that these dramatic wage rise forecasts are being met and exceeded in these dynamic economies. The forecasted increase rates for 2013 across the region remain quite high with India and Indonesia expecting double digit growth. The region is bracing for continued economic growth and this is being reflected in the continual high forecasted pay rates. 14.0% Regional Markets Movement and Forecast Rate Comparison 12.0% 11.7% 11.6% 10.8% 10.0% 9.4% 9.0% 8.0% 6.0% 5.2% 5.5% 6.0% 5.7% 2012 Movements 2013 Forecast 4.0% 2.8% 2.0% 0.0% China Hong Kong India Indonesia Malaysia Figure 6.1 Salary movements and forecasts comparisons in regional markets Page 20 of 26

07 Recommendations When it comes to how organisations reward employees, getting it right can have a huge impact on productivity, performance, team morale and loyalty. The same can be said for getting it wrong. Given the relatively small pay increases that are forecasted for the coming quarters, retaining talent and incentivising performance through traditional pay related measures may require a rethink. As has been presented, the market differs substantially across jobs, sectors and geography, hence organisations need to focus on understanding the market that they compete in and apply the appropriate monetary and non monetary rewards that best fit. In the current Australian market, employee retention is a real concern. With Australia's low unemployment, highly valued employees may look elsewhere for more favourable work environments, making retention a growing concern for organisations. In fact, Hay Group has recently conducted research with the Centre for Economics and Business Research (Cebr) that found 58 per cent of Australian workers do not intend to stay in their current jobs for more than five years. The research reveals that organisations wishing to have higher engagement among employees and lower turnover should focus on getting these five fundamentals right. 1. Confidence in the organisation and its leadership, providing clear direction line of sight and support 2. Development ensuring clear pathways for career development and progression are in place and communicated 3. Selection ensure you are selecting the right people for the right job in order to maximise employee contribution and minimise turnover costs 4. Reward fair (internal and external) recognition of both monetary and non monetary methods, ensuring it s a good fit for the organisation 5. Enabling employees giving people what they need to do a good job, and an environment that is positive and one that fosters innovation and creativity Page 21 of 26

08 Appendix Remuneration Definitions Movements Salary movements presented throughout this report have been calculated using only those organisations participating in the database at two anchor points in a 12 month period i.e. 1 March 2012 and 28 February 2013. This ensures that the movements presented are reliable and valid when examining trends over time. These are reflective of each individual 12 month period and are not to be taken as cumulative over a number of years. Actual Short Term Incentive Actual Short Term Incentive (STI) is the actual award amount paid during the most recent 12 month period under a target based incentive or bonus / profit sharing plan. Where applicable it also includes commission, production bonus and productivity bonus. The full year award is included even where part of the payment is deferred for a period of time. This concept includes zero values i.e. where an incumbent qualified for a Short Term Incentive but did not receive one in the last year, for performance reasons. It does not include incumbents who do not participate in any Short Term Incentive scheme. Target Short Term Incentive Target Short Term Incentive is the target award amount anticipated to be paid at the completion of the current 12 month period under a target based incentive or bonus / profit sharing plan at the planned performance level. Where applicable it also includes targets for commission, production bonus and productivity bonus. The amounts given under this concept may or may not include the superannuation associated with the payments as per Ordinary Time Earnings (hereafter referred to as OTE). Fixed Annual Reward Fixed Annual Reward (FAR) is the sum of base salary plus fixed allowances and benefits such as medical, telephone, company cars, loans, club fees, car allowances plus employer superannuation on fixed package elements, but excluding Actual Short Term Incentive and related Superannuation on variable OTE package elements. The cost of Fringe Benefit Tax (FBT) and Goods and Services Tax (GST) is also included. Total Annual Reward Total Annual Reward (TAR) is FAR defined as above with the addition of Actual Short Term Incentive payments and related superannuation contribution on variable OTE payments. STI as a Percentage of FAR STI as a Percentage of FAR is the Actual Short Term Incentive amount paid during the most recent 12 month period under a target based incentive or bonus / profit sharing plan as a percentage of Fixed Annual Reward. Page 22 of 26

Target as a Percentage of FAR Target as a Percentage of FAR is the Target Short Term Incentive amount anticipated to be paid at the completion of the current 12 month period under a target based incentive or bonus / profit sharing plan at the planned performance level as a percentage of Fixed Annual Reward. As defined above, Target Short Term Incentive payments may or may not include the superannuation associated with the payments as per OTE. Please note: all of the above definitions EXCLUDE payments which vary due to the hours worked (e.g. shift allowance, overtime, callout/standby payments) and any allowances which are site related (e.g. Fly in Fly Out, remote location). About this Report The Australian Salary Movement Index (ASMI) is released on an annual basis. It observes trends throughout Australia across all industries, geographic regions and job levels. This report includes detailed analysis, which addresses the following questions: How is the economy tracking? How has pay moved in the key sectors and what is the salary forecast for next 12 months? Which geographic, industry and job family pay differentials does one need to be aware of? How prevalent are Short Term Incentives? What is the value of incentives? How does the reward mix vary by job size? How are global markets moving? The Australian Salary Movement Index report is a comprehensive overview of the Australian reward climate as reflected by Hay Group s PayNet database. This report is based on market results from 440 organisations and well over 280,000 jobs collected by Hay Group updated on 28 February, 2013. Internationally, Hay Group s PayNet databases cover over 90 countries with 15,000 organisations providing data on 12 million incumbents. The charts below represent the distribution of the Australian database participants by major industry. Page 23 of 26

Industrial Goods Utilities Chemicals Transportation Oil & Gas Mining Not for Profit FMCG Food & Drink Professional Services Business Services Retail Public Sector Pharmaceuticals & Healthcare Providers Insurance High Technology FMCG Other Building Materials Banks Other Financial Service Leisure & Hospitality Industrial Metals Education Construction Agriculture, Forestry & Fishing Telecommunications & Media Consumer Durables Distribution of Participants by Industry Classification 1% 1% 2% 2% 2% 2% 2% 2% 3% 3% 3% 3% 3% 3% 3% 3% 4% 4% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 5% 5% 6% 6% 7% 8% 8% 9% Percentage of Participants Data Collection Data is collected on a rolling basis throughout the year as clients complete their annual remuneration review cycles. This ideally occurs within 90 days of a finalised review. This approach means that Hay Group s Australian databases reflect only current data, direct from our client organisations. Data submissions are subjected to extensive quality checks before they are integrated to the database. All survey jobs require full identification coding to allow analysis based on geography, industry and job family. Every part of the remuneration mix has also been collected allowing analysis for each component and/or aggregate in isolation, as well as overall package value. About Hay Group Hay Group is a global management consulting firm that works with leaders to transform strategy into reality. We develop talent, organise people to be more effective and motivate them to perform at their best. Our focus is on making change happen and helping people and organisations realise their potential. We have over 2600 employees working in 85 offices in 48 countries. Our clients are from the private, public and not for profit sectors, across every major industry. For more information please contact 1800 150 124 or email us at info_pacific@haygroup.com. Page 24 of 26

Specifically with reward, Hay Group helps organisations untangle complex compensation and total reward information to reveal the insights needed to make pay decisions and support strategic business goals. We help clients in over 90 countries utilise benchmarking information to maximise the return on their payroll investment. We always seek to understand your reward information requirements and present the right solution to meet your needs. We understand the role of reward as a strategic lever in organisations and we have unrivalled experience in providing detailed and practical information to guide on going decisions. We can help organisations regardless of size. Our client base spans multinationals with thousands of employees across multiple geographic regions. Our databases enable clients to make in depth compensation comparisons with unparalleled consistency and reliability. We are continually improving and expanding the databases to provide deeper dimensions of analysis, more customised capabilities and greater flexibility. About the Authors Steven Paola is a Senior Consultant with Hay Group based in Melbourne. Steven helps organisations understand how reward can be managed efficiently and effectively in the organisation to benchmark its internal equity and external competitiveness and achieve the appropriate return on investment. This specifically revolves around providing advice and interpretation of market pay and benefits information and then the link to how best use this in the organisation. Trevor Warden is the National Practice Leader for Strategic Reward for Hay Group Pacific, based in Melbourne. Trevor area of expertise is working across people issues with a focus on executive and employee reward. He helps organisations develop sound people, reward and performance strategies and implement practical programs that are aligned to business strategies and objectives. Disclaimer This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is published on the understanding that the publisher is not responsible for any errors or omissions and for any action or actions that are taken or for any consequences of reliance on this information by the purchaser or any other person or persons as a result either directly or indirectly of the information contained in this publication. Copyright This publication is copyrighted. All rights are reserved by Hay Group Pty Limited including right of total or partial reproduction in same or deceptively similar form without written permission of the owner of the copyrights. Page 25 of 26

Media and Analyst Enquiries: We encourage you to contact us if you require additional information not contained in this report, or should you need assistance in interpreting the survey results. You can contact Reward Information Services at the following locations within Australia: Melbourne Office: Level 27 Suite 10 360 Collins Street Melbourne VIC 3000 Tel: (03) 9667 2666 Fax: (03) 9667 2699 Sydney Office: Level 17 1 Castlereagh Street Sydney NSW 2000 Tel: (02) 8227 9300 Fax: (02) 8227 9399 Brisbane Office: Level 14 340 Adelaide Street Brisbane QLD 4000 Tel: (07) 3832 0033 Fax: (07) 3832 1546 Perth Office: 24 Railway Road, Subiaco Perth WA 6008 Tel: (08) 6380 1331 Fax: (08) 9381 2425 Page 26 of 26