How much is enough?

Published:
04 Jun 2010
Author:
Rita Avdiev
Source:
Property Australia

It’s been tough in the property industry since 2008. Employers rationalised their companies, employees lost their jobs, the lucky ones were kept on at reduced or static pay. Are we now really in full recovery mode?

Business conditions in Australia are still affected by global influences. The global financial crisis seems to be receding, but the Greek crisis may spread to the other floundering Euro nations – Portugal, Italy, Ireland and Spain. The UK is facing a hung parliament, the US dollar is low, the share market on a roller coaster.

China is the outstanding success of the Asian region. Swiftly recovering from a minor downturn, it is fuelling the next Australian resources boom. However the Government’s new tax on mining super profits may damage Australia’s reputation as a safe haven for sovereign investment.

Our media has been in good news overdrive – what a difference a year makes. But is it all good news? The Australian Government stimulus handouts have been spent by the people, now they are saving up to pay their mortgages.

What next? There is talk of a two-speed economy emerging, not just one, but one in every sector.

Of the states, it’s WA and Victoria that are doing well. The rest are still lagging, especially NSW. The resources sector is regaining speed (that’s big business now fighting the government). But the services sector – small business, especially retail and hospitality – so dependent on consumer spending, is not doing well.

The Reserve Bank keeps raising interest rates to calm the booming residential market, consumers are focusing on repaying their mortgages. Now the investors are out buying, too. Where is the supply of new housing going to come from, especially in the light of forecasts of substantial population growth?

After sharp rises early in the year, job creation has stabilised. In some sectors, the next phase may be a jobless recovery, while companies increase their employees’ workloads or working hours without replacing lost jobs.

In others, a boom and the war for talent may return. Nevertheless the push for pay rises is well and truly on. Having gone without a pay increase for a year or longer the team is getting restless and employers are seeking guidance on how much is enough.

At the top end of town there is debate about the Productivity Commission’s Report on Executive Remuneration, targeting voluntary constraints, changing advisory practices as well as discussing clawback measures and engaging shareholders in remuneration decisions.

In the US, the Malus principle (give that bonus back) is being informally introduced into major investment banks. Is shaming the fat cats going to work? If it does, will Australia adopt it?


Remuneration Report findings

The dramatic impact of the global economic conditions on property market remuneration policies, seen from 2008, appears to be all but over and contributors to the 24th edition of the Avdiev Property Industry Remuneration Report indicate an intention to move back to their practices of earlier years.

No companies are expecting to reduce pay in the next 12 months at the senior level, although 5 percent had previously done so due to poor business conditions.

Last year 41 percent of contributors reported a pay freeze for senior staff, while just 8 percent expect to freeze pay this year. Fourteen percent of companies are giving a minimal increase in pay in the coming year, a similar level to the 12 months previous.

However, the majority of contributors expect that they will either give the “usual” full increase in pay of 4 percent to 5 percent or the “usual” full increase plus an additional percentage to compensate for last year’s freeze.

The median outcome of remuneration reviews reported in the 12 months from May 2009 to April 2010 was 0 percent increase for senior executives, 1.5 percent for mid-level staff and 2.0 percent for juniors. This result reflects the high number of companies freezing and, in a few cases, reducing remuneration.

Contributors reported that they expect remuneration will increase by a median of 4 percent for all levels of employees at the next reviews, from May 2010 to April 2011. This is a significant increase and will vary between market sectors.


Incentives

The difficult times in the property markets of 2009/2010 have impacted on short-term incentive (STI) payments, particularly at the senior end.

The average STI reported at the last reviews was 11 percent for senior staff, 5 percent for mid-level staff and 0 percent for junior staff. It is expected that the situation will improve somewhat in the 2010/2011 financial year with the average STI expected to be 12.25 percent for senior staff, 9 percent for mid-level staff and 5 percent for junior staff.

Long-term Incentives (LTI) have been similarly affected by business conditions. Typically paid to the most senior executives, the average LTI in the past 12 months was 10 percent, whereas the outlook for the next 12 months is for 22.5 percent LTI.

Companies have responded in a variety of ways – restructured, abandoned the LTI, increased participation and reduced participation in the LTI.


Women in property

Women now make up 42 percent of the total workforce of contributor property companies. This compares with the finding of 37 percent when last canvassed in November 2006.

Women occupy over 20 percent of non-executive director and division/business unit head roles, while just 14 percent of chief executives and managing director roles are filled by women. Women have the highest representation in secretarial/administrative – 90 percent, and junior professional roles – 40 percent of all employees.

Specific policies are in place in 15 percent of companies to increase the number of women in their workforce, higher than the 11 percent finding in 2006.

These policies included equal opportunity policies, parental leave, flexibility, mentoring, promotion workshops and leadership programs.

Eight percent of contributing companies have adopted targets as a way of increasing the representation of women in senior property roles. However, quotas are not so prevalent, with just 2 percent of property companies adopting them. Eight percent of companies intend to publish a gender diversity plan in their annual reports. Women still have a very long way to go.


Recruitment

The outlook for hiring new senior staff appears to be improving. Almost half of contributors expect that they will fill vacancies as they arise as a matter of course, compared to 37 percent being in that position in the previous year. Just 5 percent of companies will continue to freeze recruitment, compared with the 14 percent finding last year.

The growing recruitment activity will be increasingly handled in-house, which will be unwelcome news for recruitment companies.

In addition, it is expected there will be a decrease in the number of companies creating new positions in the next year, declining from 14 percent to 10 percent of companies. When new positions are created, it will be to bring in new skills or due to business expansion.

A higher percentage of companies surveyed expect to be able to create a position for opportunistic appointments. However, rehiring previous employees made redundant in the previous 12 to 18 months does not appear to be on the agenda. Having cleaned out non-essential staff, companies now want a new workforce for the future.

Serious pay negotiations lie ahead. How much will be enough?


Rita Avdiev is managing director of The Avdiev Group.