Developing Key Performance Indicators and Productivity ...

1 APEC HRD03/07 Developing Key Performance Indicators and Productivity / Performance Benchmarks for Performance Based Remuneration Systems Report Kuala Lumpur, Malaysia Human Resources Development Working Group (HRDWG) Labour and Social Protection Network Asia-Pacific Economic Cooperation August 2007 315 Prepared by: National Productivity Corporation Box 64, Jalan Sultan 46904 Petaling Jaya Selangor Darul Ehsan Tel: (603) 7955-7266 Fax: (603) 79547910 Website: FOR THE ASIA-PACIFIC ECONOMIC COOPERATION SECRETARIAT 35 Heng Mui Keng Terrace Singapore 119616 Tel: (65) 6775-6012 Fax: (65) 6775-6013 Email: Website: [2007] APEC Secretariat APEC# 1 Table of Contents Page Executive Summary 3-4 Performance Management Systems Developing Key Performance Indicators Linking Remunerations to Performance Practices among Selected APEC Economies Conclusion I.

2 Developing Key Performance Indicators and Productivity / 5-75 Performance Benchmarks for Performance -based Remunerations System in Australia Australia s Economy Conditions of Work Measures of Australia s Progress Improving Business Management Processes Performance -based Remunerations Case Studies on Performance -based Remunerations Summary and Conclusions II . Developing Key Performance Indicators and Productivity / 76-146 Performance Benchmarks for Performance -based Remunerations System in Korea Korea s Economy Towards Labour Market Reforms Employment Issues Outlook of Industrial Relations Productivity and Wage Statistics Changes in Pay Systems Trend of Performance Management System in Korea Case Studies of Performance -based Remuneration Systems Success Factors Conclusion III. Developing Key Performance Indicators and Productivity / 147-223 Performance Benchmarks for Performance -based Remunerations System in Malaysia Malaysia s Economy Competitiveness Environment Factors Human Resource Issues and Challenges Labour Market Situation Productivity and Wages Performance Management System The Productivity Linked Wage System Company Case Experiences Conclusion IV.

3 Developing Key Performance Indicators and Productivity / 224-311 Performance Benchmarks for Performance -based Remuneration Systems in Chinese Taipei The Chinese Taipei s Economy Economic Policy and Performance Labour Management Relations Move Towards Performance -based Human Resource Management Compensation Management Framework and Guidelines Performance -based Compensation in Chinese Taipei Enterprise Level Survey Case of Financial Institution Issues and Challenges 3 Executive Summary Performance Management Systems Performance Management Systems is increasingly being implemented to enhance Productivity and competitiveness at the firm level. This is evident in the studies carried out among selected APEC economies of Australia, Korea, Malaysia and Chinese Taipei. This report documents the economic development, competitiveness, Productivity and wages, Performance management systems, Performance based remunerations systems and case studies of companies who have implemented such systems.

4 The impact, issues and challenges faced by organizations who have implemented Performance based systems are well reflected. Developing Key Performance Indicators The Performance management process consist of three main steps of defining the job and Developing evaluation criteria, Performance appraisal; providing evaluation feedback. There is also a need to determine specific measurable goals or key Performance Indicators . Key Performance Indicators (KPIs) are comprehensive, organization-wide goals established to gauge whether the targets had been established. KPIs have to be specific, measurable, acceptable, realistic and timely. The main objective is to manage, direct and measure Performance to implement and realize corporate strategies. Linking Remunerations to Performance Performance -based remunerations schemes comprises of two components, a fixed component and variable component.

5 Some of the schemes include: Long term incentives which are used to encourage executives to focus on business activities which can lead to improved organizational Performance ; Sales compensation plans which are intended to motivate and align goals with those that are of most benefit to the organization; Gainsharing plans which motivate employees to use their skills to boost company Performance . Payouts are made 4periodically in accordance with overall company Performance improvements; and Productivity linked wage system which links the payment of wages to enhanced Productivity Performance . Practices among Selected APEC Economies The common features of Performance based systems among the four selected APEC economies of Australia, Korea, Malaysia and Chinese Taipei includes the increasing emphasis by organizations on Performance .

6 Various Performance monitoring systems such as the Balanced Scorecard, McKinsey Seven-S Model ,Management by Objectives, Key Performance Indicators , Excellence Models and Productivity and Wage Systems are being increasingly implemented at the firm level. Among the benefits of such systems are enhanced Performance as indicated in the various financial Indicators as well as enhanced Productivity and competitiveness. Conclusion When designing an effective compensation plan, organizations need to take into account the overall package offered to employees. Total Rewards is a generic term used to describe such compensation and incentive packages and may include; pay, bonuses, incentives, core benefits, and recognition. The Total rewards package should comprise a fixed component that provides income stability and a variable component which reflects the contribution and Performance of the employees.

7 In this era of intense competition, Performance based remunerations systems had been identified as an important initiative to be implemented at the organisation level to enhance Productivity and competitiveness. 5 I. Developing Key Performance Indicators and Productivity / Performance Benchmarks for Performance Based Remuneration Systems in Australia By MS IRENE PAGE Australia s Economy As of 2006, Australia s GDP amounts to $ billion. Inflation rate is at % per annum. The country exports coal, iron ore, non-monetary gold, crude petroleum, and bovine meat with an estimated income of $114 billion for the period of 2005-2006 alone, with major markets including Japan, China, Korea, and the Similarly, Australia imports passenger motor vehicles, crude petroleum, computers, medicaments, and telecommunications equipment from major suppliers such as China, , Japan, Singapore, and Germany amounting to $125 billion for 2005-2006.

8 Australia s advanced market economy is dominated by its services sector, (72% of the GDP) yet it is the agricultural and mining industries (8% of the GDP combined) that account for the bulk of its goods and service exports. The manufacturing sector has experienced continuous decline in production for several decades, but is now steady at 10% of the GDP. In the 1980 s, the Australian Government have instituted significant structural reforms to transform Australia into an internationally competitive, export-oriented country. Key reforms include: a) Reduction of tariffs and other barriers; b) floating the Australian dollar exchange rate; c) deregulating the financial services sector; d) liberalizing access for foreign bank branches; e) restructuring the highly centralized system of industrial relations and labor bargaining; f) better integrating the state economies into a national federal system; g) improving and standardizing national infrastructure; h) privatizing government-owned services and public utilities; and i) reforming the taxation system, including the introduction of a broad-based Goods and Services Tax.

9 7 Australia is now in its 16th year of uninterrupted economic expansion and enjoys a higher standard of living better than any G7 country other than the The Australian Government has zero net debt, and through Future Fund , is building a net assent position to deal with future liabilities springing from an aging population. Australia has completed Free Trade Agreements with Singapore and Thailand, and is currently pursuing similar Agreements with the (commenced January 1, 2005) and other Southeast Asian countries. Australia s current economic standing is a result of a commitment to best-practice macroeconomic policy settings which include the delegation of the conduct of monetary policy to the independent Reserve Bank of Australia, and a broad acceptance of prudent fiscal policy where the government itself aims for fiscal balance over the economic cycle.

10 Aside from this, the country inculcates of a Strong Ethical Framework a nation free of corruption, where intellectual property rights are respected and protected, consumer and supplier protection is strengthened, and the environmental standards are high. Education played a key role in contributing to the economic prosperity and the social fabric of the nation. It rates as 6th in place in terms of it s population s educational attainment up to the secondary level following the Korea, Japan, Canada, US, and New Zealand. Inflation In terms of inflation, Australia has maintained a low trending since 1990s and this contributed to the improvement of its international competitiveness. Also, improvements in Productivity and increased competition in goods and services markets are the thought to have contributed to low inflations. Since inflation can have significant economic effects, the relative rates of inflation in Australia and overseas affect international competitiveness.