China Salary Survey

Like its predecessor, Swann’s 2007 pay survey of 38 China International Mining Group members flagged a host of interesting developments.

By including more firms involved in activities beyond exploration, we were able to examine the pay of professionals other than Geologists.

A key finding was strong growth in the number of locals heading mining firms in China.

An Executive Manager (EM) is a  business unit’s head or most senior person. In 2007, local EMs more than doubled to 37%. This lowered average EM pay by 7% (the only group to experience a fall).

The importance of local EM representation was reinforced both by the surge in numbers and the finding that returnees were paid 15% more than expats. Though the proportion of returnee EMs fell from 26% to 19%, their value increased.

As expected, the pay of Managers and Geologists rose 10-15%. The wide pay variation in each group (even for the same roles) in our 2006 survey featured again in 2007.

In the Senior Geologist ranks (people who lead a team and report to a  business unit head) locals represented 68%, expats 26% and returnees 6%.

Due to high demand for returnee Senior Geologists’ scientific skills and Chinese  language and culture appreciation, their pay rose to that of expats.

Pay for both groups was triple that of locals, as local pay is linked to English ability and only 25% of locals had fluent or very good English.

Given the limited supply of local Senior Geologists with English, we expect demand for them to continue, with their pay trending towards that of returnees and expats over time. Our data on the Senior Professional/Technical group (engineers, metallurgists, environmental specialists) found many locals, some expats and no  returnees. While the pay range  between the groups was very wide, the spread among locals was fairly even, with a 2.5:1 ratio between the lowest and highest rates. English  ability was the strongest influence.

While the increase in local leadership  demonstrates growth in available talent that will benefit international mining firms in China, it may not reduce pay. The rising cost of returnees illustrates the value of China  knowledge plus Western experience. But as locals gain more of that experience, their cost may increase while returnee impact reduces.

It’ll be interesting to see if this localisation trend continues. As locals bring the language, cultural and political understandings that international firms often seek from returnees, their growing experience with these firms should see their relative position continue to improve.

It’s clear there’ll be more rationalisation before pay rates in China become predictable. As senior level expertise is in short supply and high demand globally, China's international mining firms are competing both with each other and with other regions. Talent attraction and retention will therefore continue to grow as significant issues.

Peter Arkell
Managing Director, China

Talent Risk!

Companies have been fighting the “war for talent” for over ten years. For the first few years new programs were developed and succession plans polished and generally the value of HR was talked up and indirectly, the price of talent. These battles however, failed to engage boards. None the less HR programs were due for over-haul the profile of the function hitherto largely administrative was raised.

A temporary cease fire existed as industry absorbed the fall out of Enron but recommenced with the new talent challenges when generation X began to enter the workforce compounding the complexities of generation Y and the baby boomers finally beginning to leave the workforce. Clearly the one size fits all HR policies that appealed to a prior generation who valued work and expected loyalty to be rewarded e.g.  tenure based incentives such as pension plans and long service awards, would not survive.

There were going to be far less people (for every two retiring less than one would take their place.) and those available would want different career paths and incentives.

Loyalty to an employer was gone. Reward packages would need to comprise different elements appealing to new and old generations who employers are desperate to retain.

Reinventing reward is by no means complete. Alignment with business goals and strategic direction will be fundamental to competing in the escalating talent wars. The mining industry is particularly exposed. With increased demand for  commodities – there is no shortage of capital or new projects requiring exploitation of deeper, more remote and harder to get at deposits.

Mining talent consequently is in incredibly short supply with insufficient people for the projects that have been approved and further international assignments short supply with insufficient people for the projects that have been approved and further international assignments the projects that have been approved and further international assignments do not hold the attraction with younger managers as they once did for their parents.

Investors are alert to this rapidly growing execution risk. In our surveys with Markets Intelligence - strategic research organization, talent management features as a top 5 risk.

Analysts want to understand how succession and retention plans align with the organization’s business strategy and what the new talent conduits are.  Previously, communicating that a succession plan that addresses unexpected replacement of top job holders (more a tool for the risk management function than HR) was adequate. In the fast moving talent war this is considered insufficient.

Boards and executive teams are making a priority the implementation of retention strategies and metrics that include:

o Multi-faceted terms and conditions that align with or drive strategic plans
o The ability to measure talent velocity e.g. how quickly high potential mangers move through the organization
o New employee international mobility models

A robust retention strategy in the long run is the most effective way to win the talent war. Of the critical risk issues constraining project development - the supply, management and development of people is regarded as one of the most important for mining companies.

The HR profession should now be poised to make a major strategic contribution.

African Observations 

Africa, a continent rich in resources and minerals, is being referred to by many in the mining and resources sector as “the last frontier” but that is not to say that it is  undiscovered rather it remains underdeveloped.

Large and small mining houses have held leases for many years but for various reasons including sovereign risk, logistics, insurgency and simply the ability to supply world demand from alternative sources, Africa has seen little in the way of investment and  development in the recent past

Power shortages in the most developed African nation, South Africa, highlight another serious problem that affects many other African countries.

Changes to the industry in Africa have evolved from a greater nationalistic attitude from some of the continent’s governments who, in an effort to capitalise on their natural resource wealth for their own country’s benefit are looking to adjust the balance of power. This is being seen in such places as the DRC where the reissuing of leases has been made against guarantees of prompt development.

The resource starved economies of China and India are leading this assault  against the traditional “European “ mining houses which had developed the industry very much for their own benefit. But changes are occurring within these companies as they re-examine their commitment, structure and governmental relationships.

We at Swann have, for the past 15 years been observing the winds of change blowing over the continent and understand that to achieve these changes, the industry needs experienced and qualified people like never before.
 

Accordingly we expanded our global network by opening an office in Dubai in  July that is responsible for the Middle East and North Africa, while we have been undertaking work in both East and West Africa for various clients.

A significant component of our work in Africa to date has been benchmarking remuneration and this has proved difficult because of the limited amount of resource activity on the continent but it has lead us to a realistic understanding of the issues facing companies in the future. It will mean serious consideration must be given by any company going forward to the following:-

  - Experienced expats will attract  significant premiums to salary and benefits in a tight global labour market.

 - Cost of residential expats has proven significantly higher than FIFO even IF you can get someone to consider  taking  their family to many parts Africa

 - Increasing use of expats from countries such as India and the Philippines remembering that the historical disparities in remuneration are diminishing.

Other important issues are rosters, with a 2:1 roster recommended to attract quality people, which means careful consideration to operational continuity is necessary. An operational hub out of a country in Europe could be considered with much of Africa in the same time zone as Europe. Even a city such as Casablanca allows easy access and a more stable working environment for the majority of employees with subsequent efficiency and cost benefits.

Swann Global have a team dedicated to developing existing business in Africa and expanding the many opportunities which are available. This is currently supported from our Head Office in Melbourne but may well soon require a European operational hub to support out clients activities “in situ”.

Andy Cunningham
Associate Director

Tom Magee
Associate Director