PepsiCo designs reward toolkit for staff in emerging markets

Global beverages company PepsiCo has designed a toolkit to drive its retention of talent in emerging markets, which includes reward packages that are tailored to each country and are different to those of its competitors.

The toolkit has already been piloted in one Asia Pacific country and saw a 2% drop in staff turnover. Pepsico is currently rolling out the scheme to four more countries, and will implement it to a further two later in 2013.

Speaking at the annual WorldatWork Total Rewards conference in Philadelphia, USA, Duncan Micallef, vice president, compensation and benefits, Asia, Middle East and Africa (AMEA) at PepsiCo, said: “Typically we go out into the market and ask what 80% of people are doing, and then we do something similar. In this particular case, we wanted to do something that the market wasn’t doing.”

He explained that most emerging markets did not suffer “much of a recession” and the war for talent in those regions has escalated. High pay increases are common, incentives are rare and staff turnover, especially at manager level, is high.

PepsiCo calculated that in one country the cost of the new toolkit programme would be $500,000 USD, but a 1% reduction in staff turnover would save $350,000 USD.

It worked out that direct staff turnover costs, for example the cost of recruiters, were 50% of salary, and indirect costs, such as loss of productivity, were 50% of salary. This means that the overall cost of losing an employee is between 80 and 100% of salary.

Greg Smith, senior director, global benefits and wellness at Pepsico, said: “You need to help the country general manager understand the downstream cost savings of using this programme. Otherwise you won’t get very far.

“Every market is different. If you are going to make the case to a country general manager that you want to put in place some special programme, it is really important to start by making sure you understand the employees, understand what their preferences are, what is going to motivate them and what is going to drive engagement.

“If you say you are going to offer benefits just because other companies do it, that is not good enough to capture [the employees’] mind and capture their interest.”

To achieve this, PepsiCo conducted a thorough review of the needs in each country by running focus groups among staff, speaking to peer companies and recruiters, and benchmarking with consultants.

Smith said: “We looked at 20 markets, it was a two to three-year journey. The goal was to understand employee preferences and emerging trends.”

Pepsico gained insights into labour market challenges, what skill segments were in high demand, and what the pending regulatory changes were.

In eight of the 10 markets it investigated in depth, management turnover was a problem, with some countries experiencing staff turnover of 15% to 30% at manager level. “You can’t have that level of turnover in your executive feeder pool and expect to perform,” said Smith.

It also found that in some countries its compensation and benefits levels were below market. “In some ways, that is more important to fix before you start trying to add on bells and whistles, in order to ensure you aid retention,” added Smith.

Pepsico worked with the local market to come up with a three-year plan and has given HR teams in each country a toolkit to aid staff retention. In the toolkit, there are locally relevant choices because each market needed a different solution. Reward and benefits make up two of the five components of the toolkit. It includes eight programmes, and covers elements such as flexible benefits, bonus, recognition and wellness.

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PepsiCo links the three-year road maps back to talent teams and to leadership teams to ensure it is integrated with broader change efforts, particularly training and development.

“It has been most impactful when it has been integrated with a holistic retention solution,” said Smith.