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China Mobile Human Resources Enhancement China Mobile Human Resources Enhancement Project MeetingProject Meeting Acenture Consultancy Co., Ltd July, 2001 Page 2 AgendaAgenda ?Project deliverable Discussion Part I：Market Comparison Result Part II：：Salary Structure Design Part III：Benefit Plan Suggestion Part IV：：Stock Option Plan Suggestion Confidential Draft for Discussion only Page 3 Part II. Salary StructurePart II. Salary Structure Page 4 Considerations in Salary Structure designConsiderations in Salary Structure design ? Based on the proposed salary structure discussed in last meeting on June 1st, and the interview with China Mobile top management, considering the current salary situation of China Mobile three pilot sites , suggested salary structure is designed based on the following pay philosophy：： – All employees’ Guarantee Cash should be correspond to Market median (P50). And based on the market trend, widen the GC gap among different levels of employees gradually, thus change the current situation that GC varies slightly among different levels. – Adjust the percentage of Variable Pay Vs Guarantee Cash, thus change the current situation that VP percentage is too high. – Widen the Total Cash salary gap among different levels based on the Market trend. – Timeframe for achieving Target Market Position: 3 years Page 5 Considerations in Salary Structure designConsiderations in Salary Structure design ? In order to increase the accuracy of the new system design, and make it easier to do cost analysis, the proposed new salary structure adopts the actual salary data of all employees provided by HR department of China Mobile Beijing, Hebei and Shandong ? The grading information adopted in the new salary structure is based on GGS, which is just for salary structure design use, not the final grading result for China Mobile ? According to Acenture survey, annual salary increase rate varies from 5% to 11%, so we assume the average salary increase rate of market will be at 8% in the next three years Page 6 Salary Structure Design - Guarantee CashSalary Structure Design - Guarantee Cash ? The first step for salary structure design is to set the Guarantee Cash for each grade benchmarking with market situation. The detail process is as following: Set the Anchor point for Mid- Point adjustment Set the Anchor point for Mid- Point adjustment Set the Salary Progression Set the Salary Progression Set the Range Spread for each grade Set the Range Spread for each grade Page 7 Guarantee Cash－Anchor Point Guarantee Cash－Anchor Point ? Grade 11 are selected to be the anchor points for salary structure midpoint design, following is the detail information for three times adjustment: BeijingHebeiShandong Page 8 ? Mid-point progression refers to the percentage difference between the pay grade mid-points. The larger the mid-points progression, the fewer the number of job grades within a pay structure. ? There are two considerations when setting mid-point progression ?if the progression is too high, possible result could be costly promotional increases ?if the progression is relatively low, possible result could be salary compression issues and difficulty in matching promotions with appropriate compensation reward ? Considering the whole structure, the progression is adjusted gradually by grade, till in the end the structure is adjusted to the situation that the higher the grade is, the bigger the pay gap is. Grade 17~19(Senior Mgt.) 12~24%(Increase)18~23%(Increase)10~23%(Increase) Grade 12~16(Mid Mgt.) 12~23%(Increase)17~23%(Increase)10~23%(Increase) Grade 6~11(Supervisor)5~23%(Increase)10~22%(Increase)10~21%(Increase) Grade 1～5(General Staff)5~21%(Increase)5~20%(Increase)1~20%(Increase) BeijingShandong Guarantee Cash－Mid-point Progression Guarantee Cash－Mid-point Progression Hebei Page 9 Guarantee Cash－Mid-point Progression Guarantee Cash－Mid-point Progression BeijingHebeiShandong Page 10 ? A salary range consists of a minimum pay value, a maximum pay value and a mid-point. The difference between the maximum and the minimum is the range spread or the the width of the range ? Range spreads vary based on the level of sophistication of skills required for a job. Jobs requiring skills which can be mastered quickly usually have a narrower pay range. Senior jobs which require a longer learning curve and often have limited opportunities for advancement tend to have a wider pay range ? Currently China Mobile Beijing’s range spread is relatively big, thus we adjust the range spread gradually based on the market trend. In the end, the situation is that the higher the grade is, the wider the range spread is. Grade 17~19(Senior Mgt.) 35~45%(Increase)35~45%(Increase)35~40%(Increas Grade 12~16(Mid Mgt.) 35~40%(Increase)35~40%(Increase)35~35%(No Chan Grade 6~11(Supervisor) 35~30%(Decrease)35~30%(Decrease)35~30%(Decreas Grade 1～5(General Staff) 35~20%(Decrease)35~20%(Decrease)35~20%(Decreas Guarantee Cash－Range Spread Guarantee Cash－Range Spread BeijingShandongHebei Page 11 Guarantee Cash－Range Spread Guarantee Cash－Range Spread BeijingHebeiShandong Page 12 Guarantee Cash－Mid-Point Adjustment Process Guarantee Cash－Mid-Point Adjustment Process BeijingHebeiShandong 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1 3 5 7 9 11 13 15 17 19 Grade Guaranteed(RMB p.a.) 1st Adjustment2nd Adjustment 3rd Adjustment2001 Market Medium 2002 Market Medium2003 Market Medium 0 100,000 200,000 300,000 400,000 500,000 600,000 1 3 5 7 9 11 13 15 17 19 Grade Guaranteed(RMB p.a.) 1st Adjustment2nd Adjustment 3rd Adjustment2001 Market Medium 2002 Market Medium2003 Market Medium 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 1 3 5 7 9 11 13 15 17 19 Grade Garanteed Cash(RMB p.a.) 1st Adjustment2nd Adjustment 3rd Adjustment2001 Market Medium 2002 Market Medium2003 Market Medium Page 13 ? Since currently in China Mobile, the Guarantee Cash (Base Salary) is quite low comparing with the market situation. So based on the above design, after the adjustment, the Guarantee Cash has been increased, and the higher the grade is, the bigger adjustment for Guarantee Cash has been made. Guarantee Cash Increasing rate BeijingHebeiShandongBeijingHebeiShandong Grade17~19(Senior Mgt.) 122~146%60~61%149~178% Grade12~16(Middle Mgt) 82~118%33~49%99~124% Grade6～11(Professional & Supervisor) 35~79%9~29%51~85% Grade1~5(General Staff) 2~30%-1~6%5~45% Guarantee Cash－Adjustment Result Guarantee Cash－Adjustment Result Page 14 Guarantee Cash－Adjustment Result Guarantee Cash－Adjustment Result BeijingHebeiShandong Page 15 ? Following is the Guarantee Cash market comparison result after the three times adjustment Note：：100%=P50 ? After adjustment, the Guarantee Cash of three pilot cities employee has been increased compared with market. Only for the Grade 1-5 of Hebei Mobile it has been decreased since its current situation is much more than market median. Guarantee Cash－ Market ComparisonGuarantee Cash－ Market Comparison Market ComparisonBeijingHebeiShandong Grade17~19 (Senior Mgt.) 17~105%(Increase)49~99%( Increase)15~101%(Increase) Grade12~16 (Mid Mgt.) 23~102%( Increase)55~99%( Increase)21~99%(Increase) Grade6～11 (Professional & Supervisor) 36~100%( Increase)80~103%( Increase)34~103%(Increase) Grade1~5 (General Staff) 67~110%( Increase)195~104%(Decrease)62~105%(Increase) Page 16 Guarantee Cash－ Market ComparisonGuarantee Cash－ Market Comparison BeijingHebeiShandong Page 17 ? The second step for salary structure design is to set the percentage of VP Vs. GC. ? For different level, different percentage of VP Vs. GC has been set. Thus after adjustment, the higher the grade is, the higher the percentage is. And the current unnormal situation that VP is much higher than GC can be changed according ot the market trend. ? Following is the detail percentage of VP Vs. GC after three times adjustment: Note: Since the percentage should vary according to the specific performance, here the percentage set is just the percentage related with target performance. VP PercentageBeijingHebeiShandong Grade17~19(Senior Mgt.) 1369~44%(Decrease ) 123~44%( Decrease)485~44%( Decrease) Grade12~16(Mid Mgt.)843~30%( Decrease)127~30%( Decrease)311~30%( Decrease) Grade 6～11(Professional & Supervisor) 261~18%( Decrease)93~18%( Decrease)180~18%( Decrease) Grade1~5(General Staff)144~8%( Decrease )67~8%( Decrease)208~8%( Decrease) Salary Structure Design - Percentage of Variable Pay Vs. Guarantee Cash Salary Structure Design - Percentage of Variable Pay Vs. Guarantee Cash Page 18 VP Percentage Adjustment ProcessVP Percentage Adjustment Process BeijingHebeiShandong Page 19 ? Based on the above design, the Total Cash for higher grade employees has been increased greatly, while the Total Cash for lower grade remain stable or even decrease: VP PercentageBeijingHebeiShandong Grade17~19(Senior Mgt.) 7~17%40~50%58~75% Grade12~16(Mid Mgt.) 7~15%20~33%43~56% Grade 6～11(Professional & Supervisor) 3~32%-3~13%17~37% Grade1~5(General Staff) -12~5%-14~-6%-15~17% Salary Structure Design - Total CashSalary Structure Design - Total Cash Page 20 Salary Structure Design - Total CashSalary Structure Design - Total Cash BeijingHebeiShandong Page 21 ? Following is the Total Cash Market comparison result after three times adjustment：： ? Comparing with the market data, Total cash has been increased for the higher grade, for the lower grade, the total cash remain the same as market median. Market ComparisonBeijingHebeiShandong Grade17~19(Senior Mgt.) 101~125%(Increase)77~117%(Increase)48~116%(Increase) Grade12~16(Mid Mgt.) 97~119%(Increase)82~114% (Increase)50~111%( Increase) Grade 6～11(Professional & Supervisor) 96~113%(Increase)105~113%(Stable)67~109%( Increase) Grade1~5(General Staff) 119~111%(Decrease)197~112%(Decrease)166~109%(Decrease) Note：：100%=P50 Salary Structure Design - Total Cash Market Comparison Salary Structure Design - Total Cash Market Comparison Page 22 Salary Structure Design - Total Cash Market Comparison Salary Structure Design - Total Cash Market Comparison BeijingHebeiShandong Page 23 BJ HB SD ? After adjustment, china mobile total payroll cost change is as following：： Salary Structure Design - Cost Analysis Salary Structure Design - Cost Analysis Page 24 13.5% 63.8% 19.9% 2.8% 15.1% 63.4% 18.9% 2.7% 15.7% 62.8% 18.7% 2.8% 17.7% 58.6% 20.4% 3.4% Current Situation Headcount Percentage for different Grade Current Cost Allocation by Grade Future Situation First time Adjustment 28.4% 64.2% 7.0% 0.4% Grade1-5Grade17-19 Cost Allocation By Grade - BeijingCost Allocation By Grade - Beijing Grade6-11Grade12-16 Second time Adjustment Third time Adjustment Page 25 4.6% 66.4% 25.4% 3.6% 6.1% 71.6% 21.8% 0.6% 86.0% 9.7% -0.3% 4.5% First time Adjustment Grade1-5Grade1-5 Grade12-16Grade12-16 Cost Increase Allocation By Grade - BeijingCost Increase Allocation By Grade - Beijing Second time Adjustment Third time Adjustment Grade6-11 Grade17-19 Page 26 25.8% 63.8% 10.2%0.2% 19.8% 60.4% 19.1% 0.8% 17.2% 58.0% 23.6% 1.3% 14.9% 56.7% 26.8% 1.5% 13.8% 55.2% 29.1% 1.9% Cost Allocation By Grade - HebeiCost Allocation By Grade - Hebei Headcount Percentage for different Grade Current Cost Allocation by Grade Second time Adjustment First time Adjustment Third time Adjustment Current SituationFuture Situation Grade1-5Grade17-19Grade6-11Grade12-16 Page 27 151.2% 15.6% -10.8% -56.0% -31.40% 6.90% 93.20%31.30% -2.00% 62.30% 7.00% 32.70% Cost Increase Allocation By Grade - HebeiCost Increase Allocation By Grade - Hebei First time Adjustment Grade1-5Grade1-5 Grade12-16Grade12-16 Second time Adjustment Third time Adjustment Grade6-11 Grade17-19 Page 28 57.0% 6.3% 0.1% 36.5% 27.8% 59.1% 12.6% 0.5% 59.1% 14.2% 0.7% 26.0% 59.3% 16.1% 0.9%23.7% 20.9% 58.9% 19.0% 1.2% Cost Allocation By Grade - ShandongCost Allocation By Grade - Shandong Headcount Percentage for different Grade Current Cost Allocation by Grade Second time Adjustment First time Adjustment Third time Adjustment Current SituationFuture Situation Grade1-5Grade17-19Grade6-11Grade12-16 Page 29 59.1% 19.3% 1.1% 20.5% 13.6% 60.0% 24.3% 2.0% 8.9% 57.3% 2.2% 31.6% Cost Increase Allocation By Grade - ShandongCost Increase Allocation By Grade - Shandong First time Adjustment Grade1-5Grade1-5 Grade12-16Grade12-16 Second time Adjustment Third time Adjustment Grade6-11 Grade17-19 Page 30 I.China Mobile-Beijing Salary Structure ResultSalary Structure Result Page 31 Page 32 Page 33 Assumption: Market Salary Increasing Rate=8% Page 34 Assumption: Market Salary Increasing Rate=8% Page 35 Page 36 Page 37 Page 38 Page 39 Beijing Salary Structure - 1st Time AdjustmentBeijing Salary Structure - 1st Time Adjustment Page 40 Assumption: Market Salary Increasing Rate=8% Beijing Salary Structure - 2nd Time AdjustmentBeijing Salary Structure - 2nd Time Adjustment Page 41 Beijing Salary Structure - 3rd Time AdjustmentBeijing Salary Structure - 3rd Time Adjustment Assumption: Market Salary Increasing Rate=8% Page 42 II.China Mobile - Hebei Salary Structure ResultSalary Structure Result Page 43 Page 44 Page 45 Assumption: Market Salary Increasing Rate=8% Page 46 Assumption: Market Salary Increasing Rate=8% Page 47 Page 48 Page 49 Page 50 Page 51 Hebei Salary Structure - 1st Time AdjustmentHebei Salary Structure - 1st Time Adjustment Page 52 Hebei Salary Structure - 2nd Time AdjustmentHebei Salary Structure - 2nd Time Adjustment Assumption: Market Salary Increasing Rate=8% Page 53 Hebei Salary Structure - 3rd Time AdjustmentHebei Salary Structure - 3rd Time Adjustment Assumption: Market Salary Increasing Rate=8% Page 54 III.China Mobile-Shandong Salary Structure ResultSalary Structure Result Page 55 Page 56 Page 57 Assumption: Market Salary Increasing Rate=8% Page 58 Assumption: Market Salary Increasing Rate=8% Page 59 Page 60 Page 61 Page 62 Page 63 Shandong Salary Structure - 1st Time AdjustmentShandong Salary Structure - 1st Time Adjustment Page 64 Shandong Salary Structure - 2nd Time AdjustmentShandong Salary Structure - 2nd Time Adjustment Assumption: Market Salary Increasing Rate=8% Page 65 Shandong Salary Structure - 3rd Time AdjustmentShandong Salary Structure - 3rd Time Adjustment Assumption: Market Salary Increasing Rate=8% Page 66 Part IV. Stock Option Plan SuggestionPart IV. Stock Option Plan Suggestion Page 67 Current Share SituationCurrent Share Situation Year 2000Year 1999 Options outstanding 1 January12,700,000 12,000,000 Options exercised3,974,000 7,500,000 Options granted in the year31,590,000 8,200,000 Total number of shares in issue18,605,312,000 % granted0.17% Options outstanding 31 December40,316,000 12,700,000 ? The total number of shares in issue for China Mobile is 18,605,312,000 in year 2000. The options outstanding as of December 31, 2000 is 40,316,000 shares. The following table illustrates the current share
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