1
Rewarding Innovation at Huawei
Company background
Huawei is a global leader in the information and com- munication technology (ICT)
industry. Founded in 1987, it is a private company wholly owned by its employees.
The company has grown from a small start-up based in Shenzhen, China to become
a leading global technol- ogy company providing telecom network equipment, IT
products and solutions and smart devices for telecom carriers, enterprises, and
consumers in over 170 countries. In 2015 Huawei ranked 228th in the Global Fortune
500 index based on revenues of approximately CNY 288,197 million (USD$ 45 billion).
It is now the largest supplier of telecom infrastructure, software, and ser- vices in the
world and its, major competitors include Ericsson, Nokia, ZTE, Alcatel-Lucent and
Cisco (The Economist, 2012, 2014; Reuters, 2014).
As illustrated in Figure 6.4, Huawei emphasises innovation relevant to customer needs
and advancing its technological leadership through research and development (R&D).
Over 10 per cent of the company’s annual sales revenue is invested in R&D, an activity
that employs more than 45 per cent of its 170,000 employees. The company openly
cooperates with its industry partners to build efficient and integrated digital logistics
systems that enhance interconnectivity and interactivity and strives to be the ‘first
choice and best partner’ for telecom carriers and enterprise customers and a brand of
choice for consumers. An advocate of sustainability, the company supports the
development of secure and stable network operations and helps customers and
industries improve efficiency and low-carbon economic growth. According to Huawei,
its international growth strategy, promoting ‘glocalized’ operations, aims to localise its
operations in the countries it operates, whilst simultaneously building a strong global
value chain.
Figure 6.4 Value propositions Source: Annual Report (2014, p.16).
2
Core values
According to Huawei, it succeeds through its ‘customers’ success’. Serving customers
and responding to their needs represents a major driving force behind its growth and
development. Moreover, the long-term value it creates for its customers is used as a
yard-stick to gauge its work and performance. Figure 6.5 summarises Huawei’s core
values.
Figure 6.5 Core values
Source: The Sustainability Report (2014, p.8), Huawei company report.
Customers first
Huawei exists to serve customers, whose demands are the
driving forces behind our development. We continuously create
long-term value for customers by being responsive to their
needs and requirements. We measure our work against how
much value we bring to customers, because we can only
succeed through our customers’ success.
Dedication
We win customers’ respect and trust primarily through
dedication. This includes every effort we make to create value
for customers and to improve our capabilities. We value
employees’ contributions and reward them accordingly.
Continuous
improvement
Continuous improvement is required for us to become better
partners for our customers, improve our company and grow as
individuals. This process requires that we actively listen and
learn in order to improve.
Openness & initiative
Driven by customer needs, we passionately pursue customer
centric innovations in an open manner. We believe that
business success is the ultimate measure of the value of any
technology, product, solution or process improvement.
Integrity
Integrity is our most valuable asset. It drives us to behave
honestly and keep our promises, ultimately winning our
customers’ trust and respect.
Teamwork
We can only succeed through teamwork. By working closely in
both good times and bad, we lay the foundation for successful
cross-cultural collaboration, streamlined interdepartmental
cooperation and efficient processes.
3
Research & development
R&D at Huawei emphasises the development and innovation of key ICT technologies,
architectures and standards. According to its 2014 Annual Report, the company
employed over 76,000 product and solution R&D professionals worldwide and
invested 14.2 per cent (CNY 40,845 million) of its revenues for the year into R&D. The
company operates approximately 16 R&D centres, including in the US, Germany,
Sweden, France, Italy, Russia, India, and China, works closely with industry partners,
academia, and research institutes and has 28 joint innovation centres with leading
carriers. By the end of 2014 Huawei had joined more than 177 industry standards
organisations, filed 72,636 patent applications of which 38,825 had been granted, had
invested a total of CNY190 billion in R&D over the past decade and had become a
Top 100 Global Innovator.
Human resources
Huawei considers, its employees its ‘most valuable treasure’ and the key to retaining
competitiveness and a leadership position. Employee health, safety, and benefits are
priorities. The company believes that it provides reasonable and timely rewards to
dedicated employees. In 2009 the company began transforming its human resource
model from a ‘function-based platform’ to an ‘employee-centric platform’, which it
argues better promotes employee development. As Figure 6.6 depicts, the dominant
operational activity of Huawei’s workforce is R&D.
Figure 6.6 The allocation of workforce by operational field
4
To complement its growth strategy, Huawei fosters the development of local talent in
each country it operates. Its recruitment policy encourages sourcing talent locally and
compliance with local labour laws and reg- ulations. As of 2015 Huawei employed
approximately 30,000 non-Chinese staff from over 160 countries and regions around
the world.
Reward management
Huawei describes its reward system as competitive and aims to attract and retain high
quality human resources to support and accelerate the company’s development and
growth (i.e. a market leading remuneration strategy). As Table 6.4 illustrates, the
company’s reward strategy has evolved in several phases since its founding.
Table 6.4 Huawei’s Remuneration Evolution
Phase 1: Non-cash
remuneration strategy
– Virtual stock program
launched due to lack of
resources during the
start- up period
Phase 2: Competitive
remuneration strategy
– Offering high salary +
high subsidies + high
bonus supported by
abundant internal and
Phase 3: Sharing
remuneration strategy
– Hard-worker-based
initiative to promote
development of high
level talent during
steady expansion
period
Source: Internal document (translated from chinese).
Underscoring the company’s reward philosophy and practices, Hu Houkun, Rotating
CEO, stated that,
‘In 2014, to strive for excellence, we raised salaries and incentives for operational
units in the field and high-performing employees. We fully implemented the
“Contribute and Share” mechanism for annual bonus. Regarding long-term
incentives, we rolled out the Time-based Unit Plan (TUP) globally so that all
outstanding employees, especially those at the junior and middle levels, could
share in more of the benefits of the company’s medium-to-long-term development.
In 2015, we will continue to incentivize performance. We will step up efforts to
provide more differentiated and targeted incentives to better motivate employees.
While increasing monetary incentives, we will further extend the range of our nonmonetary incentives, including awards such as “Whiz Kids” and “Future Stars”. We
must provide high-performing employees with access to fast-track promotions, with
regard to both positions and job levels, so that they get more development
opportunities and rewards. Opportuni- ties and rewards will also be used to attract
talented people, including outstanding former employees, to join our team.
Mechanisms must be put in place to ensure outstanding people can be brought in,
engaged and retained. We will continue to care for employee health and happiness,
with more focus on their overall wellbeing. We will also continue to build a worldclass workplace, with improved recreation and dining facilities.” (5 January 2015)
5
Table 6.5 provides a summary of the types of rewards used by Huawei.
Table 6.5 Types of rewards used at Huawei
Basic Composition of Remuneration
Economic Remuneration
Non-economic Remuneration
Basic salary
Welfare benefits
Paid non-working hours Medical care
Life insurance
Pension
Sense of existence
Sense of satisfaction
Values
Working conditions
Challenging work
Learning opportunities
In general, the company pays higher than market average wages and employs major
inter- national pay and compensation specialist consulting firms to regularly monitor
and advise on pay condi- tions and best practices in the market. For example, the HR
Department utilises compensation data from the Hay Group, Mercer, Aon-Hewitt, and
other consulting firms to regularly adjust employee compensation and its
compensation plan in an effort to strike a balance between market competitiveness
and the cost of rewards.
To develop its employees, Huawei offers a range of opportunities for learning, training,
and promotion as well as two distinct career development paths – management and
technical/professional. In addition to a comprehensive eLearning platform, Huawei
operates 45 training centres globally that provide training services in 16 different
languages, including English, Spanish, French and Russian. Both general learning
and development programs and cross-functional professional capability development
programs are provided to increase employee knowledge and expertise. In order to
promote employees’ personal growth and development, the company also regularly
sends its employees over- seas for further study and training and has established an
internal certification system (e.g. Huawei Certified Network Engineer). Additionally, to
increase employees’ commitment to the development of skills, the company links
training with pay and promotion. For example, the ‘Huawei Science and Technology
Fund’ encourages researchers to innovate and start new projects and rewards the
most productive researchers with promotions, better facilities and improved working
conditions. In 2013 average training amounted to approximately 37.29 hours per
employee.
Employee bonuses are closely linked to overall company performance, the
performance of an employee’s department and an employee’s individual performance.
A long-term incentive mechanism is used in an attempt to share benefits with
employees worldwide and align the personal contributions of employees with the
company’s long-term devel- opment. Huawei provides non-monetary incentives that
emphasise three areas (health, development and relationships), including the working
environment and emotional care, and promotes work–life balance through family days
and other activities. Lastly, its employee benefits system provides a safety net for all
employees and includes, mandatory and commercial insurance (e.g. personal
accident insurance, critical illness insurance, life insurance, medical insurance,
business travel insurance) and defined contribution retirement plans.
6
Rewarding Performance
Huawei has implemented a results-oriented performance management system to
support its business strategy. Goals are set for employees and adjusted on a regular
basis. As illustrated in Figure 6.7, by continuously setting goals, coaching, appraising
and communicating, managers help employees improve their performance and
capabilities. As part of its performance management system, 3 to 5 per cent of
Huawei’s employees are laid off annually and it is common practice for the salaries of
other poor performers to be reduced.
Figure 6.7 Performance management system
Source: http://career.huawei.com/career/en/i18n/images/performance.gif, accessed 14 October 2015.
Incentives and awards
Huawei uses a variety of incentives to motivate its employees. An Award Department
was established to oversee the evaluation and distribution of awards. There are two
features of the awards. First, they cover a wide range of performance outcomes. For
example, as long as employees make some distinctive work progress or achievement
(e.g. the completion of a project, research achievements) they will obtain an award.
Second, all awards are cash based and there is no set limit to the amount of awards.
As a consequence, big achievements are eligible for substantial financial awards.
7
Long-term incentives
Huawei no longer offers direct ownership of the company to its junior and middle levels
employees. Instead, it has begun to implement a profit-sharing and bonus plan based
on employee performance for all eligible employees, which it labels the TUP.
According to its 2014 Annual Report,
“Under the TUP, time-based units (TBUs) are granted to the recipients, which entitle
the recipi- ents to receive a cash incentive calculated based on the annual profitsharing amount and the cumu- lative end-of-term gain amount. Both of the annual
profit-sharing and the end-of-term gain amount are determined at the discretion of
the Group. The TBUs will have an exercise period of five years, and after the first,
second and third anniversary of the date of grant, each one third of the TBUs will
become exercisable and recipients will receive the annual profit-sharing amount
accordingly. The end-of-term gain amount will be paid to the recipients upon the
expiry of the TBUs or at the date the recipients resign or are dismissed. As at
December 31 2014, the valid TBUs granted were 1,051,400,894 units; liability and
the corresponding personnel expenses have been recognised in respect of
385,160,827 units of the valid TBUs.” (p. 79)
Table 6.6 summarises the proportion of different types of remuneration allocated at
Huawei according to position. Huawei’s annual personnel expenses by compensation
type for the 2014 fiscal year are summarised in Table 6.7.
Table 6.6 Remuneration distribution for different job classifications
Fixed Income % Variable Income % Stock %
Senior management 40 20 40
Mid-level management
50
30
20
Professionals
60
25
15
Operations
90
10
0
Source: Internal document, presentation to employees, 2015.
Table 6.7 An example of Huawei’s annual personnel expenses by compensation
type.
Personal Expenses
2014
2013
Expenses recognised in respect of defined benefit plan. 1,918 1,338
Contributions to defined contribution retirement plans 7,387 6,497
Total costs on post-employment plans 9,305 7,835
Expenses recognised in respect of time-based unit plan (TUP)
963
25
Salaries, wages and other benefits
61,540
44,590
71,808
52,450
Source: 2014 Annual Report, p. 78.
Despite its success, considerable controversy surrounds Huawei’s competitive
practices, organisational culture, and reward practices (The Wall Street Journal, 2014;
Financial Times, 2014; The Economist, 2012). For example, in addition to ethical
8
questions over its competitive practices and concerns that its products may pose
national security risks (e.g. in the US).
Huawei has also been criticised for its extreme workloads and excessive employee
overtime. According to employees, it is normal to work until 3 o’clock in the morning
and then return to work the next day by 9:00 am. Some employees even find it
necessary to sleep in the office (what has become known as a “mat- tress” culture).
The company has even been accused of making ‘overtime’ mandatory (e.g. a
component of performance evaluations). As a result, employees feel compelled to
forgo holidays and annual leave and to work considerable periods of overtime to avoid
sanction or poor performance evaluations.
Huawei has also been criticised for its lack of trans- parency in relation to various
reward practices, including the implementation of its stock option scheme and the
employee evaluation process. For example, although the company claims to be wholly
employee owned, it remains unclear about the actual extent to which employees
actually own the company. Moreover, employees do not have a voice in management
decisions and foreign employees are not eligible to hold company shares.3
Lastly, as discussed above, Huawei’s performance management system leads to 3 to
5 per cent of employees being laid off annually. However, the system has been
criticised for targeting older employees in favour of cheaper newly-hired graduates
and for adversely affecting employee morale
Case Questions.
1. How would you characterise the alignment between Huawei’s business
strategy, core values and reward practices?
2. Huawei’s competitive strategy emphasises R&D and the development of
innovative capabilities. What are the advantages and disadvantages of its
current reward management practices in relation to such a strategy?
3. Is Huawei’s reward management framework appropriate for rewarding and
incentivising its R&D professionals. What changes should be recommended, if
any?