Southern Nevada Compensation & Benefits Association What’s New in Compensation and Benefits

1. May 14, 2008 Southern Nevada Compensation & Benefits AssociationWhat’s New in Compensation and Benefits Patrick Shannon Nicole Jones-Gyllstrom

2. Topics • How is today’s economy impacting you? • What’s new in compensation? • What’s new in benefits? • Questions and Discussion

3. How is the economy impacting you?This recession is different • Globalization, technology, and outsourcing - The globalization of workforces, coupled with greater use of technology and outsourcing mitigates the need for drastic, across-the-board responses to the down turn. • Targeted strategies - Talent is at a premium; organizations are employing – and likely not going to abandon – creative, highly targeted strategies to recruit and retain the optimal workforce for long-term success. • Mindset change - There has been a mindset change; organizations realize that talent is their only sustainable form of competitive advantage. The typical recession only lasts 11 months.

4. How is the economy impacting you?Recent survey trends Are you instituting staffing level changes? Did you consider or institute budget changes in 2008? Source: Mercer Snapshot Survey, 400 responses, March 2008.

5. How is the economy impacting you?HR initiatives • 35% of organizations surveys reported they are considering developing new initiatives to retain high performers • 28% indicated they are considering developing new or enhancing existing variable pay programs • 21% have already instituted changes to improve sales force effectiveness Source: Mercer Snapshot Survey, 400 responses, March 2008.

6. What’s new in compensation? 5

7. What’s new in compensation? • Continuing emphasis on total rewards • Strengthening of pay-for-performance • Increasing use of workforce segmentation

8. Rewards represent a downstream tool…Mercer’s Workforce Strategy Model

9. Three perspectives on total rewards…and costs are growing Multiple perspectives are driving change Rewards costs as a percentage of revenue are escalating

10. What total rewards levers do you have to pull? Compensation Benefits • Base pay • Guaranteed “bonuses” • Short-term incentives • Long-term incentives • Financial allowances • Financial recognition programs • Deferred compensation • Retirement • Savings and other wealth creation programs • Medical / Dental / Vision / Prescription Drug, etc. • Life insurance • Short and long-term disability • Accident coverage • Job-related perquisites You Are What You Reward Development & Career Work Lifestyle • Performance management • Learning and development • Career opportunity and pathing • Tuition reimbursement • Mobility opportunities • Time off • Wellness programs • Dependent care • Workplace flexibility • Commuter programs • Workplace facilities and perquisites • Experiential rewards • Non-financial and status recognition

11. What rewards levers are other companies pulling?Areas for rewards investments over next 12 months % of firms Source: 2007 Mercer Total Rewards Snapshot survey of 583 firms across the US and Canada.

12. 55+ 40-54 • Planning for retirement/retiring • Having company- sponsored health care options available during retirement • Want to simultaneously support education, work, and leisure • Dependent care is an issue for about 1/3 of mature workers • Reduced physical demands 30-39 18-29 • Saving for a child’s education • Planning for retirement • Dealing with the stress of balancing work and family/personal life • Taking care of an older parent • Balancing work and family/personal life • Flexible work hours • Career advancement opportunities • Saving for a child’s education • Planning for retirement • Career advancement opportunities • Further education outside • Being in an environment with other people from the same cohort • Developing a variety of skills and competencies (e.g., rotation) • Saving for a home What rewards levers should you pull for what groups?One size does not fit all Different goals by age group Some goals span groups: predictable income/benefits, having meaningful roles, opportunities for growth, being treated with dignity, and respect. Source: Mercer interviews

13. What rewards levers should you pull for what groups?Workforce segmentation based on relative value creation Performance drivers:employees who create value for the organization Performance enablers: employees who support value creation Legacy drivers: employees who historically created value for the organization, but no longer do Challenge: Attract, engage, retain Support business Retain institutional knowledge

14. How are other organizations segmenting their workforce? Approximately 40% of organizations use career development, training opportunities and/or long-term incentive eligibility to differentiate rewards Source: Mercer’s 2007 Snapshot Survey “Measuring the Return on Total Rewards” (US & Canada)

15. What’s new in benefits? 14

16. What’s new in benefits? • Health care costs continue to outpace inflation • Employers continue to shifts costs to employees • Plan utilization may be falling • Consumerism and health management strategies • Other benefit trends

17. Cost growth has been flat since 2005Total health benefit cost change vs. workers’ earnings and general CPI * Projected Source: Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April) 1988-2007; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April) 1988-2007.

18. Employee cost-shifting continues in 2007 among large employersPPO – average in-network deductibles

19. Employee cost-shifting continues in 2007 among large employersHMO – average copay for physician visits

20. Majority of employers planned to shift cost in 2008Large employers

21. Slowdown in underlying trend suggests utilization may be fallingIncrease in cost predicted for upcoming plan year * Includes changes in carrier, contribution strategy or plan design.

22. Don’t use strategy Use strategy Use strategy and believe it has been successful* Employer cost management activities helping to slow increasesLarge employers * in efforts to control health benefit cost or improve workforce health and productivity Source: Mercer’s National Survey of Employer-Sponsored Health Plans

23. Use of specific health management programsLarge employers Large employers Jumbo employers

24. Type of health information providedLarge employers Information on health conditions 61% Tool to help select most appropriate plan 30% Individual provider quality 22% Individual provider cost 21%

25. Employers see increased utilization of health informationAmong employers that provide health information

26. Employee reaction to HSA-based CDHPLarge HSA sponsors characterize the response of employees enrolled in the plan

27. Coverage for part-time employeesLarge employers with at least some PTEs • Make coverage available to PTEs: 62% • Average number of hours required for eligibility: 23/week • Of the employers covering PTEs: • 45% set different contributions for PTEs and FTEs • 6% offer different plans to PTEs and FTEs • 88% make coverage available to dependents • Average PTE contribution, as a % of premium • 38% for employee-only coverage • 45% for family coverage

28. Same-sex domestic partner coverage on the rise, but strong regional variations persistLarge employers

29. Bariatric surgery coverage declined in 2007Largeemployers

30. Alternative medicine therapies covered Offered to employees enrolled in primary medical plan Large employers Jumbo employers Chiropractic 85% 91% Acupuncture/acupressure 33% 46% Massage therapy 19% 15% Homeopathy 12% 3% Biofeedback 9% 9% None 13% 8%

31. Use of salary-based employee cost-sharing, by employer size

32. Provide onsite or near-site medical clinicsLarge employers Currently provide Considering for 2008 or 2009 Clinic for occupational health services 31% 8% Clinic for primary care services 14% 10%

33. Voluntary Benefits on the Rise • Increased demand for voluntary benefits • Auto and home insurance • Legal • Identity Theft • Pet insurance • Critical illness • Long term care

34. Long Term Care Offerings Continue to Grow • Plan Types: • Voluntary • Employer funded base with voluntary buy-ups • Executive carve-out (employer funded)

35. Other Work Life Benefits • On site oil change • On site car wash • Dry cleaning pick up • Gym • Fitness classes • Health fairs • Discounts on products and services • Day care (onsite or stipend) • Flu shots

36. Total Rewards StrategyTying it all together • Personalized benefits communication • Help in achieving a positive ROI • Reinforce the company’s commitment to employees and their family • Improve morale and build stronger, more productive relationships with employees

37. #1 Attraction and Retention Tool for EmployeesAfter health plan offerings Work life balance!

38. Questions and Discussion Patrick Shannon, PhD patrick.shannon@mercer.com Nicole Jones-Gyllstrom Nicole.Jones-Gyllstrom@mercer.com Thank you!

39. www.mercer.com