1 / 42

Setting a Total Rewards Strategy Amid a Shifting Executive Compensation Climate

Setting a Total Rewards Strategy Amid a Shifting Executive Compensation Climate. Agenda. The Shifting Executive Compensation Climate Why Total Rewards? Setting a Total Rewards Strategy Next Steps/Q & A Appendix: About XXX. The Shifting Executive Compensation Climate.

lpippen
Download Presentation

Setting a Total Rewards Strategy Amid a Shifting Executive Compensation Climate

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Setting a Total Rewards Strategy Amid a Shifting Executive Compensation Climate

  2. Agenda • The Shifting Executive Compensation Climate • Why Total Rewards? • Setting a Total Rewards Strategy • Next Steps/Q & A • Appendix: About XXX

  3. The Shifting Executive Compensation Climate

  4. Today’s Headlines in Executive Pay NYSE & NASDAQ Listing Requirements Corporate Practices Sarbanes-Oxley Executive Pay Under Scrutiny & In Flux Pending Legislation In Congress FASB Weakened Economy/Loss of Investor Confidence Shareholder Activism

  5. Current Environment – Executive Pay Sarbanes Oxley Act (SOX) • Penalties for falsifying financials • No new loans • Limitations on stock trading • Compensation Committees more active / challenging

  6. Current Environment – Executive Pay (cont’d) Expensing • FASB now to release final proposal in 3rd Q 2004 • IASB and FASB divergent – key differences: • FASB allows expense reversal, IASB will not • IASB requires prorated expensing upon termination • 15 different valuation models being reviewed • Most companies waiting for FASB before expensing • Plans must bridge today’s vs. tomorrow’s accounting • Dilution under attack (ISS targeting high overhang) • New word: any discount on ESPPs would incur earnings charge (5% no longer exempt under FAS 123)

  7. Current Environment – Executive Pay (cont’d) Stock Exchange Regulations • Shareholders must approve all equity plans (except new hires, mergers / acquisitions) • Remaining stock exchange proposal awaiting SEC approval • Companies already revising Boards to ensure majority is independent • Boards controlling outside advisors and meeting independently • Guidance to better educate Board members taken seriously • Lead directors being appointed in about 25% of larger companies

  8. Current Environment – Executive Pay (cont’d) Tax Laws • Jobs and Growth Tax Act lowered dividend and capital gains rates to 15% • Creating potential collision course in 2009 • Sunset provisions apply and tax rates potentially return to pre-2002 levels • Dividend equivalent and restricted stock plans more desirable due to lower tax rates

  9. Current Environment – Executive Pay (cont’d) Deferred Compensation • Repeated legislative challenges by IRS on deferred compensation • Careful watch on new legislation coming this fall • At risk: • Rabbi trusts • Directing investments • In-service withdrawals • Deferral of stock gains into NQDC plans

  10. Current Environment – Executive Pay (cont’d) Mutual Funds / Activists/ Watchdog Organizations • Longer vesting periods (4+ years) • No repricings • No reloads • Run rates under 2% per year • Limitations on percentage of pool that goes to top 5 in any one year • Premium and indexed options • Mandatory hold • Restricted stock

  11. Executive Pay Trends

  12. Executive Pay Trends (cont’d)

  13. Executive Pay Trends (cont’d)

  14. Executive Pay Trends (cont’d)

  15. Executive Pay Trends (cont’d)

  16. Executive Pay Trends (cont’d)

  17. Executive Pay Trends (cont’d)

  18. Executive Pay Trends (cont’d)

  19. Executive Pay Trends (cont’d) What to Do? • Don’t over-react • Review programs unfettered by prior wisdoms • Provide opportunities aimed at increasing stock ownership • Re-commit to performance-based programs • Greater commitment to education • Re-emphasize total rewards perspective

  20. Why Total Rewards?

  21. Unprecedented Challenges • Total compensation being rebalanced • Cash • Equity • Benefits • Non-monetary • Have to do more with fewer total reward dollars • Difficult trade-offs have to be made • Where to cut? • Where to share expense? • Who will be affected? • Meet an array of new requirements • Sarbanes-Oxley • Stock exchanges • SEC activists • FASB • FLSA • Shareholder

  22. Case Study Why Total Rewards? The ROI is Enormous! An example: Turnover • Cost to replace a worker is about 1/3rd of annual salary • Not including training, benefits, loss of productivity, etc. • ABC’s annual turnover cost: $90 million • Is a conservative estimate: 30,000 staff x 30% turnover x $30,000 annual salary x 1/3 • 5% reduction in turnover will add more than $15 million per year to the bottom line

  23. Why Total Rewards? (cont’d) • Need to understand total payroll costs • Provide a competitive advantage (ROI) • Most rewards programs are fragmented: • Evolved without consideration of how the parts fit • May not reinforce value creation • Most programs underachieve because of poor communications • Provide a roadmap to manage future program changes

  24. Why Total Rewards? (cont’d) • Define the role of each component (e.g., security, reward, cost-sharing, coaching, retaining) • Improve morale by communicating the true value of monetary and intrinsic rewards • Communicate link between pay and company mission / values • Shareholders/stakeholders demand program transparency and are looking at all reward mechanisms

  25. Guiding Principle: Finding the Right Balance Total Rewards Drivers How do we achieve alignment and motivation in stagnant market? What reward vehicles will derive the most value for employees and in the future? Alignment Value Cost How can we achieve the proper balance of alignment and value in light of our cost constraints?

  26. Total Rewards … Defined Total Rewards Cash Comp. Benefits Equity Recognition Intrinsic Rewards • An integrated philosophy, not a random collection of independent programs • The optimal mix of rewards to achieve the highest return on investment

  27. Total Rewards … A Closer Look Total Rewards • Options • Restricted Stock • Performance cash/shares • ESPP’s Cash Comp. Benefits Equity Recognition Intrinsic Rewards • Defined Benefit • Defined Contribution • Medical Coverage • Retiree Medical • Disability • Vacation • Flex-time • Spot Bonuses • Performance Awards • Service Awards • Training/ Advancement • Communication • Performance Management • Work Environment • Base • Annual Incentives • Cash LTIs • Sales Incentives • Contests and Special Incentives

  28. Setting a Total Rewards Strategy

  29. Defining a Human Capital Strategy • What are our biggest HR goals and barriers? • What are the key business strategic goals? • What are the measures of success? • What is our stated mission and values? • What behaviors are we trying to support?

  30. Defining a Human Capital Strategy(cont’d) • What are our employee demographics? • Where are we abundant / short of talent? • Why do people come to work for us? • Why do people leave?

  31. Cash Comp. Benefits Equity Recognition Intrinsic Rewards Setting a Total Rewards Strategy

  32. Cash Comp. Benefits Equity Recognition Intrinsic Rewards Setting a Total Rewards Strategy (cont’d)

  33. Cash Comp. Benefits Equity Recognition Intrinsic Rewards Setting a Total Rewards Strategy (cont’d)

  34. Cash Comp. Benefits Equity Recognition Intrinsic Rewards Setting a Total Rewards Strategy (cont’d)

  35. Cash Comp. Benefits Equity Recognition Intrinsic Rewards Setting a Total Rewards Strategy (cont’d)

  36. Next Steps / Questions and Answers

  37. What You Should Do…. • Identify critical employee segments • Corporate goals and strategy • Human capital priorities • Determine what they prefer • Immediate/future (5 years) • Willingness to trade-off between reward vehicles • Define your total rewards strategy and mix • Review and re-design plans on the basis of • Gaps • New regulations and guidelines (e.g., FASB, SEC, stock exchange, IRS) • Company culture and philosophy • Total rewards strategy

  38. Questions and Answers

  39. Appendix: About XXX

  40. Appendix: About XXX Services Facts Human Capital Revenues: $700 million Employees: 6,000 Benefits HR Tech Countries: 30 Clients 70% Fortune 100 50% Fortune 500 35% Fortune 1,000

  41. Appendix: About XXXOur Global Presence 5 offices in Canada 26 offices in Europe & Africa 32 offices in United States 17 offices in Asia-Pacific Region 5 offices in Latin America/Caribbean Singapore Stamford St. Louis Stockholm Sydney Taipeh Tokyo Toronto Vancouver Washington Wellington Welwyn Zürich Amsterdam Atlanta Auckland Bangkok Barcelona Beijing Birmingham Bogota Boston Bristol Brussels Buenos Aires Calgary Charlotte Chicago Cleveland Columbus Dallas Denver Detroit Rochelle Park Rome Rotterdam San Diego San Francisco San Juan Santa Clara São Paulo Seattle Seoul Shanghai Dublin Düsseldorf Edinburgh Eindhoven Grand Rapids Harare Hong Kong Honolulu Houston Irvine Jakarta Kuala Lumpur Lake Oswego Leeds Lisbon London Los Angeles Madrid Manchester Manila Marlborough Melbourne Memphis Mexico City Miami Milan Minneapolis Montreal Mumbai Munich New Dehli New York Nieuwegein Ottawa Paris Philadelphia Phoenix Portland Redhill Reigate Richmond

  42. Appendix: About XXX (Cont’d) • One of largest management consulting firms with focus on Human Resources • Global leader with extensive research capabilities • Original research (recent sample studies are enclosed) • Access to extensive database of general and industry-specific compensation surveys • Largest survey house - XXX Data Services - with over 80 domestic and international surveys • Centralized research group that provides information on latest developments in tax, accounting, SEC, and stock exchange regulations

More Related