The Total Rewards Professional in a Changing Business Environment WorldatWork Group Partnership Network Leadership Summi

1. The Total Rewards Professionalin a Changing Business EnvironmentWorldatWorkGroup Partnership NetworkLeadership Summit Fred E. WhittleseyDirector, Global CompensationAmazon.com 22 March 2002

2. Where I’ve Come From… (Founded CPM) During the 1990’s boom, consulted to hundreds of companies on compensation and performance management issues

3. Where I’ve Come From… (Joined BRCM) I thought I caught a dip

4. Where I’ve Come From… (Joined BRCM) I thought I caught a dip…boy, did I

5. Where I’ve Come From… (Joined AMZN) Let’s try this again…

6. Where I’ve Come From… The poster child for underwater option companies…and total rewards in a changing business environment

7. Today’s Presentation • The Total Rewards… • Professional… • In a Changing.. • Business Environment • What do WE do? • Bringing it Home to the GPN Organization

8. A Message from our Leader “…layoffs, corporate scandals, bankruptcies, recession, terrorism, and the like. There is no doubt that our world is in flux and it affects all of us, both at home and at work.”Anne C. Ruddy Executive Director WorldatWork 3/1/02 Letter to Members

9. Since We Last Attempted to Meet… recovery to Q2-2001 levels markets closed decline to Q4-1998 levels

10. Just Some of the “New” Issues… • Pay for time away from work due to crises • Unemployment benefits, severance, workers’ compensation for those affected • Safety of the workplace • Military leave compensation and benefits policy • Status of performance against goals impacted by extraordinary events • Exacerbation of simultaneous boom/bust labor economics • Impact on already-weak stock market • Pay levels for airport security personnel • Requests for increased benefits for international assignments

11. Let’s Back Up - Where Have We Come From? The Total Rewards concept evolved during an unprecedented economic boom

12. Total Rewards: WorldatWork’s Model Compensation Benefits Salary Short-Term Incentives Long-Term Incentives Health and Welfare Retirement and Savings The Work Experience Acknowledgement, appreciation, recognition Balance of work/life Culture Development Environment – job, place, company Employers were forced to expand the definition and value of their economic contract with employees

13. Common Second class Preferred Convertible Grant Option Purchase Paid time off Unpaid time off Work schedule Work location Location rules Location value Another View: Four Elements of Compensation Cash Goods and Services Wage and salary Target-based incentives Activity-based incentives Discretionary payments Liquidation of other forms of payDeferred cash (savings/retirement) Health and welfare benefits Work tools Leisure items Education and trainingSocial activities Equity Time and Place

14. Total Rewards in the Unstable Environment

15. Total Rewards in the Unstable Environment

16. Total Rewards in the Unstable Environment

17. Total Rewards in the Unstable Environment

18. Total Rewards Issues: • Total rewards model evolved and was defined during the boom times • Total reward value increased substantially during roaring 90s, raising the impact and the visibility of employee rewards • Perceived cost and visibility of total rewards invites scrutiny during current period of economic instability • Many progressive forms of rewards are perceived as easy to discontinue • Challenges to the model, and elements of the model, are coming from new and unexpected sources

19. Total Rewards Conclusions: • Total Rewards approach must be defined to change and respond quickly to the environment, going beyond a “list of stuff” • Well-defined philosophy and strategy must be articulated to guide decisions • Like any business issue, philosophy and strategy must have a financial basis • Won’t have the necessary “data” for years - discussions and actions are still piecemeal and reliant on anecdotal data • Absent authoritative data, many are compelled to opine on the issues

20. Professional Compensation Compensation & Benefits Total Rewards IT/HRIS Increased VariablePay Complexity LegalTax/AccountingStock Admin Equity-BasedCompensation Benefits Benefits Total Rewards T&D, OD, HR, ER… Decentralization/Participation Line Management WWW Employees

21. Professional Issues: • Expanding scope of total rewards increased overlap between “comp” and non-rewards HR functions • Total rewards expertise now lies in many “non-HR” areas • Skill set is becoming too broad to master: CCP, CBP, GRP, CEP… • Other specialty areas are developing compensation expertise • Program design or modification may occur without HR input • Egalitarian culture of technology has eroded control over context of information • Rules of Engagement often differ from those in HR

22. Professional Conclusions: • Need for rewards professional literacy in other HR specialty areas • Must abdicate “police” role for “advisor” role • Changes are even undermining HR’s traditional core role of administration • Must establish credibility through both content and process skills • Goods news: business leaders are now thinking about, and much more involved in, rewards issues • Bad news: total rewards leaders are not all thinking about business

23. A Simple Formula Source: Edward P. Lazear, Personnel Economics for Managers

24. Changing Technology De- and Re- Regulation Globalization Organization Boundaries Changing Reward Issues Dot-com deaths…and the return of dot-com IPOs The stalling of broadband Regional and sector economic downturns…and the recession we didn’t have Widespread layoffs…and the continuing war for talent And then add… Stock market “correction”…and rebound Enron, Global Crossing, Andersen, etc. Terrorism and warfare What Next?

25. Changing Issues: • Volatility of business environment is here to stay • Pace of change continues to accelerate but is not uni-directional • Pace of change exceeds traditional assess-design-implement cycle timeframe • No longer able to address “the issue” as “this year’s theme” • Total rewards field is not prepared for multivariate decision models • Survey data methodologies, even newer online models, cannot capture the necessary data in the time required • As total rewards scope has expanded, higher degree of change is designed into the topic

26. Changing Conclusions: • Must not be merely pro-active, but “projective” and thought-lead • Must think beyond HR issues to understand HR issues • Professional services industry restructuring renews pressure for traditional interventions • Formal survey methodology will be temporarily rendered less valid than anecdotal data from networking • Finding order in chaos, rather than imposing order on chaos, is a new role for most • Total Rewards issues are rapidly being co-opted by broader business issues

27. Business Environment UncertainPerformanceMetrics FinancialReportingin Flux MarketValuationUncertainty Soft butUnevenEconomy Financial impact – corporate and individual - of rewards programs being revisited Earnings Charges Corporate tax “breaks” Employee Taxation Investor Perception

28. Business Environment Issues: • Business environment is currently dominated by financial measurement and reporting issues • Business was already being measured differently – e.g., balanced scorecard – which was reflected in reward system design • Employment relationship is being measured differently • Beyond business -- political, media, popular pressures will force accountability for reward practices • Even if we had a fully quantitative model of total rewards value, it would soon be obsolete

29. Business Environment Conclusions: • Increased level of financial skills are required for total reward professionals • Must understand basics of the business, beyond “job matches” • Business can “learn compensation” faster than rewards professionals can learn business • Coming challenges to the total reward model are going to be: • Financially complex • Politically tinged • Comingled with broader business issues

30. So What do WE do? • Present irrefutable data -- not just rewards data surveys (and not just the latest consulting firm sales pitch) • HR performance metrics • Human capital impact • True competitive data • Financial impact analysis • Be a businessprofessional – (and not just the HR person) • Business understanding • Operations orientation • Tactical emphasis, balanced with strategic orientation Will this help us make money?* *or equivalent question for nonprofit/governmental entities

31. So What do WE do? • Lead change and tell them what’s new (and not just what the media has already told them) • Interpret business trends through HR issues to business needs • Be willing to point out inevitable but unpopular issues • Operate in a business environment (and not just the world of total rewards) • Balance employee concerns with financial and operational requirements • Speak in business terms, not flavor-of-the-month HR buzzwords • Continue to emphasize financial and quantitative elements Will this help us beat the competition?* *or equivalent question for nonprofit/governmental entities

32. Bringing it Home to the GPN Organization • Offer content based on quick-turn member input • Challenging for a large parent organization with broad scope • Tailor content and relationships to industry/region/demographic profiles rather than offering a stop on the national roadshow • Constrained by resource limitations in a parent organization • Radically experiment with membership and attendance profiles • Risky and time-consuming for a parent organization

33. Bringing it Home to the GPN Organization • Define, schedule, and execute program delivery on internet time • Centralized parent organization can’t accomplish • Move toward business-based content • Requires time and a change in contributors, difficult for a parent organization • Define the next generation of thinking and the professionals that lead it • Perfect joint role for the GPN members and the parent organization

34. And Now… What has changed since we started this presentation?