compensation planning 2013: planning for performance · compensation planning 2013: planning for...

Compensation Planning 2013:Planning for PerformanceSeptember 24, 2013

James Roth, AtlantaColleen O’Neill, AtlantaJeanie Adkins, Louisville

MERCER 1September 25, 2013

Today’s Speakers

James RothAtlanta+1 404 442 [email protected]

Colleen O’NeillAtlanta+1 404 442 [email protected]

Jeanie AdkinsLouisville+1 502 561 [email protected]

MERCER 9/25/2013

• Context for planning– Economic outlook– Talent context– Total rewards context– Pay equity concerns gaining momentum

• Current state of pay for performance

• 2012/2013 in review

• Pay for performance forecast for 2014– Base salary increases– Short term incentives– Promotions and careers– Recognition

• Call to action for 2014

Submit questions at any time:Use the Q&A tab on the bottomright-hand side of your screen

Today’s Topics

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Section 1

Context for Planning

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Economic Context for Compensation PlanningEconomic recovery continues to be slow, but steady

Exports not growing as fast due to mixed sentiments over an uncertain worldeconomy

More signs of economic improvement

• Steady employment and somewhat higher wages• Job growth remains weak but steady• Salary freezes down from 2012 and projected to decline further in 2014• Households benefiting from low interest rates• Residential construction market in the midst of a healthy upswing

Overall, US economy in a more robust condition than in 2011-2012,and is holding its own

4

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Economic OutlookGDP growth steady, unemployment below 8%

5September 25, 2013

Sources: Economist Intelligence UnitUS Department of Labor Bureau of Labor Statistics

* Quarter Forecast – Economist Intelligence Unit

1.5%

3.0%

1.7%

1.1%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2*

CPI GDP Growth Unemployment

2010 2011 2012 2013

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Talent Context“Talentism is the new capitalism”• Organizations are investing more in talent, but is it paying off?

• Key talent issues– Sustaining an adequate pipeline of leaders and critical talent– Attracting and retaining key talent and critical skills

(Buyers of talent still outweigh builders)– Engaging employees to maximize business performance– Aligning rewards with business priorities– Effectively managing costs of HR programs– Governing people risk

• Accelerators of talent—education, wellness, careers

Source: Klaus Schwab, Founder and Executive Chairman of the World Economic Forum

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Total Rewards ContextMost employers set pay strategy in a total rewards framework

• Rewards aligned withemployee value proposition

• Market strategies– 73% target pay and

benefits at median– 11% target above median– Remaining below median,

offset with othercomponents

• Focus on delivery tomaximize value

7September 25, 2013

Source: Mercer’s 2013 Pay for Performance Survey(Preliminary Results)

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Pay Equity Concerns Gaining MomentumOFCCP revised its investigative protocol in the Spring

• The OFCCP and EEOC are deploying more compliance resources

• OFCCP’s new protocol looks for “systemic” concerns, then at smaller units– Addresses a broader definition of compensation (base,

incentives/commissions, LTI, access to overtime pay and benefits)– Considers the equity of practices driving pay differences– Requests broader data in investigations– No protocol for evaluation: OFCCP will seek to make the best case– Regression still endorsed, and still legal standard

• Two recent BOA/Merrill Lynch settlements for $160 and $39 million

8

Section 2

Current State of Pay for Performance

MERCER 10

Current State of Pay for PerformanceHalf of employers say their performance management needs work

MERCER 11

Current State of Pay for PerformanceMost organizations say they pay for performance…

MERCER 12

What are your organization’s primary objectivesin using pay for performance?

Current State of Pay for PerformanceThe objective is to drive higher levels of performance…

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Current State of Pay for PerformanceBut does it deliver?…less than 60% say it works well

Evaluate the effectiveness of your performance management approach.

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MERCER 14

Which, if any, of the following roadblocks have most impeded your pay for performanceimplementation?

Current State of Pay for PerformanceTop roadblock to effective pay for performance is manager skill

MERCER 15

Your company uses a distribution or rankingprocess for which of the following? (Select allthat apply.)

To ensure differentiation betweenperformance levels, which of the followingprocesses are used by your company?(Select all that apply.)

Current State of PerformanceRanking and calibration processes complement manager input

*31% of companies discuss compensation decisionsin calibration meetings

*

*

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Current State of PerformanceWhat are the implications for pay for performance?

• Be very clear on your performance differentiation philosophy

• Know manager capability and calibration makes a real difference

• Consider programs in the context of others

– Performance management, pay levels, incentives, supervision, andleadership development all reinforce one another

• Test whether programs are getting you the desired returns

– Use analytics to measure progress

• Understand what is holding you back

– Design or implementation issues?

– Skill or “will” gap?

Section 3

2012/2013 in Review

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2012/2013 Compensation Movement in the Mercer MBD

• Base pay increases tracked below forecast for individual contributors

• Increases and incentives varied by industry, with energy and miningtracking high, and government, education and healthcare low

• Increases and incentives did not vary significantly by region

• Percentage of eligible employees earning an incentive payout declined forall groups except executives

• Similar to 2012, payouts were below target for all groups except executives

• Incentive payouts were down for all career levels and categories ofperformance except for the highest performing managers

• Proportion of eligible employees receiving LTI was up in 2013

Mercer’s 2013 Mercer Benchmark Database represents data from over 3,000 organizations and for 2M employees

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Section 4

Pay for Performance Forecast for 2014

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Mercer’s 2013/2014 US Compensation Planning Survey

• Represents data from 1,500 organizations and over 13 million employees

• Organizations represent a range of industries and sizes

20

5% 6%

10%

6% 6%

9%11%

4%

8%

1% 1%

6%

20%

2%

5%

0%

5%

10%

15%

20%

25%

Participation by Industry Sector (N=1,495) Participation by Organization Size – Number of Employees (N=1,247)

MERCER 21September 25, 2013

Pay for PerformanceRating distributions remain consistent over the last three years

Source: Mercer 2013/2014 US Compensation Planning Report

2%6%

54%

30%

8%

2%7%

54%

29%

8%

2%7%

54%

30%

7%2%

8%

55%

27%

8%

0%

10%

20%

30%

40%

50%

60%

Lowest (1) Low (2) Middle (3) Next Highest (4) Highest (5)

Perc

enta

geof

Wor

kfor

ce

Performance Rating

2011 2012 2013 2014 (projected)

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Pay for Performance in Base Salary IncreasesBase increases are set to remain steady into 2014

* All averages exclude 0’s


2.6%

2.8% 2.9% 2.9%2.9%

2.3%

2.7% 2.7%

2.8%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2010 2011 2012 2013 Projected2014

Projected

Actual

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Pay for Performance in Base Salary IncreasesOil and gas increases are poised to lead the market again


4.4%

2.9%3.0%

2.9%2.7%

2.6%2.4%

2.9%

2.4%2.5%

4.5%

2.9% 2.9% 2.9%2.7%

2.6%2.8% 2.8%

2.5%2.4%

4.3%

3.1% 3.1% 3.0% 2.9% 2.9% 2.9% 2.9%2.6%

2.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Oil and Gas Utilities(Energy)

Bus/ ProfServices

Pharma Retail Telecomm Finance &Banking

Hospitality Healthcare Education

2012 2013 Projected 2014

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Pay for Performance in Base Salary IncreasesCompanies plan to give top performers higher increases


2% 7%

54%

30%

7%

2% 8%

55%

27%

8%

3.5%

4.6%

0.2%

0.9%

2.6%

3.6%

4.7%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

0%

10%

20%

30%

40%

50%

60%


Aver

age

Pay

Incr

ease

Perc

enta

geof

Wor

kfor

ce

Performance Rating

% of Workforce (2013) % of Workforce (Proj. 2014)

Average Pay Increase (2013) Average Pay Increase (Proj. 2014)

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Pay for Performance in IncentivesIncentive payouts for top performers are expected to be higherthan for average performers across career streams


11%

22%

39%

46%

56%

4%

10%

20%25%

34%

2%6%

11%15%

22%

5%9%

19%23%

34%

0%

10%

20%

30%

40%

50%

60%


Mea

nST

IPay

out%

Performance Rating

Executive Management Professional (Non-Sales) Professional (Sales)

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MERCER 26

Pay for Performance in Promotions5 to 7% of employees likely to be promoted in 2014—promotional increases range 6%-8%, up since 2012


5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

2010 2011 2012 2013 Projected 2014

Executive

Management

Professional(Sales & Non-Sales)

Office/Clerical/Technician

Trades/Production/Service

MERCER 27

Pay for Performance in PromotionsCareer pathing and leveling is gaining prominence


14% 11%17% 18% 15%

31% 34%

72%

53%

45%39%

34% 33%

24%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Job-familybased career

paths

Broad careerlevels

Competencybased

performance

Dual careerpath

Multi-raterfeedback

Formalcareer

framework

Formalcareer

planning

Considering Practice (%) Practice Exists (%)

MERCER 28

Pay for Performance in RecognitionRecognizing results is the rationale behind key contributor awards

62%

85%

18%

68%

43%

66%

86%

15%

57% 54%

66%

82%

15%

50%54%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Recognize Efforts Recognize Results SalaryDifferentiation

Retention Project Milestone

Executive Management Professional (Sales & Non-Sales)


Section 5

Call to Action 2014

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6. Enhance your pay for performance analysis

3. Communicate to realize the value of rewards delivered

2. Build manager skills in making pay decisions

4. Assess and assure readiness for pay equity challenges

Call to ActionWhere to focus for 2014?

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5. Confirm the right technology to support rewards

1. Confirm your organization’s pay for performance strategy

MERCER 31

Emerging Best Practice: Pay for Performance AnalysisAlign philosophy with measurement and rewards

Say linkperf

& pay

Measurepeople mgmt

Rewardpeople mgmt

89%

36%

10%

80%

40%

60%

100%

0%

20% 42%measure pay forperformance link

Source: Mercer’s 2013 Performance Management Survey

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• Over time, do we really reward our employees who consistentlyreceive high performance ratings through: Greater pay increases;bonuses; promotions and career opportunities?

• How do we handle pay outliers, e.g., employees who have received alow performance rating but an above median pay increase?

• Which employees received high performance ratings both this yearand last year?

• Which employees have received high performance rating over thepast three to five years?

• Which employees received low performance ratings more than threetimes in their past five reviews?

• What are the characteristics of employees that upgraded from amedium to high performer?

• What are the characteristics of employees that downgraded from ahigh to a medium performer? From a medium to a low performer?

Emerging Best Practice: Performance Management AnalysisCritical questions answered

Reward forPerformance

$

New EmployeeSegments

Downgradesand Upgrades

32Source: Mercer’s 2013 Performance Management Survey

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Emerging Best Practice: Performance Management AnalysisSustained performance ratings and right link to rewards

• Identify employees that have"Sustained HighPerformance" over a longerperiod e.g., 3, 4, 5 years.– We want to ensure that

these employees have asubstantially differentemployment experience(through pay, performanceetc.) compared to the restof our employeepopulation.

33Source: Mercer’s 2013 Performance Management Survey

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Questions & Answers

MERCER 35

QuestionsPlease type your questions in the Q&A section of thetoolbar and we will do our best to answer as manyquestions as we have time for.

To submit a question while in full screen mode, use theQ&A button on the bottom right-hand side of your screen.

To submit a question while in half screen mode, use theQ&A panel on the bottom right-hand side of your screen.

Questions and Contacts

CLICK HERE TO ASK AQUESTION TO “ALLPANELISTS”

FeedbackPlease take the time to fill out the feedback form at the endof this web briefing so we can continue to improve. Thefeedback form will pop-up in a new window when thesession ends.

Additional resources: Visit imercer.com/performance to learn moreabout our Global Performance Management reports

James RothAtlanta+1 404 442 [email protected]

Colleen O’NeillAtlanta+1 404 442 [email protected]

Jeanie AdkinsLouisville+1 502 561 [email protected]

MERCER

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