COMPENSATION TRENDS

AND STRATEGIES FOR

EFFECTIVELY

IMPLEMENTING WAGE

INCREASES

April 5, 2016

Presenter: Carina Vassilieva

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RETAIL IS GOING THROUGH A FUNDAMENTAL

CHANGE

Business has been flat since 2007

–Continued 2% GDP growth

– Increased competition in ecommerce

–Prudent and conservative customer base

Retailers are having to rethink every aspect of their business

–Merchandising strategy, what do customers want

–Channel strategy – Omni-channel

–Changing support services

This new reality will fundamentally change Retail talent management:

–Need to respond faster to customer expectations

–Need for innovation to lead the market

– Increased usage of a matrix organization, which adds complexity

–Focus on cost effectiveness and efficiency

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BUSINESS CHALLENGES

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Pressure to grow top-line

• Increased competition• M&A• More challenging consumer

Pressure on bottom line

• Need to control or reduce SG&A expense while managing a more complex organization

• Need to delayer the organization to increase speed and decrease bureaucracy

Investment in technology

• Fundamentally changing how stores operate• Causing a shift from bricks and mortar to online, which makes

store-for-store sales unpredictable and less of an indicator of financial health

Pressure on people

• Retail needs new talent with new skills at every level• Need to grow leadership who can work in a fast changing matrix

environment

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IMPLICATIONS FOR PEOPLE

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New jobs must be created

• Omni-channel jobs• Big data and analytics

jobs• One-to-one marketing• Technology positions• Store jobs requiring

more skill

New ways of working

• Team focused - working matrix

• Built around customer, not around silos, functions or stores

• Shift in power from merchants & merchandising to customer

• Working with constant change

Talent Gaps

• 75 million boomers retiring and 68 million Gen Xers replacing them

• A need to recalibrate the entire workforce (i.e. how to work in an omni-channel environment)

• Need to have people that can understand more than retail (international, FMCG, tech, etc.)

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IMPLICATIONS FOR PAY/WAGE

INCREASE STRATEGIES

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•Increasing performance coaching and not just the “once a year” event

•Managing performance will need to align with new role expectations and metrics

•Rewarding employees for performance and professional growth

•Career paths that align with filling gaps

•Capabilities need to be cross functional and future oriented

•Need to tie both personal and company results

•Rewards need to align with more efficient organizations

•Align pay with increased productivity

•Align pay with major corporate initiatives

•Must be more consultative and solve business problems

•Need to be more conceptual

•Have a sound understanding of business and analytics

•Still be able to control expense

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COMPENSATION TRENDS

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Element Trends

Base salary

Canada: Base salaries are expected to increase at approximately 2.6% in 2016

US: Base salaries are expected to increase at approximately 3.0% (at median) in 2016

Salary RangeStructure

Canada: Salary range structures are expected to increase at approximately 2.0% in 2016

US: Base salaries are expected to increase at approximately 2.0% (at median) in 2016

Modest increases

Modest increases

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COMPENSATION TRENDS

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Element Trends

AnnualIncentives

In recent years target annual incentives have been relatively flat, showing modest increases at executive levels

Most retailers continue to use 1-2 metrics in their annual incentive plans

‒ Profit measures (EBITDA, Operating Income, etc.) and revenue growth continue to be most prevalent in the retail industry

Long-Term incentives

Grant values have remained relatively flat since 2013

There has been little change in the mix of LTI vehicles, though there have been slow but steady increases in the emphasis on performance awards

Modest increases

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EXECUTIVE COMPENSATION TRENDS

Executive compensation continues to grow at a modest rate:

–Salaries and short-term incentives (“STI”) show modest increases;

–Long-term incentive (“LTI”) values are generally stable, with the mix of vehicles continuing its slow shift toward performance-based LTI

Say on Pay (US) remains an important indicator of shareholder views; shareholder support generally remains very strong

Shareholder outreach is increasing, with companies engaging major shareholders throughout the year to identify and address “hot button” issues

Boards and Compensation Committees are becoming more proactive in addressing governance elements such as CEO pay, performance, and succession planning

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GOVERNANCE TRENDS

PROACTIVE CEO MANAGEMENT

Historically fragmented conversations about the CEO’s succession planning, performance evaluation, and compensation are becoming more integrated to:

– Provide consistent messaging around roles, responsibilities, and expectations

– Enable a proactive approach to managing CEO pay, performance, and succession

– Mitigate risk of crisis scenarios

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SUMMARY

Retail is going through a fundamental change and will

look significantly different in five years

Omni-channel will significantly alter the customer relationship

– The customer controls where and when the transaction takes place

– Changes retail to a two-way relationship

The design of the retail organization will change substantially

– Value of existing jobs will change ― some will go up, some will go down

– New organizational structures

– New leadership approaches

– New ways of managing the business

A successful retail leader and employee will work differently in the future

– Leaders moving from directive and pace-setting to coaching and participative

– Employees going from execution to customer focus

– Innovation will be a constant

Reward must change to support these new business

structures, leadership values, and strategies

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TOTAL REWARDS FRAMEWORK

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w www.haygroup.comb www.blog.haygroup.com

© 2015 HayGroup. All rights reserved.

Carina VassilievaSenior Principal, Executive Compensation and Total Rewards

Tel: +1.416.815.6349Email: Carina.Vassilieva@kornferry.comwww.kornferry.com/haygroup

Korn Ferry HayGroup

121 King Street West, Suite 700

Toronto, ON M5H 3X7

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