how to use variable and other incentive pay for the purpose of enhanced employee retention in a...
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How to use variable and other incentive How to use variable and other incentive pay for the purpose of enhanced pay for the purpose of enhanced employee retention in a fiercely employee retention in a fiercely
competitive labor marketcompetitive labor market
20052005
Elena KozlovskayaElena KozlovskayaAVON Russia ManufacturingAVON Russia ManufacturingCompensation&BenefitsCompensation&Benefits
Total Reward StrategyTotal Reward Strategy
Goals:Goals:
attracting motivation
retention
Key Key Principles:Principles:
competitive strength controllability
transparency
Total Reward Strategy:Total Reward Strategy: 4 Key 4 Key ComponentsComponents
Compensation:• Base Salary• Incentives• PDP-Bonuses• Recognition Awards
Benefits:• Medical/Health• Lunch vouchers• Company transportation allowance • Discount on Company’s goods• Additional vacation days• Company car• Mobile phone
Workspace environment:•Respect •Integrity•Fairness•Teamwork•Accountability•Communication•Risk-taking
Training and Development: Performance Development Process - PDP• Technical training• Leadership training• Management skills• Feedback and coaching• Responsibility for projects
Compensation PhilosophyCompensation Philosophy
To attract, motivate and retain associates, a company must provide a total compensation package that is highly competitive and related to individual and business performance
Total compensation for an associate is determined by Total compensation for an associate is determined by four factors:four factors:
Internal value of an individual position External competitiveness Individual performance measured by PDP Business performance
Compensation PackageCompensation Package
Base SalaryBase Salary - Pay for Competence IncentivesIncentives - Performance-based variable pay
plans that provide cash bonuses and stock options
– Management Incentive Plan for Directors - MIP– Management Stock Option Plan - MSOP– Year end bonus for all associates - LIP
AwardsAwards - Cash compensation to individuals or teams for specific achievements that are outside the scope of normal
responsibilities or significantly exceed them
– PDP-Bonuses– Other Awards
What Is PDP?What Is PDP?
Progress ReviewPerformance Review
Coaching & Mentoring
(Ongoing)
Performance & Development
Planning
Stage 1 - Performance and Development PlanningStage 1 - Performance and Development Planning Setting goal and competency performance objectives Creating the development plan Conducting Career Development discussion Conducting the performance planning discussion
Stage 2 – Progress Review Stage 2 – Progress Review Conducting the progress review meeting Providing ongoing coaching and feedback Giving development support
Stage 3 - Performance ReviewStage 3 - Performance Review Assessment of performance Completion of the PDP appraisal form Conducting the performance review discussion
LTIP & MSOPLTIP & MSOP
What is the Purpose of LTIP & MSOP?What is the Purpose of LTIP & MSOP? Recognize and reward for performance Encourage each recipient to “Think and Act” like an
owner To lock in interest of recipient with interest of
shareholders - create value for the company and shareholders
Enable recipient to build up an equity/ownership stake in the company
LTIP & MSOPLTIP & MSOP
What is a Stock Option?What is a Stock Option?
An opportunity to purchase a share of stock at a fixed price for a specified period of time. Eligibility and participation is for all Directors and above MSOP grants are limited to 30% of eligible participants
– Granted, based on General Management proposals, to high performers, high potentials, and managers with critical skills
– Participation in one year does not imply participation for the future years
How MIP WorksHow MIP Works
Promotes globalization– Balances Global and local performance
Measures sales as well as earnings Focuses on key performance indicators Attracts, retains, and rewards world-class talent
– Competitive targets set to local markets
How MIP WorksHow MIP WorksAward
OpportunityMeasures
Performance Assessment
Payout
MIP Target StructureMIP Target Structure– Target bonuses expressed as a percent of base salary– Countries assigned to a structure based on local
market data– Targets for new hires and promotions determined by
external market data as well as internal equity
Eligibility
MIP EligibilityMIP EligibilityBased on local market practice
How MIP Works - ExampleHow MIP Works - Example
Determine Country Financial
Performance
50% of target award based
on country net sales and operating
profit performance using a grid
with maximum payout of
200% of target
Determine Corporate Financial
Performance
20% of target award based on Global net
sales and EPS
performance using a grid
with maximum payout of
200% of target
MIPMIPAwardAward
Step 2
Step 3
Establish Country
Scorecard Performance
30% of target award based on
country scorecard measuring KPI’s,
unforeseen events, etc.
with maximum payout of 200%
of target
Step 1
MIP Target: MIP Target: 8,5% of annual salary8,5% of annual salaryComponents:Components:European Operating Profit/ European Net Sales 50%Global Element – EPS/ Net Sales 20%European Cash Flow from operations 10%European Gross Margin 10%European Order Fill Rate 10%
8,5%8,5% of annual salary - plan fulfillment of annual salary - plan fulfillmentup to 17%up to 17% - outstanding results - outstanding results
How MIP Works - ExampleHow MIP Works - Example
PDP PDP 1 1 →→ Total MIP Award = Calculated amount Х Total MIP Award = Calculated amount Х 1,151,15
PDP-Results Impact:PDP-Results Impact:
Payment:Payment:
Base Salary Base Salary – – pay for pay for
competencecompetence
Awards (incl.PDP-Awards (incl.PDP-Bonuses)- Bonuses)- pay for pay for individual performanceindividual performance
Incentives – Incentives – pay for business pay for business
performance performance reflecting individual reflecting individual
performanceperformance
Compensation PackageCompensation Package