mercer total rewards optimizatoin
TRANSCRIPT
Market Place Trends
TalentDriving Talent Performance
Changing Workforce
Demographics
Increasing Business / Human
Capital Risk
Explosion of Consumer Choice
Convergence of Macro Economic Trends
Total Rewards
• Decreasing prevalence of performance ratings, misaligning performance management and variable pay outcomes
• Applying analytics to predict/determine drivers of turnover, engagement, productivity, and satisfaction
• Using career paths as a measure to address engagement, turnover, and changing drivers of satisfaction by generation
• Growing demand from proxy advisors regulation, resulting in increased risk mitigation around compensation practices
• Partnering with firms to provide Workday Advisory and Deployment services to simplify and drive strategic initiatives
• Organizations are re-thinking the proper labor market against which to compare compensation levels / mix
• Most companies are moving towards tighter pay grades to provide more structure around making pay decisions
• Companies are expanding eligibility for both short- and long-term incentives to differentiate and compete for top talent
Retirement / InvestmentsSecuring Retirement Outcomes
Health & BenefitsNavigating the Challenging
H&B Landscape• Controlling health care costs while providing
employee choice.• Improving workforce health and productivity.• Educating and motivating employees to take
accountability for their health.• Complying with regulatory requirements.• Providing competitive benefits as part of a
strategy of attracting and retaining top talent.• Establishing a seamless renewal process and
administering plans effectively and efficiently.
Plan sponsors, fiduciaries, and individuals face unprecedented challenges in sustainable retirement provision, brought about by:• New regulations and an increasing demand
for transparency in governance and accounting practices.
• Increased economic volatility and investment risk.
• Rising pension liabilities.• Changing demographics and longevity risk.• The declining role of public pensions and an
increasing burden on employers and employees.
Employer Implications Employee Implications
Employer XYZ Total Rewards Optimization Review
Talent
Convergence of Macro Economic Trends
Total Rewards
Retirement / Investments Health & Benefits
Element Grade Overall Considerations
Base Salary• Aggregate aligned with target positioning of 50th percentile of market• Salary structure requires redesign: fewer structures, fewer grades, wider ranges
Annual Incentive Plan• Aggregate total cash positioning aligned with stated pay philosophy of 75th percentile• FY15 AIP heightens accountability by increasing weighting of individual objectives• FY15 AIP change in trigger represents an appropriate change
Long-term Incentives• Market leading design emphasizes long-term performance and sustainability, links to strategic plan imperative, and
offers retentive hook with 3-year, overlapping cycles
Retirement • Retirement benefits are between the healthcare market 25th percentile and median
Health & Welfare • Life, disability and health benefits are competitive with market practice
Perquisites • Elimination of perquisite program consistent with market trends, enhances optics
Employment Contracts & Severance • Current policy aligned with market; externally recruited “game-changers” require flexible agreements
85%
95%
105%
115%
125%
12/31/2012 12/31/2013 12/31/2014 12/31/2015
Fund
ed S
tatu
s
75% - 95%25% - 50% 50% - 75%5% - 25%
Fiscal 2013 Fiscal 2014 Fiscal 2015
Expense -$ 1m
Contribution $ 0m
Expense -$ 1m
Contribution $ 0m
FundedStatus / Surplus 111% / $ 10m
FundedStatus / Surplus 100% / -$ 1m
DB plan optimizationElement Current Plan ConsiderationsTarget Bonus • 100% of base • Aligned with market median
• Ensure that comparator group is revisited annually
Leverage • 50% ($200,000) threshold payout• 200% ($800,000) maximum payout
• 50% - 200% is aligned with market
PerformancePeriod
• 1 year • Aligned with market (vast majority of companies use 1 year period)
Funding Gate • None • Using a funding gate such as positive operating income ensures a minimum acceptable level of performance
• Data not available on prevalence but anecdotally we would suggest that 33% - 50% of organizations include this in their incentive plan
QuantitativeMetrics
• 60% company revenue• 20% company profitability• 20% financial scorecard which
includes 8-10 metrics chosen annually by the Board / Compensation Committee
• Consider reducing the number of metrics- Using 10-12 total measurements is more complex than typical plans;
may overlap and/or dilute effect of each metric• Revenue and profitability are the two most common incentive plan metrics,
but given Company’s focus on bottom line growth, consider weighting equally or more heavily weighting profit, rather than heavy skew toward revenue
Qualitative Metrics
• None • Some organizations use individual and/or qualitative metrics when there are significant responsibilities that may not be reflected by company performance
• However, this is a minority practice (12% of plans predominantly focus on qualitative)
Discretion • None • We do not recommend adding a structural discretionary component based on our understanding of the plan and plan goals, though allowing for downward discretion by the Committee is a typical practice that should be considered
Green = aligned with market practiceYellow = opportunities to revise plan