SHOW ME THE MONEY!

• The first step in our work career was finding a job with the best company.

• Often that decision boiled down to which company made us the highest pay offer.

Accept the Best Offer!

Company A Offer• Base Pay - $60k• $5k Signing bonus

Company B Offer• Base Pay –$55k• No signing bonus

Accept the Best Offer?Company A

• No employee incentive plan• 401k with no company

match• No pension plan• Medical , dental & vision

coverage for employees only

• 10 paid holidays• 2 weeks vacation after 1

year of service• No tuition reimbursement

Company B

• All employee incentive plan ( 3-6% of base pay)

• 401k with 100% company match on first 6%

• Pension plan• Medical, dental &vision

coverage for employee & dependents

• 12 paid holidays• 3 weeks vacation with accrual

beginning at hire• Tuition reimbursement

Total Rewards Overview and Roundtable Discussion

Discussion Leader: Bob Holben, CCP, MBA

What is “Total Rewards”?• The full spectrum of programs a company

provides to its employees to attract, retain and motivate individuals who possess the talent the company needs to be successful.– Direct Compensation • Base Pay/Wage & Salary• ST & LT Incentive Awards and bonuses

– Recognition Awards• Service : Pins, watches, plaques, jewelry, etc.• Individual or team performance : spot bonus,

dinner/movie/sporting event tickets, certificates

– Benefits

Typical Direct Compensation Goals• External Equity

– Job pay levels are matched to external market data • salary surveys (25th ,50th and 75th percentiles of job pay levels)• Job pay ranges capture the market 25th and 75th percentiles

• Internal Equity– Job grades establish internal hierarchy of job values based on each

job’s rating against market price or a set of compensable factors (SERW)

– Employees are paid appropriately relative to the jobs they perform.

• Pay for Performance– Establish and maintain appropriate pay levels between employees

base on each employee’s relative performance against personal objectives.• Top performers are paid more than lower performers• SMART Objectives

SMART Objectives• Specific – clear statement of what is to be achieved

• Measurable- metrics to measure level of achievement

• Achievable – at least 80% probability of success

• Realistic- within the realm of possibility with available resources

• Time Specific – specific due date and time

(Ex: Hire 50 design engineers by COB, December 31, 2012)Not

( Support the company’s staffing efforts for 2012)

External Equity Target• Target Pay Policy Design– At market : the median pay levels of your company’s

jobs are targeted and managed to be at, or close to, external market median pay levels for the same jobs.

– Below market: the median pays of your company’s jobs are targeted and managed to be below those of the external market. ( ex. Pay at market 45th percentile, pay at X% below market median etc.)

– Above market: the median pays of jobs in your company are targeted and managed to be above those of the external market (ex: Pay at market 75th percentile, pay at X% above market median, etc.)

Traditional Pay Structure• Pay Grade- numeric designation of a specific pay range

for a set of jobs with market medians that are at or close to the job grade‘s range midpoint.

• Pay Range- the range of pays from minimum to maximum for all jobs in a particular pay grade. (capture job’s 25th and 75th percentile pay levels)

• Range Spread- % difference from minimum to maximum of a pay range (ex. For a 50% spread -max is 150% of min.)

• Structure Progression - % increase between the midpoint of one job grade and the next higher one. (ex. In an 8% progression: Job grade 30 mid-pt is $5,000/mo. and job grade 31 mid-pt would be $5,400/mo. ($5,000 x 1.08)

Lead, Lag, Lead-Lag• Positioning and adjustment of the salary structure

based on annual market structure movement. • (ex. market predicted to move 3%)

– Lead Positioning: structure midpoints set to match market at end of year. (i.e. midpoints set 3% ahead of January market values at beginning of year.)

– Lag Positioning: structure midpoints match market at beginning of year. (i.e. midpoints set to match January market values at beginning of year.)

– Lead-Lag Positioning: structure midpoints matches market at mid-year. (i.e. structure midpoints set to match the current market plus ½ predicted market movement at beginning of year. (midpoints set 1.5% ahead of current market)

Broad Band Structure• Pay for the person’s overall set of skills and abilities,

not just performance of the assigned job duties– Pay increases come from both performance and the acquisition of

new skills and proficiencies often found in other jobs.

• Traditional pay structure is collapsed into far fewer job grades– Very wide range spreads (ex. 150%)– Often administered with shadow bands for market pay control

• Few companies have adopted and maintained this approach– Employee relations issues ; employees tend to think they all have

ability to get to the range maximum, but shadow bands hold them back. Peers can be paid higher based on acquired skills that are not being used (i.e. not visible)

– Electrician I, Carpenter I, Mechanic I, Plumber I = Maintenance Tech I

Incentive Plans• Purpose: To focus employee efforts on company

issues/problems that can be resolve with improved employee performance. – Key Note: Goal is to change employee behaviors, not just to pay

employees more money!

• Some types of Incentive plans:– Objective-based incentive plans (most are financial objectives)– Balance Scorecard incentive plans (financial, quality, production goals)– Profit Share– Gain Share– Sales Incentive Plans

• Written document that establishes a “Quid Pro Quo” with employees. (“This for That”)

Incentive Plan Question? • An Incentive Plan was designed to pay out 3%

of each employee’s base pay when company’s annual profits reached or exceeded $50M.

• Results:– Annual profits improved, but only reached $49M. – No IC payout was made to employees.

• Did the incentive plan work?

Incentive Plan Question• A bonus of $1,000 was paid to each

nonexempt employee for helping to meet the company’s annual production goal.

• Q: Does the company have to recalculate the overtime that was paid to each employee over the course of the year to include the bonus amount as a part of the employee’s regular rate of pay?– Profit share?– Discretionary bonus?

Spot Bonuses• Recognition rewards for individual and team

accomplishments.– Given at the time of the accomplishment. ( “On the Spot”)

• Typical awards include:– Certificates of accomplishment– Items from the company store– Movie tickets– Tickets to sporting events– Dinner vouchers for two at a nice restaurant– Cash payment

• De Minimis?- is it taxable to the employee?

Types of Benefits• Statutory – Required by law

Ex : Unemployment Compensation, Workers Compensation, Social Security, FMLA leave, etc.

• Company Provided – Provided to employees at the discretion of the company. Employees sometimes pay a portion of the costs.– Ex.: Medical, Dental, Vision, life insurance, disability insurance,

pension plan, 401k, paid vacation, paid holidays. etc.

• Voluntary Benefits- Discounted benefits made available to employees by the company at the employee’s own expense. Ex.: Supplemental life, pet insurance, auto insurance, legal services, etc.

Biggest Benefits Issue is Healthcare Costs

• For both Employer and Employees– Typical employer/employee cost share ratios :

• 80/20, 75/25 or 70/30 • If the actual costs go up for company, they also go up for

employees and their families.

• Some ways for company to reduce healthcare costs:The typical CFO/Controller approach:– Increase employee share of the cost

• ex. 50/50– Eliminate certain benefits and/or coverage– Make line item cuts to the benefit budget - (ex. reduce benefit staff,

increase medical and drug co-pays & deductibles, cut certain drugs from formulary, outsource programs.)

Better ways to reduce healthcare costs• Free generic drugs for certain chronic diseases• Free flu shots• Free mammograms for women over 40• Free pap tests for women over 20• Free HRAs (Health Risk Assessments with biometric screens)• On site clinic and/or pharmacy• Wellness and EAP programs• Physician incentive plan to improve quality of care they

provide• Intensive employee & family healthcare communications

program• Conduct a dependent audit• Establish high co-pay for ER visits without hospital admissions

Better ways to reduce healthcare costs (cont.)

• Develop & monitor healthcare metrics• Purchase stop loss insurance• Periodic “Requests for Proposals” for all healthcare plans– Hire the most cost-effective vendors

Our Ultimate Goal• A Total Rewards Package that is competitive,

cost effective and can attract, retain and motivate the talent necessary for the company to be successful.

• “Show Me The Value Of The Total Rewards”

Questions & Answers