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Dede ODonnell Director, Total Rewards (new SAIC) June 17, 2013 Merit Budgets: Trends & Practices Slide 2 SAIC.com SAIC. All rights reserved. SAIC PROPRIETARY Differentiating Top Performers Highest performer isnt always the highest paid Small(er) merit budgets dont pack the same punch Federal contracting also creates challenges (e.g. sequestration, LPTA, etc.) Coordination with performance management and talent management initiatives Managers need to make the tough call; zero out non-performers & average performers high in the range Company must decide on forced distribution Focused actions: Provide merit guideline matrix Consider fast tracking Target bonus participation Deliver meaningful non-monetary recognition Slide 3 SAIC.com SAIC. All rights reserved. SAIC PROPRIETARY Lump Sum Merit That is the Question Currently not a feature for SAIC salary administration Total Rewards team not supportive because of challenges presented Non-adoption by DCAA FAR, GAAP and CAS compliance may not be able to charge it to the customer as salary; different color of money Probable depletion of the annual bonus pool because of approved DCAA disclosure Future planning includes pursuing lump sum merits Viewed positively by both management and employees Continues to grow in popularity especially with efforts to manage escalation Provides managers with ability to recognize performance and control costs Slide 4 SAIC.com SAIC. All rights reserved. SAIC PROPRIETARY The Merit Target? Target for Executive Leadership is TCC and TDC Target for majority of employees is market pay Analysis focuses on several factors: Local labor market Peer group Equity to market and peers Prior years salary growth Performance Slide 5 SAIC.com SAIC. All rights reserved. SAIC PROPRIETARY Pay for Performance? Philosophy remains but difficult to implement Hard to sell employees with such a narrow band/range Challenges Can management truly distinguish between meeting and exceeding expectations? Does the employee perceive recognition in average increases? Have the days of bell curve compensation passed because of tighter budgets? How does the federal contracting environment and actions impact messaging? Is there comparability among the employees when there are easy graders and hard graders? Slide 6 SAIC.com SAIC. All rights reserved. SAIC PROPRIETARY Creative Compensation and Total Rewards Leadership interest in: Lump sum merits Variable pay and/or profit sharing Defined recognition program(s) Research will start on initiatives Fishbowl Utah-based software developer using commission plan universally Elimination of standard performance reviews or separating salary planning and performance management Work-Life balance programs Flexible work schedules Telework Concierge services Fitness and subsidized gym membership Employee survey Targeted recognition High Five and iAppreciate Service awards Slide 7 SAIC.com SAIC. All rights reserved. SAIC PROPRIETARY The Importance of Communications Need to explain the pay philosophy in wording that employees understand and accept Messaging is important Provide information to employees early and often Its important to communicate total rewards not simply compensation Annual compensation statement Demonstrate link to business and criticality to program success Strong allegiance to our customers mission, especially warfighter focus Example: SAICs MRAP C2 program Slide 8 SAIC.com SAIC. All rights reserved. SAIC PROPRIETARY Impacts on Merit Budgets Economy Merit budgets tend to be reactionary and tied to inflation, etc. Competition The Government pie isnt getting any bigger Protect Expand - Grow Customer, contracts and regulations Funding constraints Price-to-Win and LPTA Service Contract Act Slide 9 SAIC.com SAIC. All rights reserved. SAIC PROPRIETARY Preparing the Merit Budget Align with the economy; review general market data Local and national data For all industries For all contractors (not only competitors) For Tech Services Use multiple sources Incorporate information from the Contracts and Line organizations Connect with Finance Forward pricing and escalation rates Obtain executive leadership buy-in Ensure they understand the market and parameters Measure the results