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A NEW WAY TO MANAGE EXECUTIVE PAY:NOT JUST AS A RISK BUT ALSO AS ABUSINESS DRIVERFebruary 12, 2014
MERCER WEBCAST
MERCER WEBCAST 1February 13, 2014
Today’s speakers
Gregg PassinSenior Partner & NAExec Rem LeadNew York
Jennifer ShenkerPrincipalRewardsSan Francisco
Teresa BayewitzPrincipalRewardsNew York
Peter SchlothPrincipalRewardsPhiladelphia
Andre RooksPrincipalRewardsChicago
Janet DenUylPartnerExecutive BenefitsNew York
HAVE A QUESTION?Please type your questions in the Q&A section of the toolbar and we will do our best to answer as manyquestions as we have time for.
To submit a question while in full screen mode, use the Q&A button, on the floating panel, on the top of yourscreen.
CLICK HERE TO ASK A QUESTIONTO “ALL PANELISTS”
MERCER WEBCAST
AgendaWhat we’ll cover today
Landscape impacting executive rewards
Market responses and trends
Strategies for overcoming the divide
Client case studies
Wrap up
EXECUTIVE REWARDS LANDSCAPE &RESPONSES
MERCER WEBCAST 4February 13, 2014
The executive compensation landscape is increasingly complex
Context Implications
• Globalization and industryconsolidation are increasing sizeand scale of businesses.
• Shortage of qualified executivetalent to handle complexity oftoday’s global organizations.
• Global convergence of talentmarket.
• More recruiting and mobility ofexecutives across borders.
• Changes in technology and socialvalues are changing how work getsdone.
• Requirement for new leadershipcompetencies and quickeradaptation.
• Aging workforce and retirementcrisis is impacting talent pipelines.
• Succession plans are vulnerableto unpredictability.
• Regulatory environments areevolving around the globe towardsgreater regulation.
• Say-on-pay is gaining steam buttaking different forms; efforts tolimit pay emerge.
MERCER WEBCAST 5February 13, 2014
Yet many compensation committees are focused on risk mitigation
Reversionto theMean
ShareholderAdvisoryGroup
Standards
IndustryBenchmarking
Legal &Regulatory
RequirementsBusiness andTalent Context
MERCER WEBCAST 6February 13, 2014
Market trends bear evidence of this reversion to the meanDrivers of plan design
• Economic factors are less important, while proxy advisorinfluence continues to grow.
2013 2014 2013 2014
Annual Incentive Plan Design 18% 7% 10% 11%
Long-Term Incentive Plan Design 22% 6% 15% 17%
Use of Special Retention Grants 14% 4% 12% 13%
Changes in Grant Value 25% 3% 4% 7%
EconomicOutlook
Proxy AdvisorGuidelines
Source: Mercer 2013 Executive Rewards Trends Survey
MERCER WEBCAST 7February 13, 2014
Market trends bear evidence of this reversion to the meanVehicle mix
• Performance awards are on the rise and options are on the decline.
0%
5%
10%
15%
20%
25%
30%
35%
OptionsOnly
Rest.StockOnly
Perf.Awards
Only
Options +RS
Options +PA
RS + PA Options +RS + PA
Prevalence of Long-term Incentive MixCEO Grants – S&P 500
201020112012
Source: Mercer 2012 CEO Compensation Report
MERCER WEBCAST 8February 13, 2014
Market trends bear evidence of this reversion to the meanPerformance measurement
• TSR- and EPS-based performance share plans dominate.
38%
21%17%
13%9% 8% 7% 7% 6%
0%5%
10%15%20%25%30%35%40%45%
Performance Share MetricsS&P 1500
Source: Equilar 2013 Proxy Season Trends
MERCER WEBCAST
At the same time, we see more and more compensation committees takingon broader responsibilities, creating an executive compensation gap
9
Source: Mercer 2013 Executive Rewards Trends Survey
2013 2014
Succession Planning 53% 69%
Executive Candidate Evaluation 58% 69%
Leadership Development 28% 40%
Workforce Metrics 24% 33%
Board Oversight
MERCER WEBCAST 10February 13, 2014
Strategies for overcoming the gap
Key Strategies How to Implement
1. Reorient to theglobal talent market
• Go beyond US practices.• Enable comparisons across dissimilar packages .• Facilitate international mobility and cross-cultural
development.
2. Integrate executivetalent planning andrewards
• Expand the duties of the compensation committee.• Review succession and leadership development plans in
tandem with compensation.
3. Understand totalcareercompensation
• Consider realizable pay over an executive’s full tenure.• Analyze all elements of compensation, including benefits.
4. Harness the power ofdata
• Review a dashboard(s) with broad talent metrics.• Include sophisticated analytical techniques such as
projections, simulations, and predictive modeling.
5. Engage andcollaborate withmultiple stakeholders
• Seek input from a broad range of voices inside and outsidethe company.
• Improve collaboration between management and thecompensation committee.
CASE STUDIES
MERCER WEBCAST
Rewarding a global executive teamClient: Global consumer products company
12February 13, 2014
Challenge• IPO on Hong Kong exchange.
• Retention concerns with globalexecutive team.
• Divergent views of LTI amongglobally diverse board members.
Approach• Global shareholder perspective.
• Benchmarking based on global marketdata.
• Financial projections and impactmodeling.
Results• Competitive compensation across multiple geographies.
• Equity plan that was attractive to executives and sensitive to shareholderinterests:
– Expanded participation.– 100% stock options easy to understand and aligned with focus on growth.
Global Talent CareerComp Data Engage
MERCER WEBCAST
Leveraging workforce analytics to informrewards strategyClient: US energy company
13February 13, 2014
Challenge• Insufficient succession planning.
• Trouble managing impact ofretirement exits.
• Limited insight into competitivenessof pay for executives.
Approach• Internal labor market mapping to
understand talent inflows and outflows.
• “Total rewards” approach tobenchmarking.
• Retirement plan design review.
Results• Decision-making based on facts, not hunches.
• Integrated career, pay, and benefits strategy.
• Shift from tenure-based-pay to pay-for-performance.
Global Talent CareerComp Data Engage
MERCER WEBCAST 14
Internal Labor Market (ILM) map
78% Ret. Eligible
69% Ret. Eligible
63% Ret. Eligible
49% Ret. Eligible
32% Ret. Eligible
36% Ret. Eligible
43% Ret. Eligible
33% Ret. Eligible
41% Ret. Eligible
MERCER WEBCAST
Building a career rewards strategyClient: Global hospitality company
15February 13, 2014
Challenge• LTI at IPO; no benefit changes.
• GMs drive results, but no LTI.
• Global leveling project discoveredwide discrepancies in total rewards.
Approach• Global custom industry survey on LTI
and retirement practices.
• “Total rewards” approach tobenchmarking.
• Design recommendations.
Results• Globally-consistent LTI eligibility.
• Flexible LTI ranges with performance criteria.
• International pension plan limited to globally mobile; others migrated to local plans.
• Benefit formulas simplified to reflect level more than tenure.
Global Talent CareerComp Data Engage
MERCER WEBCAST
Supporting post-acquisition integration effortsClient: Diversified product & service provider
16February 13, 2014
Challenge• Strategic acquisition.
• Inconsistencies in titling, pay, andbenefits.
• Broad integration challenges.
Approach• Stakeholder interviews across business.
• Job evaluation using Mercermethodology.
• Global benchmarking across industries.
Results• Agreed upon global rewards philosophy.• Executive leveling, titling, and pay structures based on objective criteria.
• Enhanced clarity around future leadership requirements.• New insights into organizational design.
Global Talent CareerComp Data Engage
MERCER WEBCAST
Executive leveling, title and pay structure development
Executive Working TitleIPE Position
ClassMkt 50 Base
SalaryMkt 50
Bonus %CEO 76 993 100%President, BU 1 71 554 70%President, BU 2 69 496 65%CFO 67 502 68%President, BU 3 67 441 63%General Counsel 66 424 50%CTO 66 361 52%CMO 66 352 53%CHRO 66 344 48%President, BU 4 65 433 63%VP, BU 1, Large Division 65 275 42%SVP, BU 2 Large Region 64 297 44%MD, BU 2 Large Region 64 286 38%VP, Product Solutions 63 341 40%VP, BU 1 CFO 63 293 42%VP, BU 1, Med Division 63 248 42%VP, Rewards & HR Ops 63 230 34%SVP, BU 2 Supply Chain 63 224 33%SVP, BU 3Mftg Ops 62 292 38%VP, CIO BU 2 62 282 35%SVP, COO BU 1 62 280 36%VP, Channel Mgmt BU 1 61 213 28%VP, Technology BU 4 61 205 37%VP, Ops BU 2 60 237 32%SVP, Bus Dev BU 1 59 201 34%VP, IT Architecture 58 228 29%VP, Cust Service BU1 58 180 26%VP, Business Services BU 1 58 167 34%VP, Reg. Mftg Ops BU 3 58 167 27%
17
MERCER WEBCAST
Responding holistically to say-on-pay resultsClient: Global pharmaceutical company
18February 13, 2014
Challenge• Say-on-pay failure.
• Complex executive compensationand benefits programs.
• Text-heavy disclosures.
Approach• “Total rewards” approach to
benchmarking.
• Adoption of governance best practices.
• Proxy redesigned with help ofcommunication experts.
Results• Strengthened pay-for-performance story.
• Engaged shareholders through clear disclosures and targeted outreach.
• Increased favorable say-on-pay vote.
• Greater collaboration between the committee and management.
Global Talent CareerComp Data Engage
WRAP UP
MERCER WEBCAST 20February 13, 2014
How to start?
• Evolve your role to keep ahead of the shift to “HR committee”– Identify collaboration opportunities.– Gain access to more and different information / data sets.– Analyze situations and recommendations from multiple perspectives.
• Don’t succumb to data overload– Focus on telling the story, not regurgitating facts.– Identify the “critical few” metrics that are key to your business.
• Build judgment into the process– Pace analyses and committee agendas appropriately.– Give stakeholders multiple opportunities to provide input and surface
potential problems.– Allocate time to cross-pollinate information and build context.
• Establish guide posts– Clarify governance model and articulate guiding principles – and repeat!
MERCER WEBCAST 21February 13, 2014
Questions
QUESTIONSPlease type your questions in the Q&A section of the toolbar and we willdo our best to answer as many questions as we have time for.
To submit a question while in full screen mode, use the Q&A button, onthe floating panel, on the top of your screen.
CLICK HERE TO ASK A QUESTIONTO “ALL PANELISTS”
FEEDBACKPlease take the time to fill out the feedbackform at the end of this webcast so we cancontinue to improve. The feedback form willpop-up in a new window when the sessionends.
NEXT WEBCAST: EXECUTIVE REWARDS GLOBAL TRENDS 2014On March 19th hear about executive compensation trends from around the world. Register for this freeevent at www.mercer.com/webcasts
Gregg PassinNew York
Jennifer ShenkerSan Francisco
Teresa BayewitzNew York
Peter SchlothPhiladelphia
Andre RooksChicago
Janet DenUylNew York