2013 Compensation Planning Webinar

Transcription

1 2013 Compensation Planning Webinar Creating a Talent Management Advantage Through Compensation Prepared by Consulting Performance, Reward & Talent

2 Today s Discussion Topics Context for 2014 Compensation Planning Compensation Planning Trends and Guidance Creating a Talent Management Advantage Through Compensation Proprietary & Confidential 2014 Compensation Planning Briefing 2

3 Context for 2014 Compensation Planning

4 Context for 2014 Compensation Planning Continued strengthening of domestic economy Highly volatile global outlook politically and economically Low confidence in political processes Continued cost containment pressures Focus remains on productivity Improved corporate profitability Labor market is heating up Somewhat greater global pressure on wages Proprietary & Confidential 2014 Compensation Planning Briefing 4

5 Compensation Economic Scorecard Dow Jones Industrial Average U.S. Jobless Claims U.S. Inflation Rate (CPI) U.S. Unemployment Rate Conference Board Leading Economic Index Conference Board Consumer Confidence Index Data effective June 2013 Proprietary & Confidential 2014 Compensation Planning Briefing 5

6 Percentage of Organizations Your Expected Business Results Expected Performance Attainment Source: Aon Hewitt Survey U.S. Salary Increases 2013/2014 Proprietary & Confidential 2014 Compensation Planning Briefing 6

7 Compensation Planning Trends and Guidance

8 Primary Data Source Aon Hewitt U.S. Salary Increase Survey 2013 and 2014 Created in 1976 Fortune 1000 companies 1,147 participants in 2013 Merit/overall salary increases Salary structure movement Variable compensation Pay practices Data effective as of June/July 2013 Unless otherwise noted, data in this presentation reflects: U.S. Corporations Salaried-exempt employees Including zero responses Broad-based employee variable pay plans Non-sales specific commission/incentive plans Proprietary & Confidential 2014 Compensation Planning Briefing 8

9 2014 Compensation Planning Snapshot Salaried-Exempt Employees Percent of Companies Percent of Payroll Percent of Payroll Salary Increases Projected Variable Pay Projected Salary Freezes Projected Source: Aon Hewitt Survey U.S. Salary Increases 2013/2014 Proprietary & Confidential 2014 Compensation Planning Briefing 9

10 Percentage of Payroll Aon Hewitt U.S. 2013/2014 Salary Increase Survey Overall Salary Increases by Employee Group Overall Salary Increases Source: Aon Hewitt Survey U.S. Salary Increases 2013/2014 Proprietary & Confidential 2014 Compensation Planning Briefing 10

11 Percentage of Payroll Industry Overall Salary Increase Outlook for 2014 Salaried-Exempt Employees Energy Mining/ Milling Computers & Related Products 3.5 Construction/ Engineering 3.3 Metals Fabrication Building Materials Transportation Entertainment/ Publications Retail 2.5 Health Care/ Medical Services Industry 2.2 Government 2.6 Education Perennial Winners and Losers Source: Aon Hewitt Survey U.S. Salary Increases 2013/2014 Proprietary & Confidential 2014 Compensation Planning Briefing 11

12 Percentage of Payroll Aon Hewitt U.S. 2013/2014 Salary Increase Survey Variable Pay Budgets by Employee Group Variable Pay Source: Aon Hewitt Survey U.S. Salary Increases 2013/2014 Proprietary & Confidential 2014 Compensation Planning Briefing 12

13 Projected Future Variable Pay Budgets Actual and Projected Variable Pay Spending on Salaried-Exempt Employees Source: Aon Hewitt Survey U.S. Salary Increases Proprietary & Confidential 2014 Compensation Planning Briefing 13

14 Industry Variable Pay Outlook for 2014 Salaried-Exempt Employees Percentage of Payroll Energy 17.2 Food/Beverage/ Tobacco Agriculture 16.8 Entertainment/ Publications 15.1 Forest & Paper Products/Packaging Health Care/ Medical Services 5.8 Not for Profits 6.8 Aerospace Industry 7.7 Research/ Development 8.0 Automotive Perennial Winners and Losers Source: Aon Hewitt Survey U.S. Salary Increases 2013/2014 Proprietary & Confidential 2014 Compensation Planning Briefing 14

15 Percentage of Payroll Industry Comparisons 2014 Total Cash Compensation Budgets 21.9% 16.1% 16.8% 15.3% 9.5% 8.8% 10.6% Source: Aon Hewitt Survey U.S. Salary Increases 2013/2014 Proprietary & Confidential 2014 Compensation Planning Briefing 15

16 A Dramatic and Ongoing Shift in Pay Mix Change in the Total Compensation Budgets and Spending for Salaried-Exempt Employees ( ) Why? Fixed vs. variable costs Need to focus and drive behaviors Need to create alignment Perceived control Shareholder/ analysts value it Source: Aon Hewitt Survey U.S. Salary Increases 2013/2014 Proprietary & Confidential 2014 Compensation Planning Briefing 16

17 Percentage of Companies Impact of Variable Pay on Business Results Impact on Business Results Source: Variable Compensation Measurement (VCM ) Report 2013 Proprietary & Confidential 2014 Compensation Planning Briefing 17

18 Measuring Plan Effectiveness Critical Plan Design Components Measures Eligibility Targets & Stretch Funding Alignment Line of Sight Plan Mechanics Participation Requirements Identifies factors (financial, nonfinancial and individual) to determine performance Must be controllable and relevant to business Considers eligibility for both exempt and nonexempt employees Be as inclusive as possible Assesses payout targets and degree of stretch built into target level of performance Competitive with appropriate pay at risk given line of sight and role Means of funding and spend on variable pay as percent of key financial parameters Should be accrued, reflective of actual business results and sufficient Determines the degree of inclusiveness across all-employee groups Checks for common goals and clear linkages Analyzes ability of the individual to impact the performance measures As much direct influence on outcomes as possible Evaluates levers on which the plan operates Reflective of pay philosophy and culture, balanced between realistic and challenging Explores clauses associated with a variable pay plan Clauses under which participation and payouts can be denied Communication Plan Administration Source: Variable Pay Index (VPI ) 2013 Considers frequency, methods and details of plan features that are communicated Understandable and communicated goals, timing and updates Time required to evaluate performance, payouts and frequency of review Should include assessment of continuous improvement Proprietary & Confidential 2014 Compensation Planning Briefing 18

19 Conclusions Increases to 2014 salary budgets are marginal and not indicative of any significant rebound Cost containment on fixed expenses (salaries) will continue for several years Alternatively, funding for variable expenses (variable pay) continues to be strong Organizations are placing their pay for performance bets on variable pay programs Organizations must be more bold in channeling their limited payroll dollars to their high potentials and top performers even at the risk of alienating their average performers Proprietary & Confidential 2014 Compensation Planning Briefing 19

20 Creating a Talent Management Advantage Through Compensation

21 Creating a Talent Management Advantage Through Compensation Premise: A talent advantage is the only source of competitive advantage that cannot be easily replicated by competitors Source: Conference Board 2013 Proprietary & Confidential 2014 Compensation Planning Briefing 21

22 Conference Board Top 10 Business Concerns of CEO s Human Capital is on the top of the list of key challenges across all regions Innovation depends on employees and employee performance drive operational excellence 4 challenges make the top 5 in all 3 regions: Human Capital, Operational Excellence, Innovation and Customer Relationships Strategies to address the top 4 global challenges suggest a strong focus on talent and the behaviors employees engage in Top 10 Global Challenges 1. Human Capital 2. Operational Excellence 3. Innovation 4. Customer Relationships 5. Global Political/Economic Risk 6. Government Regulation 7. Global Expansion 8. Corporate Brand/Reputation 9. Sustainability 10. Trust in Business Source: Conference Board 2013 Proprietary & Confidential 2014 Compensation Planning Briefing 22

23 Key Levers of Talent Management Wellness Culture Engagement Onboarding Compensation is viewed as a separate sliver Benefits Supervisor /Manager Development Performance Management Proprietary & Confidential 2014 Compensation Planning Briefing 23

24 Employee Engagement Engagement is stabilizing globally but 4 in 10 employees are not engaged High performers and high potentials will leave the organization for a better opportunity especially those in Generations X and Y Career opportunities and recognition have been the key drivers of engagement For the first time in years, pay has moved into the top 5 global engagement drivers, coming in at number 3 Proprietary & Confidential 2014 Compensation Planning Briefing 24

25 Top Engagement Drivers Global 2010 Global 2011 Global 2012 Career Opportunities Recognition Organization Reputation Communication 4 5 Managing Performance 5 Innovation People/HR Practices 4 Pay 3 Brand Alignment 5 Career Aspiration Source: Aon Hewitt Global Engagement Survey 2012 Proprietary & Confidential 2014 Compensation Planning Briefing 25

26 What Engages High Performers Demonstrated differentiation in compensation More frequent monetary and non-monetary recognition Accelerated off-cycle adjustments More holistic portfolios of rewards Proprietary & Confidential 2014 Compensation Planning Briefing 26

27 Development Growing shortage of qualified skilled employees in spite of unemployment Strategic opportunities in emerging markets have organizations scrambling to fill critical roles Companies in some geographic regions are building their own leadership powerhouses making them tough competition The ability to build leaders quickly and given eager emerging leaders opportunities to grow will be a competitive advantage Rewards ensure the attraction and retention of the key talent organizations need to create leaders Proprietary & Confidential 2014 Compensation Planning Briefing 27

28 Percentage of Companies Development Attraction/Retention Challenges 32% 29% 24% 3% 3% 3% Attraction Retention Compression Greater Concerns Source: Aon Hewitt Survey U.S. Salary Increases 2013/2014 Lesser Concerns Proprietary & Confidential 2014 Compensation Planning Briefing 28

29 Development Approach Used to Retain High Performers Approach Percentage of Organizations None 26% Provide additional learning and development opportunities to highperforming employees Grant discretionary restricted stock and/or stock options to highperforming employees Reserve portion of salary increase budget for highest performing employees (i.e., split merit budget) 45% 21% 20% Offer retention bonuses for specified period of employment 17% Create supplemental, discretionary incentive pool for highperforming employees 12% Other 1% (n = 922) Source: Aon Hewitt Survey U.S. Salary Increases 2013/2014 Proprietary & Confidential 2014 Compensation Planning Briefing 29

30 Performance Scarcity of high-performing talent given today s business challenges Increasing concern over degree of loyalty exhibited by talent Few, if any organizations, feel they have mastered the art of performance management Historical disconnect between performance message and delivery of rewards Proprietary & Confidential 2014 Compensation Planning Briefing 30

31 Performance We know from research that High performers are attracted to organizations that pay for performance and recognize their contributions High performers will leave organizations that do not reward performance Low performers will self select out of organizations that emphasize high performance in rewards Low performers are more likely to stay with an employer when pay for performance relationships are weaker Source: Compensation 10 th Edition; Milkovich, Newman & Gerhart Proprietary & Confidential 2014 Compensation Planning Briefing 31

32 Performance Relative Economic Service Value by Average Performance Rating Over Time 191% 146% 100% 9% 54% Source: Evaluating the Utility of Performance Based Pay, Personnel Psychology 2003, Sturman; Trevor, Boudreau, Gerhart Proprietary & Confidential 2014 Compensation Planning Briefing 32

33 Percentage of Payroll Performance Differentiation of Rewards Source: Aon Hewitt Survey U.S. Salary Increases 2013/2014 Proprietary & Confidential 2014 Compensation Planning Briefing 33

34 Performance Actions Being Taken to Increase Merit Pay Differentiation Actions Percentage of Organizations Training managers on differentiating performance 81% Reducing/eliminating increases for lesser performers 46% Using a more aggressive, highly leveraged merit increase grid 21% Setting more aggressive performance targets 20% Reducing size of top performer population 8% Moving from ranking guidelines to forced rating distribution 6% Moving from rating calibration to forced rating distribution 2% Moving to variable timing from annual cycle 1% Other 1% (n = 691) Note: Percentages total more than 100% since more than 1 response was provided by some participants Source: Aon Hewitt Survey U.S. Salary Increases 2013/2014 Proprietary & Confidential 2014 Compensation Planning Briefing 34

35 Creating a Talent Management Advantage Through Compensation An organization s Talent Management Strategy can only be achieved if it creates and executes effective compensation approaches Wellness Benefits Culture Engagement Supervisor /Manager Development Onboarding Performance Management Proprietary & Confidential 2014 Compensation Planning Briefing 35

36 For Further Information Ken Abosch Lincolnshire, Illinois Frank Belmonte Lincolnshire, Illinois To learn more about our Salary Increase Survey, please visit Proprietary & Confidential 2014 Compensation Planning Briefing 36

37 Questions

38 About Aon Hewitt Aon Hewitt empowers organizations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design and execute a wide range of solutions that enable clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability and wellness. Aon Hewitt is the global leader in human resource solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide. For more information on Aon Hewitt, please visit Aon plc This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon Aon Hewitt's preliminary analysis of publicly available information. The content of this document is made available on an as is basis, without warranty of any kind. Aon Hewitt disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Aon Hewitt reserves all rights to the content of this document. Proprietary & Confidential 2014 Compensation Planning Briefing 38