July 23, Converting Entitlement to Partnership What to do When Your Employees Act Entitled

Transcription

1 July 23, 2015 Converting Entitlement to Partnership What to do When Your Employees Act Entitled

2 Today s Presenter: Ken Gibson Senior Vice President (949) kgibson@vladvisors.com 7700 Irvine Center Drive Suite 930 Irvine, CA

3 Founded in 1996 Over 450 Clients in North America Focus: Compensation design and management that drives growth 3

4 We re happy to provide a copy of today s slides. Information will be provided at the close of the presentation. To open or close the control panel: Click the red arrow For questions during today s presentation: Use the question area on your control panel Q: Are the slides available? A: Yes, more info will be provided at the end Webinar 4

5 Please complete our brief survey immediately following our presentation. We value your input. Request a copy of our slides, white paper and a complimentary consultation. 5

6 Special Offer One hour consulting call with a VisionLink principal at no charge Indicate interest on final survey 6

7 Key Questions How did this happen? How do I fix it? What kind of change do I want? From entitlement to..? 7

8 From Entitlement to

9 The Ideal--Engagement Engagement occurs when employees feel: Compelled Clarity Connection 9

10 Compelled Future business Unique abilities Shared vision and values 10

11 Clarity Business model and strategy Roles and expectations Rewards 11

12 Connection Sense of partnership Value creation/sharing philosophy All stake holders feel connected 12

13 Engagement Manifested Focus Best results Outcomes not tasks Commitment Ownership/Stewardship Meaning Shared Purpose Contribution ethic Promise-based philosophy 13

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15 Is it possible to create an entitlement mentality through the simple and sincere gesture of paying a bonus? 15

16 Absolutely If any of these go wrong: Philosophy Design Metrics Communication Management 16

17 Origins Lack of understanding Misunderstanding Sense of unfairness Personal interpretation Internal discussion (reinforcement) 17

18 Signs of an Entitlement Mentality Value creation not understood Expectations of salary increases Requests for equity participation Bonus payments without performance Tenured mentality 18

19 Entitlement Pay Practices Bonuses with no tested formula for determining payouts No critical performance thresholds No rewards philosophy 19

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21 4 Key Principles 1. Hold Compensation Accountable 2. Create an Aligned Strategy 3. Reinforce Line-of-Sight 4. Measure and Modify 21

22 Accountable Compensation Define Value Creation Establish a Value Creation Philosophy 22

23 Accountable Compensation ROTRI Return on Total Rewards Investment Measuring the return on your compensation investment 23

24 How much is the Total Rewards Investment? Salaries Commissions Bonuses Deferred award accruals (LTIP) Core benefits Executive benefits Retirement contributions Payroll taxes 24

25 What return do you get on that investment? % 25

26 ROTRI Example: Capital Account Cost of Capital Capital Charge Operating Income Productivity Profit Total Rewards Investment ROTRI $ 20,000,000 12% $ 2,400,000 $ 10,000,000 $ 7,600,000 $ 25,000, % (ROTRI = Productivity Profit/Total Rewards Investment) 26

27 ROTRI Example: Capital Account Cost of Capital Capital Charge Operating Income Productivity Profit Total Rewards Investment ROTRI $ 20,000,000 12% $ 2,400,000 $ 10,000,000 $ 7,600,000 $ 25,000, % Variable Pay Plans (Value Sharing) are financed from Productivity Profit 27

28 Future Company Present Company LTIP Salaries STIP Benefits 28

29 The Value of Sharing Value Attract Talent and Magnify Results Reinforce the Business Model Create Good Profits Promote and Ownership Mindset Build Trust & Accelerate Results 29

30 Select the Right Plan Type Phantom Stock Option Restricted Stock Performance Shares Profit Pool Phantom Stock Strategic Deferred Compensation Performance Phantom Stock Stock Option Performance Unit 30

31 Grant Equity or Not Equity? Yes Full Value or Appreciation Only? Full Value Performance Based? Appreciation Yes No No Stock Option Performance Shares Restricted Stock Value Increase Reward for Value Increase or Financial Performance? Full Value or Appreciation? Full Value Performance Based? Appreciation Yes No Financial Performance Phantom Stock Option Performance Phantom Stock Phantom Stock Appreciation- Performance Based or Employee Directed? Performance Based Reward for Profit/Cash Flow or Other Metrics? Profits Allocation or Objectives Based? Employee Directed Other Metrics Objectives Allocation Strategic Deferred Compensation Performance Unit Profit Pool 31

32 Strategy Alignment 32

33 Company Business Model Company Business Model Compensation Philosophy Compensation Philosophy Total Compensation Structure Total Compensation Structure Our plan for generating revenue and profits Our values and beliefs about pay (that will help us fulfill our Rewards Planmodel) Operation business Our system for operating pay programs (per our comp philosophy) Why do welong-term pay our employees? How do I benchmark my positions? How does the company make Salaries Bonuses Executive Benefits General Benefits What do weincentives pay for (desired How do we treat positions for money? outcomes)? which there is no market data? How do we create and maintain Operational Integrity Financial Stewadship Partnership Reinforcement How much weawards pay (relative towhat supplemental How do we value rewards our competitive advantage? How do we manage What elements are Howdoare How do we make Financial Stewardship Operational Integrity Partnership Reinforcement peers)? programs for which there is no merit and/or cost of included? determined? life, disability and decision about How we pay (to spurare benchmark data? living adjustments? What metrics do we do How frequently health plans? altering or adding Our plan for insuring our Our plan for maximizing the Our plan for assuring productivity)? How do we organize our positions How do we adjust use? they granted? What performance benefits? How do our programs within grades to simplify paycontrol employees and return on pay our compensation fair and wise for consistent, promotions or How frequently do What vesting or years of service understand How do we differentiate us from our management? grade decision making we pay? schedule will we criteria should be escalating insurance value our rewards proposition investment competitors? How do we assign relative values advancements? How do we adjust use? What additional costs? for each rewards program by How for not-targeted What iswhat eventscompensation will benefits (car When should How do we communicate the my total Howdo doi set wean validate the grade? appropriate salary performance? trigger payments? allowance, cell employees become true value of our rewards investment? effectiveness of our pay budget? How do we account How will awards be phone, etc.) should eligible for benefit proposition? How are our plans forecasting programs? How should salary for individual valued? be adopted? program How do we assess employee against budget? adjustments How do wereflect ensure weperformance? are enrollment? understanding and paying consistent with ourdo we set What are the right metrics for our pay philosophy? How minimum appreciation? measuring my compensation compensation philosophy? performance What is the right way to ROI? What programs should we communicate significant consider expanding orthresholds? eliminating compensation events to our employees? 33

34 Qualified Retirement Plans Executive Benefit Plans Nonqualified Retirement Plans Core Health & Welfare Plans Salaries Competitive with market standards? Tied to strong performance management process (merit)? Managed within a flexible but effective structure? Performance Incentives Tied to productivity gains? Clear, achievable and meaningful? Self-financing? Salary Growth Incentives Performance Incentives Sales Incentives Sales Incentives Challenging yet achievable? Reinforcing the right behaviors? Differentiating your offering? Growth Incentives Linked to a compelling future? Supporting an ownership mentality? Securing premier talent? Core Benefits Responsive to today s employee marketplace? Allocating resources where most needed? Evaluated to eliminate unnecessary expense? Executive Benefits Flexible enough to address varying circumstances? Communicating a unique relationship? Reducing employee tax expense? Qualified Retirement Plans Giving employees an opportunity to optimize retirement values? Operated with comprehensive fiduciary accountability? Avoiding conflicts and minimizing expenses? Nonqualified Retirement Plans Optimizing tax-deferral opportunities? Aligning long-term interests of employees with shareholders? Structured to receive best possible P&L impact? An Aligned Compensation Strategy 34

35 Qualified Nonqualified Retirement Plans Executive Benefit Core Welfare Salary Equity Short-term Long-term Cash Health Awards Bonuses Plans & Examine Alternatives Qualified Retirement Plans Exploring Options Nonqualified Retirement Plans Salary Sales Incentives KEY OUTCOMES 1) Increased focus on long-term growth 2) Motivated workforce 3) Ownership Mentality 4) Compensation linked to performance 5) Unified financial vision Executive Benefit Plans Perf ormance Incentives GOALS 3 Years (Sample Company) 1) 70% increase in revenue 2) Double market share 3) National expansion 4) 125% increase in business net worth Core Health & Welfare Plans Growth Incentives Compensation Allocation 35

36 Form of Pay Purpose Standard Investment ROI Salaries Provide for the current cash needs of our executives 40-50th percentile for peer group $500,000 Achieve ROA standard of 0.75% Short-term Incentives Enhance current cash payments to executives for achieving top and bottom line annual goals 30-40% of base salary $168,000 (Target) 15% revenue growth and 12% margin Long-term Incentives (Cash) Retain execs; focus them on longterm earnings growth; align with shareholder interests; meet wealth accumulation needs 15-20% of base salary $84,000 (Target) Long-term growth in earnings (double earnings = share 13% of new value) Long-term Incentives (Equity) Retain execs; focus them on longterm earnings growth; align with shareholder interests; meet wealth accumulation needs 15-20% of base salary $84,000 (Target) Long-term growth in earnings (double earnings = share 13% of new value) Core Benefits Meet basic security needs of the executives 50th percentile for peer group $25,500 ROA of 0.75% Executive Benefits Enhance basic security needs and meet market standards for perquisites 50th percentile for peer group $24,000 ROA of 0.75% Qualified Retirement Provide wealth accumulation opportunity for executives 40th percentile (3% of salary) $15,000 ROA of 0.75% Supplemental Retirement Strengthen rewards value proposition to help recruit and retain executives; meet wealth accumulation needs 30th percentile compared to banks that have plans $135,000 ROA of 0.9% 36

37 A Total Compensation Structure Grade/ Band Salary Range Bonus LTIP % Phantom Stock FV % Phantom Stock AO 401k Match Financial Planning Annual Car Min Mid Max Target Target Max % Elegible Match Life Days Sick Days Perk Allow 1 203, , , % 100% 50% 50% 5% Yes 5% $11,141 Unlimited Unlimited 15,000 20, , , , % 75% 50% 50% 5% Yes 5% $11,141 Unlimited Unlimited 10,000 12, , , , % 50% 100% 0% 5% Yes 5% $11, ,000 8, , , , % 25% 100% 0% 5% $6, , , , , % 5% $6, , ,720 87, , % 5% $6, ,564 73,205 87, % 5% $6, ,176 62,720 75, % 5% $6, ,038 51,809 59, % 5% $6, ,211 43,777 50, % 5% $6, ,784 36,217 41, % 5% $6, ,562 27,720 31, % 5% $6, ,529 22,975 26, % 5% $6, ,354 20,417 23, % 5% $6, Deferred Comp Deferred Comp Max Health, Dental, Vacation Nonqualified Retirement Plans Qualified Retirement Plans Executive Benefit Plans Salary Sales Incentives Performance Incentives Core Health & Welfare Plans Growth Incentives 37

38 Adopt a Total Rewards Philosophy Compelling Future Positive Work Environment Opportunities for Personal and Professional Growth Financial Rewards 38

39 Link Company & Employee Goals Employee Hierarchy of Needs Wealth Accumulation Value Sharing Retirement Planning Risk Protection Cash Flow & Living Standard Wealth Multiplier Philosophy Short & Long-Term Incentive Plans Qualified & Executive Retirement Plans Comprehensive, Flexible Benefits Plan Salary & Bonus Clear Pay Philosophy 39

40 Reinforce Line of Sight 40

41 Rewards Pyramid Rewards What s in it for me? Roles and Expectations My Contribution? Model & Strategy How? Vision Where? 41

42 Line of Sight Product Improvements Cost Improvements Customer Satisfaction Sales Growth Margin Improvement My Job Responsibilities Productivity Improvements Quality Employee Retention $ New Value $ Incentive Plan 42

43 Rewards to Results Results Execution (behavior) Focus Rewards 43

44 Key Producer Employee Value Statement Year Year Plan Sample EVS Achievement Level 100% 100% 100% 100% 100% Current and Inflated Salary $ 160,000 $ 166,400 $ 173,056 $ 179,978 $ 187,177 Cash Incentives Paid at Target $ 64,000 $ 66,560 $ 69,222 $ 71,991 $ 74,871 LTIP Vested Value at Year End $ - $ 74,000 $ 186,000 $ 311,000 $ 448,000 Retirement Plan Value (at 7%) $ 17,120 $ 36,123 $ 57,169 $ 80,428 $ 106,086 Total Cash Received $ 224,000 $ 232,960 $ 242,278 $ 251,970 $ 262,048 Total Wealth Accumulation $ 17,120 $ 110,123 $ 243,169 $ 391,428 $ 554,086 Total Paid or Accumulated $ 241,120 $ 567,083 $ 942,407 $ 1,342,636 $ 1,767,343 44

45 Measure & Modify 45

46 ROTRI Example: Capital Account Cost of Capital Capital Charge Operating Income Productivity Profit Total Rewards Investment ROTRI $ 20,000,000 12% $ 2,400,000 $ 10,000,000 $ 7,600,000 $ 25,000, % Variable Pay Plans (Value Sharing) are financed from Productivity Profit 46

47 Key Questions Philosophy Does the company have a clear philosophy statement? Is the pay philosophy communicated effectively to employees? Are the company s compensation strategies consistent with the pay philosophy? If you answered affirmatively to each of those questions, then the company is being clear about what is willing to pay for and is implementing plans that follow that rule. This again must be considered a successful approach. 47

48 Key Questions Value Creation Before designing the plan, did the company clearly define value creation? Does the plan include metrics consistent with that definition? Does value sharing occur out of productivity profit? If the answer is yes, then it means the plan is only paying out value when value has been created it s self financing. This also suggests that during periods of economic decline or stagnation, the plan is selfrestricting in its payouts. That s a successful approach. 48

49 Key Questions Market Pay Does the company compare its pay strategies to market pay standards? Does the philosophy statement define where the company wants to be relative to market pay? Is an internal equity analysis performed? If this is the approach being adopted, then the company is using some outside metrics to determine if it is over or underpaying for certain functions. If it likewise offers significant upside potential relative to the market, within defined value creation/sharing parameters defined in the first bullet point, then it knows it has a competitive advantage in attracting key producers. That s also a successful approach to pay. 49

50 Key Total Rewards Does the company market a future? Is there a clear & compelling vision? Is there a positive work environment? Are there opportunities for personal and professional development? Is the financial partnership clearly defined? If a company adopts this framework, it is not expecting remuneration to be the sole issue upon which attracting and retaining key producers is based. If it pays attention to each of those questions, and works hard to ensure evaluation and implementation in all categories, it will become more successful at becoming a magnet for the right talent. Hence, a total rewards approach is a successful one. 50

51 Alignment Appraisal Compare current practices to world-class standards Structure Are we constructing our pay plans in the best possible way? Mindset Are we creating the best possible perception of our plans by our employees? 51

52 Building a Unified Financial Vision for Growing the Business Vision IMPACT: Alignment Meaning Stewardship Partnership Reinforcement Structure Business Model Compensation GamePlan Focus Execution Sustained Results Culture of Confidence Growth Wealth Multiplier Mindset Strategy IMPACT: Compelling Connection Fairness Value-Sharing Engagement 52

53 Special Offer One hour consulting call with a VisionLink principal at no charge Indicate interest on final survey 53

54 Please complete our brief survey immediately following our presentation. We value your input. Request a copy of our slides, white paper and a complimentary consultation. 54

55 Type Your Questions 55

56 Upcoming VisionLink Online Seminars: 4 Alternatives to Sharing Stock How to Share Value without Diluting Equity The 3 Habits of Highly Effective Pay Plans How to Ensure Your Rewards Programs will Succeed How to Achieve a Competitive Advantage in Pay (HR Audience) The 4 Secrets to Retaining Top Talent How to Solve the Key Performer Retention Problem I m Paying My Top 4 People $1 Million -- What am I Getting For It? How to Measure the Return on Your Compensation Investment How to Build and Manage a Total Compensation Structure (HR Audience) Performance-Based Pay that Actually Performs How to Engineer Rewards that Drive the Outcomes You Want 7700 Irvine Center Drive, Suite 930 Irvine, CA July 28 th August 25 th Sept 9 th Sept 22 nd Oct 27 th Nov 11 th Dec 8 th 56

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60 Q&A 60

61 Thank you for attending Please complete our brief survey immediately following our presentation. We value your input. You may request a copy of our slides, white paper and more information about the complimentary consultation. 61

62 Thank You! Ken Gibson Senior Vice President (949)