How to Transform Entitlement into Stewardship

Transcription

1 How to Transform Entitlement into Stewardship 1

2 Today s Presenter: Tom Miller President (949) tmiller@vladvisors.com 7700 Irvine Center Drive, Suite 930 Irvine, CA

3 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 3

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5 For Webinar Participants One hour consulting call with a VisionLink principal at no charge Indicate interest on final survey 5

6 Founded in 1996 Over 450 Clients in North America 7700 Irvine Center Dr., Ste. 930 Irvine, CA (888)

7 Vision: Help Businesses Build and Sustain a Performance Culture Accelerate performance capabilities by designing pay strategies that transform employees into growth partners. 7

8 If you do that Quality of talent will improve. Employee engagement will expand. Performance will be magnified. Business growth will be accelerated. Shareholder value will increase. 8

9 Core Issues Stewardship instead of what? Ownership of what results? What kind of pay? 9

10 Stewardship instead of What? Entitlement 10

11 Signs of an Entitlement Mentality Value creation not understood Expectations of salary increases Inappropriate requests for equity participation Bonus payments without performance Tenured mentality 11

12 What Results? Value Creation 12

13 What kind of Pay? Accountable Pay 13

14 The Stewardship Evolution Know Believe Do Become 14

15 The Stewardship Evolution Know Believe Do Become Role & Expectations Partnership Own Outcomes Stewards 15

16 Drive Pay people adequately and fairly, get the issue of money off the table, then give them lots of autonomy. 16

17 Drive Autonomy Mastery Purpose 17

18 Total Rewards Approach Compelling Future Positive Work Environment Opportunities for Personal and Professional Growth Financial Rewards 18

19 Total Rewards Approach Compelling Future Purpose Positive Work Environment Autonomy Opportunities for Personal and Professional Growth Mastery & Purpose Financial Rewards Partnership 19

20 1. Compelling Future I like the direction the company is headed. I embrace the company s values. I believe the company can achieve its growth goals. I see myself in the company s future. I want a seat at the table in determining the direction of the company. 20

21 2. Positive Work Environment I like the nature of the work I m doing. I am working within my unique ability. My responsibilities have strategic purpose. I like the team of people with whom I work. There are channels and processes for solving problems and decision making. 21

22 3. Personal and Professional Development As a result of my immersion in the culture and resources of this organization, my unique abilities will improve and I will experience personal and professional fulfillment. 22

23 4. Financial Rewards There is a philosophy that guides pay decisions and I relate to it. There is a mechanism for sharing value with those who help produce it. I have some control over how much I can earn if I produce. I feel a sense of partnership with ownership. 23

24 Financial Hierarchy of Needs Wealth Multiplier Commitment Wealth Accumulation Retirement Planning Security Cash Flow & Living Standard Short & Long-Term Value- Sharing Plans Qualified & Executive Retirement Plans Comprehensive, Flexible Benefits Plan Salary & Bonus Clear Pay Philosophy 24

25 Establish a Clear Pay Philosophy A written statement of what the company is willing to pay for. Tie it to value creation. 25

26 Compensation Philosophy Statement How value creation is defined. How value is shared and with whom. Market pay standards. How guaranteed pay and valuesharing will be balanced. How short and long-term valuesharing will be balanced. When or if equity will be shared. How merit pay is defined. What do you want pay to communicate about what s important? 26

27 Spell it Out Value creation occurs beyond an appropriate return on shareholder capital (12%). We believe value should be shared with those who are most responsible for its creation. We believe value-sharing should be split 50/50 in rewarding short-term and longterm performance We believe in being at the th percentile with guaranteed pay but in providing unlimited upside earnings through valuesharing 27

28 3 Pay Philosophies Which one fits your culture and business model? 28

29 Reflect a Wealth Multiplier Philosophy 29

30 Wealth Multipliers vs. Wealth Creators Wealth Creators Profitability focus Recruit to skills and experience Pay is an expense to be managed Salaries and total pay should be at market Pay-forperformance Wealth Multipliers Accelerate value creation Recruit premier talent that fits performance framework Pay is an investment that should produce a growing return Market pay for bench marking but pay philosophy drive comp strategy Sharing value with value creators. 30

31 The Value of Profit Wealth Multiplier Profits Future Business Employees Shareholders 31

32 The Value of Profit Wealth Multiplier Profits Future Business Employees Shareholders A Sense of Partnership Translates to a Growth Multiple 32

33 Establish a Performance Framework Business Framework Compensation Framework Talent Framework 33

34 Compensation Framework 1. Compensation Philosophy Statement 2. Total Rewards Structure 3. Salary and Merit Management System 4. Short-term Value Sharing Plan 5. Long-term Value Sharing Plan 6. Executive Benefits Program 7. Financial Measurement and Accountability System 8. Rewards Reinforcement Strategy 34

35 The compensation tool kit Nonqualified Retirement Salary Qualified Retirement Short-term Incentives Executive Benefits Long-term Incentives Core Benefits Equity 35

36 Employee view (5 Expectations) Secure Retirement Assured Income Family Protection Performance Upside LT Wealth 36

37 The tools must be used strategically to satisfy the needs Nonqualified Retirement Salary Secure Retirement Assured Income Qualified Retirement Short-term Incentives Executive Benefit Long-term Incentives Family Protection Performance Upside Core Benefits Equity LT Wealth 37

38 What s the primary role of the LTIP? Qualified Retirement Nonqualified Retirement Salary Short-term Incentives Secure Retirement Assured Income Executive Benefit Long-term Incentives Family Protection Performance Upside Core Benefits Equity LT Wealth 38

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40 Why Long-Term Value Sharing Matters #1 Value sharing attracts and retains the best talent and magnifies results Keeping the right people Willing and able to compete Assume stewardship role in safeguarding shareholder interests Willing to share in risks and rewards of value creation Seek mini-entrepreneurial experience 40

41 Why Long-Term Value Sharing Matters #2: Value sharing plans reinforce the company s business model Virtuous cycles Leverage points Reinforce roles and expectations 41

42 Why Long-Term Value Sharing Matters #3: Value sharing protects against bad profits and promotes good profits Everyone has an interest in good profits if everyone s wealth multiplier rises or falls on the ability of the company to sustain the right kind of profitability. 42

43 Why Long-Term Value Sharing Matters #4: Value sharing promotes an ownership mindset Communicates what s important. Keep performance engine working while moving the company forward towards growth goals Define priorities the same way ownership does 43

44 Why Long-Term Value Sharing Matters #5: Value sharing builds trust and accelerates results Turn key people into partners in building the future business Value sharing communicates a sense of fairness Validates your trust in their unique abilities Create a unified financial vision for growing the company 44

45 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 45

46 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 46

47 The biggest reason pay fails? What s the biggest reason your pay programs don t support a stewardship/ownership mentality? 47

48 The Failure to Consistently Communicate 1. Explain, celebrate and reinforce the total value proposition 2. Communicate a sense of partnership 3. Project the wealth multiplier opportunity 48

49 Employee Messaging (Customary) Here s the job Let s see if you qualify Looks like you do here s the pay package $160,000 40% target bonus Great benefits 49

50 Market a Future that s Relevant Here s our future Here s how we re going to get there Here s the role we picture for you Here s how we encourage our people to grow and contribute Here s our philosophy about pay and rewards Here are our specific pay programs Here s how our pay programs could work for you if we achieve our plan 50

51 Employee Value Statement for Sam Year Targeted Results 100% 100% 100% 100% 100% Salary $160,000 $166,400 $173,056 $179,878 $187,177 STVS $64,000 $66,560 $69,222 $71,991 74,871 LTVS (EOY) Total Cash Wealth Accrual Total Value -- $74,000 $186,000 $311,000 $448,000 $17,120 $36,123 $57,169 $80,428 $106,086 $224,000 $232,960 $242,278 $251,970 $262,048 $17,120 $110,123 $243,169 $391,428 $554,086 $241,120 $567,083 $942,407 $1,342,636 $1,767,343 51

52 Mid-Year Forecasting Let s look at a simulated example 52

53 Mid-year company forecasting Fortitude Enterprises Annual Value Sharing Plan Status Report Calculation Date: 06/22/2017 Results Date: 12/31/2017 Forecasted Company Results Plan Start to Date Metrics Forecasted Results Base Target Superior EBITDA $3,254,900 $2,500,000 $3,000,000 $3,500,000 Total Pool * $470,282 $187,378 $374,756 $562,134 Total Pool as % of EBITDA 14.44% 7.49% 12.49% 16.06% * - not including Org Unit Results Forecasted EBITDA vs. Plan $754,900 $254,900 ($245,100) Projected Bonuses vs. Plan $282,903 $95,525 ($91,853) 53

54 Mid-year employee revelation Fortitude Enterprises 2017 Annual Value Sharing Plan Period: January December 2017 Report Date: 06/22/2017 Name: Sam Sharp Plan Salary: $160,000 Bonus Structure: Your Bonus Structure includes the following bonus opportunities, based on Company performance. Description Allocation Base Target Superior Award Opportunity (% of Salary) 20.00% 40.00% 60.00% Company Performance % $32,000 $64,000 $96,000 Total Opportunity % $32,000 $64,000 $96,000 Company Performance Performance Modification: Overall Company performance is forecasted to be Above Target, Below Superior. If Company performance finishes at this level, your calculated bonus opportunity for 2017, subject to the modifications below, would be 50.19%. The values below represent hypothetical performance results for the plan period. Actual performance will likely vary from these estimates. Category Performance Modification Explanation Forecasted Bonus Calculation: The values below represent a potential forecast calculation of your 2017 award. Category Pre-Modified Award Allocation Performance Modification 2017 Forecast Award Opportunity (% of Salary) 50.19% 50.19% Company $80, % N/A $80,314 Total $80,314 $80,314 54

55 Evaluate & Refine Line of Sight Rewards What s in it for me? Roles and Expectations My Contribution? Strategy How? Vision Where? 55

56 Please complete our brief survey immediately following our presentation. We value your input. Request a copy of our slides, white paper, complimentary consultation, and more information on BonusRight. 56

57 For Webinar Participants One hour consulting call with a VisionLink principal at no charge Indicate interest on final survey 57

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59 New SaaS tool Build and manage your bonus plan online. Exclusive introduction to clients and webinar participants. Indicate on survey if you would like to learn more. 59

60 Upcoming 2017 VisionLink Online Seminars: The CEOs Role in Building a Pay Strategy How to Improve Line of Sight and Why it Matters Why a Total Compensation Structure is HR s Best Friend (HR Specific Webinar) What is a Successful Pay Strategy How Should You Pay High Performers? Balancing Salaries and Incentive Pay (HR Specific Webinar) Pay Strategies that Increase Shareholder Value July 26 th August 23 rd September 13 th September 27 th October 25 th November 8 th December 6 th 7700 Irvine Center Drive, Suite 930 Irvine, CA

61 The Ultimate Guide: HOW TO BUILD A COMPLETE & COMPELLING PAY STRATEGY Express interest on the final survey 61

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65 Tom Miller President (949) Thank You! 7700 Irvine Center Drive, Suite 930 Irvine, CA