Compensation, Evaluation and Evolution:
Set Your Own Trends for 2014
December 10, 2013

©2013 Performensation
Presenting

Sam Reeve is a global certified compensation
consultant (CCP, GRP) with 15 years of experience in
Total Reward...
Presenting

Dan has more than 19 years of experience focused on
aligning compensation to corporate strategy and
culture. H...
Define Your Compensation “Color”

Every company is has its own color for compensation
Your unique color is defined by

Str...
Most Data and Trends Melt All Colors Into a Blurred Mess

Trends are are generic market data
Trends are about choosing you...
What is the industry saying is “hot” right now?

Merit increases, on average of 2.6-3.1%.
BUT high performers are being re...
What is the industry saying is “hot” right now?

Variable Pay as a component of total compensation is
remaining flat at vi...
What is the industry saying is “hot” right now?

Diminishing use of stock options.

BUT this is mainly for companies in th...
What is the industry saying is “hot” right now?

Growing Use of RSUs.

BUT this is often communicated incorrectly since th...
What is the industry saying is “hot” right now?

Growing use of Performance Units.

BUT currently most at the very top of ...
What is the industry saying is “hot” right now?

TSR – Total Shareholder Return
TSR as the main performance metrics for pe...
What is the industry saying is “hot” right now?

Growth in Realizable and Realized Pay as a metric
communicate executive c...
What is the industry saying is “hot” right now?

Better alignment between STI and LTI target levels and
actual compensatio...
So, if the trends are not black and white…?

How do we
define our own
trends?
©2013 Performensation

14
Critical Skill 1 – Understand How to SWOT Your Comp Team

©2013 Performensation

15
SWOT Your Comp Team

The Environment for
Rewards is Changing
We need to Adapt

Start by evaluating your
teams ability to s...
Steps

1) Understand the Changing Environment
2) Consider your Circle of Influence
3) Update your Service
Delivery Model
4...
Adapt to the Changing Environment

What should your
Service Delivery Model
look like?

?
?
?

©2013 Performensation

18
Defining Your Circle of Influence

Who provides direction?

Who do you answer to?

©2013 Performensation

19
The Circle of Influence

Internal

The
Comp Team
Circle of
Influence

©2013 Performensation

20
The Circle of Influence
Future
Candidates
Shareholders

Internal
and
External

Media

The
Comp Team
Circle of
Influence

P...
Identify your Clients

Who currently uses
the services of the
Comp Team?

©2013 Performensation

The
Comp Team
Circle of
I...
Identify your Clients

Who currently uses
the services of the
Comp Team?
And

©2013 Performensation

The
Comp Team
Circle ...
Identify your Clients

Who currently uses
the services of the
Comp Team?
And
Who isn’t leveraging
the Comp Team that
would...
Identify your clients

Participants of your
Current Programs
Such as the:
• Salary Program
• Short Term Incentives
• Long ...
Identify your clients

Managers
Need Support with:
• Pay for Performance
• Retention
• Reporting

?
?
?
Managers

©2013 Pe...
Identify your clients

Finance
a reciprocal relationship
Share reporting:
• Comp Accruals
• Budgeting
• Forecasting

?
Fin...
Identify your clients

Recruiting
Need support with:
• Competitive Comp for
Jobs
• Complex Offers
• Informing New Hires

R...
Identify your clients

HR Advisors
a reciprocal relationship
Such as:
• Comp Program roll-out
• Critical Talent
• Benchmar...
Identify your clients

Vendors of your Current
Programs
Such as:
• Relationship Management
• Upgrades
• Participant Suppor...
Identify your clients

Business Leaders
Interested in:
• Clear Guidance
• Effective Pay for
Performance
• Cost Control

Bu...
Defining Your Service Delivery Model

What tools do you need to succeed?

Who is involved in providing data and resources?...
Review Your Service Delivery Model

Service Delivery
Model

What functions
are needed
to deliver your
Products and Service...
Review Your Service Delivery Model

Program Management
Managers want to
leverage programs to
motivate and engage

Particip...
Review Your Service Delivery Model

Reporting
Business intelligence is
critical

Business
Leaders

HR
Advisors

Recruiting...
Review Your Service Delivery Model

Consulting
Expertise where it is
needed

Business
Leaders

HR
Advisors

Recruiting

Co...
The New Service Delivery Model

We have a plan…

Business
Leaders

…but can we deliver?
Recruiting
Consulting

Finance

Re...
Plan for Success

The company
depends on the
products and services
that your team provides,
so …

Consulting

Reporting

©...
Plan for Success

Know the skills
that are required to
support the
Service Delivery Model

Consulting

Reporting

©2013 Pe...
Assess your Team

Does your team
have the necessary
Knowledge,
Skills and
Abilities?

©2013 Performensation

40
Assess your Team

Team Member impact
is a combination of:
Functional Knowledge

Functional
Knowledge

Such as:

Worksheets...
SWOT Time

Where do you reinforce?
Where to you rebuild?
Where do you focus your defenses?
Where are your greatest potenti...
The SWOT Analysis

Strengths

Weaknesses

Opportunities

Threats

Organize your findings
into a SWOT analysis

Provides cl...
The SWOT Analysis

Strengths

Opportunities

Internal

Weaknesses

Factors that
can be
Controlled

Threats

©2013 Performe...
The SWOT Analysis

Strengths

Weaknesses

Opportunities

Uncontrollable
Factors
but can
position for success

Threats

Ext...
The SWOT Analysis

Strengths

Weaknesses

Opportunities

Threats

Build
On
Strengths

©2013 Performensation

46
The SWOT Analysis

Strengths

Weaknesses

Limit
Weaknesses
Opportunities

Threats

©2013 Performensation

47
The SWOT Analysis

Example:

STRENGTHS:
Reporting
Dynamic Tools
Response Time

WEAKNESSES:
Consulting
Problem Solving
Reac...
Take Action

If your team has gaps in
Knowledge, Skills and
Abilities:
Consider dedicating
money and effort to
Training or...
So, I know what I am good (and bad) at…

Again…How do
we define our
own trends?
©2013 Performensation

50
Calculating ROI – Cost-Benefit Analysis

Return on Investment is simple to talk about in
theory, but can it be done in rea...
Calculating ROI – What are you Measuring?

Be clear about what you are spending and what you
expect to get in return
Attra...
Performing a CBA

SECTION I: Capture Costs and Benefits
• Current Processes Vs. Proposed Solution
• Costs are segmented in...
ESTIMATION OF COSTS (Cont.)

Types of Costs:
• Upfront Costs: One time, spent right away
• Recurring Costs: Keep project o...
Net Present Value
Net Present Value
• Tells you whether the project represents a net gain or a net loss
over the project l...
Cost/Benefit Calculation

Ratio of 1 – The project benefits equal the costs for the
project lifecycle
Ratio less than 1 – ...
PAYBACK PERIOD

Benefits
Cumulative $
$40,000
(Gross Return)

Costs

$20,000
(Startup Costs)

NOW

YR 1

YR 2

YR 3

YR 4
...
Calculating ROI – STI Programs

Your investment in STI is not just the dollars you
budget as compensation costs.

You must...
Calculating your ROI – LTI/Equity Programs
LTI programs require multiple measurements
Cost of creating the program. Just b...
Merit Increases – Define Your Own Trend

Retrain your managers to understand what is meant by “merit”?
Understand your cul...
Variable Pay – Define Your Own Trend

Don’t be afraid to push variable compensation deeper
into your organization.

BUT ma...
Stock Options – Define Your Own Trends

If your stock price is strong, don’t be afraid to continue
using options.

If stoc...
RSUs – Define Your Own Trends

RSUs are a great, stable element of LTI
3 Year vesting is the average, but isn’t a requirem...
Performance Units – Define Your Own Trends

Performance units can offer the downside protection of
RSUs and the upside lev...
TSR – Define Your Trends

Combine TSR with internal financial or operational
metrics to get ahead of the curve.

Understan...
Realizable Pay – Define Your Own Trends

Everyone should do a Realizable Pay calculation, but
not everyone should include ...
STI/LTI Alignment – Define Your Own Trends

Don’t guess about your company strategy. Get
confirmation from your executive ...
Reminders

KNOW YOUR
STRENGHTHS
AND
WEAKNESSES

KNOW YOUR
UNIQUE
COLOR
Business
Leaders

HR
Advisors

Recruiting

KNOW YOU...
SAM REEVE, CCP, GRP
Executive Vice President

DAN WALTER, CEP
President and CEO

TF
1 877 803 9255 ext 702
Office
1 415 62...
We Align Compensation with Corporate Strategy and Culture
Performensation was founded in 2006 in response to the demand fo...
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Compensation, Evaluation and Evolution: Set Your Own Trends for 2014

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Every company battles to balance the desire to follow trends and the need to remain unique and competitive. Our presenters, Dan Walter and Sam Reeve from Performensation, will discuss how to do just that. The world of compensation is like a box of crayons. Every company has its own color that is a special mix of its corporate strategy, corporate culture and compensation philosophy. Learn how to keep your color separate from the melted brown of generic trends and survey data.

This presentation will explain how to:



"SWOT your comp" (strengths, weaknesses, opportunities, threats) and deliver what your stakeholders need.
Calculate the ROI of your STI and LTI programs.
Learn what other companies are planning for 2014.



Reeve and Walter will also discuss industry-specific market trends that may drive changes in compensation design, metrics, goals and instruments. Industries to be discussed will include health care medical devices, energy and alternative energy, software and more.

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  • The Environment for Rewards are Changing Need to adapt to function in the new environment
  • The first step towards obtaining this objective is reviewing your existing service delivery model to determine what skills and abilities are needed to best support your clients. 
  • ExternalHR Associations (SHRM, World at Work)PublicationsFuture Candidates
  • ExternalHR Associations (SHRM, World at Work)PublicationsFuture Candidates
  • The first step towards obtaining this objective is reviewing your existing service delivery model to determine what skills and abilities are needed to best support your clients. 
  • The first step towards obtaining this objective is reviewing your existing service delivery model to determine what skills and abilities are needed to best support your clients. 
  • The first step towards obtaining this objective is reviewing your existing service delivery model to determine what skills and abilities are needed to best support your clients. 
  • The first step towards obtaining this objective is reviewing your existing service delivery model to determine what skills and abilities are needed to best support your clients. 
  • The first step towards obtaining this objective is reviewing your existing service delivery model to determine what skills and abilities are needed to best support your clients. 
  • The first step towards obtaining this objective is reviewing your existing service delivery model to determine what skills and abilities are needed to best support your clients. 
  • The first step towards obtaining this objective is reviewing your existing service delivery model to determine what skills and abilities are needed to best support your clients. 
  • The first step towards obtaining this objective is reviewing your existing service delivery model to determine what skills and abilities are needed to best support your clients. 
  • The first step towards obtaining this objective is reviewing your existing service delivery model to determine what skills and abilities are needed to best support your clients. 
  • The first step towards obtaining this objective is reviewing your existing service delivery model to determine what skills and abilities are needed to best support your clients. 
  • The first step towards obtaining this objective is reviewing your existing service delivery model to determine what skills and abilities are needed to best support your clients. Your service delivery model defines your strategy and method of meeting your clients’ needs and it requires that your team have a specific set of skills and abilities. If your clients rely on your team to deliver useful, high quality reporting, then you will need compensation professionals with strong technical design and database skills. If, perhaps, your clients’ needs are more complex and human capital and rewards consulting is needed, you will need staff that are interactive and collaborative with presentation and soft skills.
  • The first step towards obtaining this objective is reviewing your existing service delivery model to determine what skills and abilities are needed to best support your clients. 
  • The first step towards obtaining this objective is reviewing your existing service delivery model to determine what skills and abilities are needed to best support your clients. 
  • The first step towards obtaining this objective is reviewing your existing service delivery model to determine what skills and abilities are needed to best support your clients. 
  • The first step towards obtaining this objective is reviewing your existing service delivery model to determine what skills and abilities are needed to best support your clients. 
  • The first step towards obtaining this objective is reviewing your existing service delivery model to determine what skills and abilities are needed to best support your clients. Your service delivery model defines your strategy and method of meeting your clients’ needs and it requires that your team have a specific set of skills and abilities. If your clients rely on your team to deliver useful, high quality reporting, then you will need compensation professionals with strong technical design and database skills. If, perhaps, your clients’ needs are more complex and human capital and rewards consulting is needed, you will need staff that are interactive and collaborative with presentation and soft skills.
  • The first step towards obtaining this objective is reviewing your existing service delivery model to determine what skills and abilities are needed to best support your clients. Your service delivery model defines your strategy and method of meeting your clients’ needs and it requires that your team have a specific set of skills and abilities. If your clients rely on your team to deliver useful, high quality reporting, then you will need compensation professionals with strong technical design and database skills. If, perhaps, your clients’ needs are more complex and human capital and rewards consulting is needed, you will need staff that are interactive and collaborative with presentation and soft skills.
  • The SWOT Analysis is one tool that can help you assess your people and refine your service delivery model so that your compensation group becomes a cohesive, highly performing team.
  • The SWOT Analysis is one tool that can help you assess your people and refine your service delivery model so that your compensation group becomes a cohesive, highly performing team.
  • The SWOT Analysis is one tool that can help you assess your people and refine your service delivery model so that your compensation group becomes a cohesive, highly performing team.
  • The SWOT Analysis is one tool that can help you assess your people and refine your service delivery model so that your compensation group becomes a cohesive, highly performing team.
  • The SWOT Analysis is one tool that can help you assess your people and refine your service delivery model so that your compensation group becomes a cohesive, highly performing team.
  • The SWOT Analysis is one tool that can help you assess your people and refine your service delivery model so that your compensation group becomes a cohesive, highly performing team.
  • Transcript of "Compensation, Evaluation and Evolution: Set Your Own Trends for 2014"

    1. 1. Compensation, Evaluation and Evolution: Set Your Own Trends for 2014 December 10, 2013 ©2013 Performensation
    2. 2. Presenting Sam Reeve is a global certified compensation consultant (CCP, GRP) with 15 years of experience in Total Reward Strategies. He is an expert in broad-based compensation and focuses his talents on enhancing performance through the effective use of incentive and recognition programs. SAM REEVE, CCP, GRP Executive Vice President TF 1 877 803 9255 ext 702 Office 1 415 625 3088 Mobile 1 970 403 5775 sreeve@performensation.com LinkedIn: SamReeve Twitter: @SamReeve3 Prior to joining the firm, Sam has worked in the corporate compensation functions of notable firms such as BlackRock, McKesson and Automatic Data Processing (ADP). Sam currently lives in Colorado and aside from his professional life, enjoys numerous outdoor activities with his 4 children and wife, Jessica. Sam has a degree in Finance and Economics from California State University, Sacramento. ©2013 Performensation 2
    3. 3. Presenting Dan has more than 19 years of experience focused on aligning compensation to corporate strategy and culture. His work includes both executive and broadbased programs and he has provided end-to-end solutions for private and public companies both within the United States and abroad. DAN WALTER, CEP President and CEO TF Office Mobile 1 877 803 9255 ext 700 1 415 625 3406 1 917 734 4649 dwalter@performensation.com Skype: Performensation Twitter: Performensation His work with start-ups and established Fortune 100 companies provides his clients with an unique perspective on compensation issues. Dan is also a highly sought after speaker on a broad range of topics. He is board member for the National Center for Employee Ownership and the Institute for Human Resources, an award winning member of the National Association of Stock Plan Professionals and an active member of World at Work, Global Equity Organization and the Society for Certified Equity Professionals. ©2013 Performensation 3
    4. 4. Define Your Compensation “Color” Every company is has its own color for compensation Your unique color is defined by Strategy Industry, culture, philosophy, history, goals This color defines the trends that work for you ©2013 Performensation 4
    5. 5. Most Data and Trends Melt All Colors Into a Blurred Mess Trends are are generic market data Trends are about choosing your specific path from among the blurred colors available You create your own trends by understanding your unique color and applying your compensation expertise the the many shades that color has to offer ©2013 Performensation 5
    6. 6. What is the industry saying is “hot” right now? Merit increases, on average of 2.6-3.1%. BUT high performers are being reported at 4.5-5% ©2013 Performensation 6
    7. 7. What is the industry saying is “hot” right now? Variable Pay as a component of total compensation is remaining flat at virtually all levels. BUT Pay for performance is on the list of high priority items for a majority of companies. HOW CAN THIS MAKE SENSE? ©2013 Performensation 7
    8. 8. What is the industry saying is “hot” right now? Diminishing use of stock options. BUT this is mainly for companies in the Fortune 250, in large part because of: 1. Concerns from ISS and other Institutional investors 2. Rising stock prices have bitten into potential future gains ©2013 Performensation 8
    9. 9. What is the industry saying is “hot” right now? Growing Use of RSUs. BUT this is often communicated incorrectly since these are often performance units in disguise. ©2013 Performensation 9
    10. 10. What is the industry saying is “hot” right now? Growing use of Performance Units. BUT currently most at the very top of most companies. ©2013 Performensation 10
    11. 11. What is the industry saying is “hot” right now? TSR – Total Shareholder Return TSR as the main performance metrics for performance unit plans. BUT TSR already losing favor in Europe as a standalone metric. Combining with financial or operational metrics is the way to get ahead of the curve. ©2013 Performensation 11
    12. 12. What is the industry saying is “hot” right now? Growth in Realizable and Realized Pay as a metric communicate executive compensation compared to peers. BUT most companies are not using the same methodology as ISS which gives rise to new conflicts and disagreements ©2013 Performensation 12
    13. 13. What is the industry saying is “hot” right now? Better alignment between STI and LTI target levels and actual compensation delivered. Pricing low and paying high is far less accepted than in the past ©2013 Performensation 13
    14. 14. So, if the trends are not black and white…? How do we define our own trends? ©2013 Performensation 14
    15. 15. Critical Skill 1 – Understand How to SWOT Your Comp Team ©2013 Performensation 15
    16. 16. SWOT Your Comp Team The Environment for Rewards is Changing We need to Adapt Start by evaluating your teams ability to service your clients ©2013 Performensation 16
    17. 17. Steps 1) Understand the Changing Environment 2) Consider your Circle of Influence 3) Update your Service Delivery Model 4) SWOT your Comp Team ©2013 Performensation 17
    18. 18. Adapt to the Changing Environment What should your Service Delivery Model look like? ? ? ? ©2013 Performensation 18
    19. 19. Defining Your Circle of Influence Who provides direction? Who do you answer to? ©2013 Performensation 19
    20. 20. The Circle of Influence Internal The Comp Team Circle of Influence ©2013 Performensation 20
    21. 21. The Circle of Influence Future Candidates Shareholders Internal and External Media The Comp Team Circle of Influence Publications Associations ©2013 Performensation 21
    22. 22. Identify your Clients Who currently uses the services of the Comp Team? ©2013 Performensation The Comp Team Circle of Influence 22
    23. 23. Identify your Clients Who currently uses the services of the Comp Team? And ©2013 Performensation The Comp Team Circle of Influence 23
    24. 24. Identify your Clients Who currently uses the services of the Comp Team? And Who isn’t leveraging the Comp Team that would benefit? ©2013 Performensation The Comp Team Circle of Influence 24
    25. 25. Identify your clients Participants of your Current Programs Such as the: • Salary Program • Short Term Incentives • Long Term Incentives • Recognition ? ? ? Participants ©2013 Performensation 25
    26. 26. Identify your clients Managers Need Support with: • Pay for Performance • Retention • Reporting ? ? ? Managers ©2013 Performensation Participants 26
    27. 27. Identify your clients Finance a reciprocal relationship Share reporting: • Comp Accruals • Budgeting • Forecasting ? Finance ? Managers ©2013 Performensation ? Participants 27
    28. 28. Identify your clients Recruiting Need support with: • Competitive Comp for Jobs • Complex Offers • Informing New Hires Recruiting Finance ? ? Managers ©2013 Performensation ? Participants 28
    29. 29. Identify your clients HR Advisors a reciprocal relationship Such as: • Comp Program roll-out • Critical Talent • Benchmarking Recruiting Finance ? ? Managers ©2013 Performensation HR Advisors ? Participants 29
    30. 30. Identify your clients Vendors of your Current Programs Such as: • Relationship Management • Upgrades • Participant Support Recruiting Finance ? ? Managers ©2013 Performensation HR Advisors ? Vendors Participants 30
    31. 31. Identify your clients Business Leaders Interested in: • Clear Guidance • Effective Pay for Performance • Cost Control Business Leaders Recruiting Finance Monitor Stakeholders ? ? Managers ©2013 Performensation HR Advisors ? Vendors Participants 31
    32. 32. Defining Your Service Delivery Model What tools do you need to succeed? Who is involved in providing data and resources? ©2013 Performensation 32
    33. 33. Review Your Service Delivery Model Service Delivery Model What functions are needed to deliver your Products and Services ? ? ? ©2013 Performensation 33
    34. 34. Review Your Service Delivery Model Program Management Managers want to leverage programs to motivate and engage Participants want to be compensated Business Leaders HR Advisors Recruiting Program Management Finance Vendors are needed to provide expertise Managers ©2013 Performensation Vendors Participants 34
    35. 35. Review Your Service Delivery Model Reporting Business intelligence is critical Business Leaders HR Advisors Recruiting Finance Managers ©2013 Performensation Vendors Reporting Participants 35
    36. 36. Review Your Service Delivery Model Consulting Expertise where it is needed Business Leaders HR Advisors Recruiting Consulting Finance Managers ©2013 Performensation Vendors Participants 36
    37. 37. The New Service Delivery Model We have a plan… Business Leaders …but can we deliver? Recruiting Consulting Finance Reporting Managers ©2013 Performensation HR Advisors Program Management Vendors Participants 37
    38. 38. Plan for Success The company depends on the products and services that your team provides, so … Consulting Reporting ©2013 Performensation Program Management 38
    39. 39. Plan for Success Know the skills that are required to support the Service Delivery Model Consulting Reporting ©2013 Performensation Program Management 39
    40. 40. Assess your Team Does your team have the necessary Knowledge, Skills and Abilities? ©2013 Performensation 40
    41. 41. Assess your Team Team Member impact is a combination of: Functional Knowledge Functional Knowledge Such as: Worksheets, Executive Comp, Stock Administration, etc. Soft Skills Soft Skills Such as: Team Work, Influence, Presence, etc. EXPERIENCE ©2013 Performensation 41
    42. 42. SWOT Time Where do you reinforce? Where to you rebuild? Where do you focus your defenses? Where are your greatest potential successes? ©2013 Performensation 42
    43. 43. The SWOT Analysis Strengths Weaknesses Opportunities Threats Organize your findings into a SWOT analysis Provides clarity that can lead to an improved service standard ©2013 Performensation 43
    44. 44. The SWOT Analysis Strengths Opportunities Internal Weaknesses Factors that can be Controlled Threats ©2013 Performensation 44
    45. 45. The SWOT Analysis Strengths Weaknesses Opportunities Uncontrollable Factors but can position for success Threats External ©2013 Performensation 45
    46. 46. The SWOT Analysis Strengths Weaknesses Opportunities Threats Build On Strengths ©2013 Performensation 46
    47. 47. The SWOT Analysis Strengths Weaknesses Limit Weaknesses Opportunities Threats ©2013 Performensation 47
    48. 48. The SWOT Analysis Example: STRENGTHS: Reporting Dynamic Tools Response Time WEAKNESSES: Consulting Problem Solving Reactive OPPORTUNITIES: New PM System New Sales Team THREATS: Regulation Limited Bonus Pool Talent Departure ©2013 Performensation 48
    49. 49. Take Action If your team has gaps in Knowledge, Skills and Abilities: Consider dedicating money and effort to Training or Acquiring the Right Talent ©2013 Performensation 49
    50. 50. So, I know what I am good (and bad) at… Again…How do we define our own trends? ©2013 Performensation 50
    51. 51. Calculating ROI – Cost-Benefit Analysis Return on Investment is simple to talk about in theory, but can it be done in reality? YES Include a Cost-Benefit Analysis in every major decision ©2013 Performensation 51
    52. 52. Calculating ROI – What are you Measuring? Be clear about what you are spending and what you expect to get in return Attraction. Know what is costs to hire a new employee. Time, marketing, fees, relocation, replacement grants etc… Motivation. Understand how much it takes to communicate and support any pay for performance programs, equity compensation programs and sales compensation. Retention. Knows what it costs to get an employee to the expected productivity level. Understand how much it costs YOUR company to replace someone who leaves. The industry averages are irrelevant. You need to know this for each type of role at your own company. Don’t forget systems… ©2013 Performensation 52
    53. 53. Performing a CBA SECTION I: Capture Costs and Benefits • Current Processes Vs. Proposed Solution • Costs are segmented into human capital costs and economic costs • Current Technology Vs. Proposed Technology –Captures costs of the current solution(s) –Captures costs of the proposed solution(s) –Difference of proposed to current (if positive) is cost benefit of the proposed method SECTION II: Cost/Benefit Analysis (CBA) • Human capital and participant impact benefits of the proposed project • Economic analysis of the proposed project
    54. 54. ESTIMATION OF COSTS (Cont.) Types of Costs: • Upfront Costs: One time, spent right away • Recurring Costs: Keep project operating over time • Sunk Costs: Money already spent; not considered in analysis of project • Disposal Costs: Money spent to retire a project as opposed to • Residual Value: Money returned to you at conclusion of project lifecycle
    55. 55. Net Present Value Net Present Value • Tells you whether the project represents a net gain or a net loss over the project lifecycle ZERO NPV: –The project benefits offset the costs NEGATIVE NPV: –The project will cost more than it will bring back in benefits POSITIVE NPV: –The project’s benefits offer a net gain C/B Ratio (Discounted Benefits/ Discounted Costs) • Tells us how much you will get back in benefits. Helpful in determining if project will reach the breakeven point (ratio of 1) for the project lifecycle
    56. 56. Cost/Benefit Calculation Ratio of 1 – The project benefits equal the costs for the project lifecycle Ratio less than 1 – Cost outweighs the benefits Ratio greater than 1 – The benefits outweigh the costs The payback period is defined as the number of years and/or months it will take to recover the costs involved in the project
    57. 57. PAYBACK PERIOD Benefits Cumulative $ $40,000 (Gross Return) Costs $20,000 (Startup Costs) NOW YR 1 YR 2 YR 3 YR 4 YR 5
    58. 58. Calculating ROI – STI Programs Your investment in STI is not just the dollars you budget as compensation costs. You must include the direct impact on improved company performance, including intangibles A complete ROI will look into the past STI plans and any direct or extrapolated results that can be tied to pre and post-STI roll-out. Don’t assume cause and effect, prove it. ©2013 Performensation 58
    59. 59. Calculating your ROI – LTI/Equity Programs LTI programs require multiple measurements Cost of creating the program. Just because a new type of program is trending upwards doesn’t mean it makes sense for your company to have that program. The creation and implementation costs of a new plan, may not be worth it. Cost of the awards, per accounting methods. – Variable costs, cash accounting – Cost of equity (dollars and political) at time of grant, Vs. When it is booked by the company, Vs. When payout is made to the individual, Vs. Planned payout as a component of comp philosophy Cost of communication. – Initial roll-out – On-going systems, helpful reports and web access – Regular re-education, dealing with lower stock prices, poor company performance, poor industry performance Administration costs ©2013 Performensation 59
    60. 60. Merit Increases – Define Your Own Trend Retrain your managers to understand what is meant by “merit”? Understand your culture and if your define your company as “high performance” make sure you allocate better than average increases to top performers before allocating increases to average and low performers Redefine your compensation philosophy if you need to. Everyone can’t target the 50th percentile and be competitive. ©2013 Performensation 60
    61. 61. Variable Pay – Define Your Own Trend Don’t be afraid to push variable compensation deeper into your organization. BUT make sure you provide the training, support and systems to make the program successful. ©2013 Performensation 61
    62. 62. Stock Options – Define Your Own Trends If your stock price is strong, don’t be afraid to continue using options. If stock options are no longer an option consider pushing performance units deeper into the organization. (once again, ensure you provide the requisite training, support and systems) ©2013 Performensation 62
    63. 63. RSUs – Define Your Own Trends RSUs are a great, stable element of LTI 3 Year vesting is the average, but isn’t a requirement. Consider shorter and longer vesting periods Don’t get locked into RSUs if your stock price is rising and your overhang allows for more leveraged tools. ©2013 Performensation 63
    64. 64. Performance Units – Define Your Own Trends Performance units can offer the downside protection of RSUs and the upside leverage of stock options. Don’t be afraid the explore these beyond the C-Suite Take the time to do the analytical work before you finalize your metrics and goal levels. Don’t jump in the pool without some professional assistance. Start soon, but evolve at a careful pace. The biggest problem is poor design and modeling before roll-out. ©2013 Performensation 64
    65. 65. TSR – Define Your Trends Combine TSR with internal financial or operational metrics to get ahead of the curve. Understand the how and why of any peer group chosen. Does it work with shareholder expectations? Is it big to survive the entire measurement period? Can you get the data when you need it? ©2013 Performensation 65
    66. 66. Realizable Pay – Define Your Own Trends Everyone should do a Realizable Pay calculation, but not everyone should include it in their proxy. Understand the key differences between your model and the model used by your major investors. This is a first line of analysis when problems with executive pay are identified. Don’t be caught unaware. ©2013 Performensation 66
    67. 67. STI/LTI Alignment – Define Your Own Trends Don’t guess about your company strategy. Get confirmation from your executive team. Make sure you model Best, Worst, Mathematical and Expected Case scenarios. Wild pay swings and “lowball targets” are no longer acceptable ©2013 Performensation 67
    68. 68. Reminders KNOW YOUR STRENGHTHS AND WEAKNESSES KNOW YOUR UNIQUE COLOR Business Leaders HR Advisors Recruiting KNOW YOUR SERVICE DELIVERY MODEL Consulting Finance Reporting Managers Program Management Vendors KNOW YOUR COSTS AND BENEFITS Participants ©2013 Performensation 68
    69. 69. SAM REEVE, CCP, GRP Executive Vice President DAN WALTER, CEP President and CEO TF 1 877 803 9255 ext 702 Office 1 415 625 3088 Mobile 1 970 403 5775 TF 1 877 803 9255 ext 700 Office 1 415 625 3406 Mobile 1 917-734-4649 sreeve@performensation.com SamReeve @SamReeve3 dwalter@performensation.com DanWalter @Performensation Please visit our website at www.performensation.com Twitter: www.twitter.com/performensation LinkedIn: http://www.linkedin.com/company/performensation Facebook: https://www.facebook.com/pages/Performensation-Consulting/371636619516008?fref=ts Slideshare (presentations and documents): http://www.slideshare.net/performensation Quora (Q&A): http://www.quora.com/Dan-Walter 514 Precita Ave, Suite 100, San Francisco, CA 94110 69
    70. 70. We Align Compensation with Corporate Strategy and Culture Performensation was founded in 2006 in response to the demand for more strategic and effective compensation programs. Successful compensation requires four key elements. Each component must be carefully crafted to your unique goals and culture. Vision: We understand where you are headed and have the skills to get you there. We are respected throughout the industry for our forward-thinking perspective and our ability to execute on it. Foundation: Long-term solutions are based on evidence, not founded on gimmicks or fads. They are built to allow for adjustments to organizational and market conditions. Your program’s foundation must reflect your company and the goals it is designed to support. Design: A great program combines creativity with practicality. We utilize our broad and deep understanding of rules, regulations, processes and providers to ensure your program delivers high- performance results. Our designs are easy to understand, compliant and effective. Communication: Participants only value what they understand. Communication must be built in to every step of the process. We ensure that all program elements are relevant and make sense to your targeted audience. 70
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