Compensation is expensive. And if your pay investment is not managed properly, it can wreak havoc on your company’s cash flow. For many business leaders, that’s been a key learning from the coronavirus economy. So, how do you solve that problem? What rewards plan allocation is best suited to your organization and most likely to produce the performance results you want? In this webinar, we will answer both those questions. We will show you how to create a structure that ensures your compensation investment is effectively planned and managed—and generates a real return for the company. Not only that, we will introduce you to an online tool that helps you achieve that outcome simply—and for free.

1. The Secret to an Effective
Compensation Allocation

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Today’s Presenter:
Tom Miller
President
(949) 265-5700
tmiller@vladvisors.com
23201 Lake Center Drive, Suite 207 ⬧ Lake Forest, CA 92630 ⬧ 949-852-2288
www.VLadvisors.com ⬧ www.PhantomStock.com

3. 33
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A: Yes, more info will be provided at the end

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Take advantage of a one-half hour
consulting call with a VisionLink
principal at no charge.
Indicate interest on final survey.
Consultation Offer & Survey
Request a copy of our slides
and complimentary
consultation.
We value your input.

5. 55
Post Webinar Intro
5 Minutes:
 Who We Are
 What We Do
 How We Do It

6. 66
23201 Lake Center Drive, Suite 207
Lake Forest, CA 92630
(888) 703 0080
www.vladvisors.com
www.phantomstock.com
www.bonusright.com
 Headquartered in Lake Forest, CA
 Founded in 1996
 Over 600 clients throughout North America

7. The Secret to an Effective
Compensation Allocation

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Key Question
How would your
compensation
strategy have been
different had you
known the coronavirus
economy was coming?

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Answer of Most Business Leaders
 More flexibility
 Fewer high-cost
guarantees

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Why?
Compensation is
expensive and can wreak
havoc on cash flow.

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Flaws Revealed by COVID-19 Economy
Unbalanced Pay Offerings
 Heavily weighted to guarantees
(salaries, benefits)
 Heavily weighted to short-term
performance rewards (bonus or
other STIP)

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Core Cause
Lack of Agility

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What is the ideal comp structure?
A Strategy that
Works in Any
Economy
Agile but
Stable

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Consider . . .
Options Salary Short-Term
Value
Sharing
Long-Term
Value
Sharing
Total Today’s
Cash Flow
Plan A $100,000 $25,000 $0 $125,000 $125,000
Plan B $100,000 $0 $40,000 $140,000 $100,000
Plan C $80,000 $10,000 $50,000 $160,000 $90,000

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How Can You Move Toward Agility and
Stability?

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The Pursuit of an Effective Compensation
Allocation
Unveiling the Secret:
1. Reward Value Creation
2. Have a Clear Philosophy
3. Adopt a Total Rewards Approach
4. Balance Short & Long-Term Performance Rewards
5. Create Structured Flexibility

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1. REWARD VALUE CREATION

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Case Study
18

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Core Changes Shift from “Incentives” to “Value
Sharing”
 Took away local measurements
driving management incentive
plans—all paid on same metrics
▪ “We live together and we die
together”
 Aligned everyone behind
company success
▪ “I call it ‘pay the company first.’ ”
19

20. 2020
Pay the Company First
“Basically, up to the company’s
operating profit target, all of
the profits go to the company;
and only after that target is
met, do we start funding the
incentive pool.”
Example: If UL’s target is
$80 million--
 100% of first $80 in
profit goes to company
 The next $20 million
goes to the incentive
pool
 From there on, 50/50
between company &
incentive pool

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Pay the Company First
Once value creation is defined,
compensation can follow a formula
for sharing value in a way that aligns
key producers with the company’s
business plan and priorities.
21

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How to Define Value Creation
Calculate Productivity Profit

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Productivity Profit Calculation
Item Amount
Capital Account $20,000,000
Cost of Capital 12%
Capital Charge $2,400,000
Operating Income $10,000,000
Productivity Profit $7,600,000
Total Rewards
Investment
$25,000,000
ROTRI™
Return on Total Rewards Investment
30.4%
(ROTRI™ = Productivity Profit/Total Rewards Investment) 23

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Example:
Item Figure
Capital Account $20,000,000
Cost of Capital 12%
Capital Charge $2,400,000
Operating Income $10,000,000
*Productivity Profit $7,600,000
Total Rewards
Investment
$25,000,000
ROTRI™ 30.4%
(ROTRI™ = Productivity Profit/Total Rewards Investment)
*Variable Pay
Plans (Value
Sharing) are
financed from
Productivity
Profit
24

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Result: Unlimited Earnings Potential
Item Figure
Capital Account $20,000,000
Cost of Capital 12%
Capital Charge $2,400,000
Operating Income $10,000,000
*Productivity Profit $7,600,000
Total Rewards
Investment
$25,000,000
ROTRI™ 30.4%
(ROTRI™ = Productivity Profit/Total Rewards Investment)
*Variable Pay
Plans (Value
Sharing) are
financed from
Productivity
Profit
25

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Transition from Incentives to Value-Sharing
The premise should be to promote value
creation and value-sharing:
▪ “When you help us create value you
participate in that value”
▪ Define value creation around the
shareholders’ most important goals
▪ Don’t make this vague; everyone on
the leadership team should “get it”
and see it as fair

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Outcomes, not Methods
"You cannot hold
people responsible
for results if you
supervise their
methods.“
(Stephen R. Covey)
27
"You cannot hold
people responsible for
results if you pay
them for their
methods.“
(VisionLink)

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2. HAVE A CLEAR PHILOSOPHY

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Compensation Philosophy Statement
 How value creation is defined.
 How value is shared—and with
whom.
 How market pay standards
apply.
 How guaranteed pay and value-
sharing will be balanced.
 How short and long-term value-
sharing will be balanced.
 How merit pay is managed.

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Key Areas to Focus On
 Explore and refine
“emergency”
principles.
 Determine priorities
for cash and non-cash
compensation, as well
as benefits.

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Then What?
 Put it in writing.
 Build your comp plans following
its principles.
 Communicate it.
 Emphasize what will be
rewarded.
 Create a sense of partnership.
 Market the future.

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3. ADOPT A TOTAL REWARDS
APPROACH

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A Total Rewards Approach is a Balanced
Approach
The role of each pay component in
relation to others within the
comprehensive compensation
strategy is coordinated and clear—
and reflects the company’s pay
philosophy.

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Eight Components of Pay
Benefits
 Core benefits
 Executive benefits
 Qualified retirement plans
 Executive retirement plans
Compensation
 Salary
 Short-term incentives
 Long-term incentives
 Equity
*Incentives should be in the form of value
sharing. We’re excluding sales incentives from
today’s discussion.

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Salaries
Short-term
Incentives
Long-term
Incentives
Equity
Awards
Core
Benefits
Executive
Benefit
Plans
Qualified
Retirement
Plans
Executive
Retirement
Plans
Salaries
Competitive with market standards?
Tied to strong performance management process (merit)?
Managed within a flexible but effective structure?
Short-term Incentives
Tied to productivity gains?
Clear, achievable and meaningful?
Self-financing?
Long-term Incentives
Challenging yet achievable?
Aligned with shareholder long-term value creation?
Differentiating your offering?
Equity Awards
Used very selectively (tied to business transition only)?
Carefully budgeted?
Minimizing dilution?
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 individual circumstances?
Reversing statutory discrimination (i.e., eliminating gaps)?
Reducing employee tax exposure?
Qualified Retirement Plans
Offering an opportunity to optimize retirement values?
Creatively differentiating from competitors?
Sharply focused on performance opportunities and low expenses?
Executive Retirement Plans
Optimizing tax-deferral opportunities?
Accentuating executive retention and wealth accumulation?
Structured to receive best possible P&L impact?
A Balanced
Compensation
Strategy

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Identifying Ideal Compensation Allocations
High Variability,
Too Long-term
Just Right?
Low Variability,
Too Short-term
High
Low
Variable
Compensation
LongShort Timing

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Payout Timing
PaymentVariability
Short-Term Long-Term
Most private
Companies
Start-up MCM
Harvest MCM
Growth MCM
0% 50%
50%
MCM=Model Company Mix
Total Compensation Positioning

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4. BALANCE SHORT & LONG-TERM
PERFORMANCE REWARDS

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Which is more important—rewarding short-
term or sustained performance?

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Answer

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Dual Focus
Peter Drucker once wrote that the
manager’s job is to keep his nose to the
grindstone while lifting his eyes to the hills.
He meant that every business has to
operate in two modes at the same time:
producing results today and preparing for
tomorrow. (Ken Favaro, Strategy+Business)

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Key
One Value Sharing Philosophy that
rewards over Two Distinct
Performance Periods:
1. 12 months and under
2. Longer than 36 months

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Wealth Multiplier Philosophy
We want all stakeholders to
participate in the wealth multiple
they help create.
 Fair
 Prudent

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Rules of Thumb
 Short-term value sharing
should be tied to profit
(ideally productivity profit)
 Long-term value sharing
should be tied to business
growth
(increase in enterprise value)

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9 Long-Term Value Sharing Alternatives
Stock Option
Performance Shares
Restricted Stock
Phantom Stock
Option
Performance
Phantom Stock
Phantom Stock Profit Pool
Performance Unit
Strategic Deferred
Compensation

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

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5. CREATE STRUCTURED FLEXIBILITY

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Combine Agility and Stability

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The Need for Pay Agility
Compensation Solution
Create a rewards strategy that
is flexible and combine it with
an operational structure that is
enduring.

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Flexible but Enduring
 Look at compensation
strategy as you would an
investment portfolio.
 Individual pay
components are your
“asset classes.”
 As things change, adjust
weighting of each asset
class.

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Build a Total Compensation Structure
A total compensation
structure gives you a
comprehensive view of all
compensation and benefit
plans and ensures
operational integrity.

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What does it do?
 Calculate your Total Rewards Investment (TRI)
 See your Allocation (pie chart) by individual, tier, or team
 View your Structure
▪ Salary is the constant
▪ Other elements are expressed as a % of Salary
 Plan and evaluate different Allocations with the Structure

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Let’s See What a Total
Compensation Structure Looks
Like

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Assess your program
 Are we properly allocating our TRI?
 Are we sending the right messages to our team?
 Are we supporting our pay philosophy?
 Are we making pay decisions in a strategic fashion?
 Are we properly balancing short-term and long-term pay?
 Are we properly balancing fixed and variable pay?
 Are we taking advantage of the total rewards spectrum to
properly incent and retain our leaders?
This step is the beginning of the process that allows you to
determine if your compensation “investment” allocation is
driving performance and business growth.

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 Digital platform for
building short and
long-term value
sharing plans
 Efficient plan design
process
 Organize, manage,
and communicate pay

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If you’d like, we’ll build a Total
Comp Structure for your
leadership team (at no cost).
Ask for a complimentary
consultation.

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The Pursuit of an Effective Compensation
Allocation
Unveiling the Secret:
1. Reward Value Creation
2. Have a Clear Philosophy
3. Adopt a Total Rewards Approach
4. Balance Short & Long-Term Performance Rewards
5. Create Structured Flexibility

58. 5858
Take advantage of a consulting
call with a VisionLink principal at
no charge (including a Total
Comp Structure assessment).
Indicate interest on final survey.
Consultation Offer & Survey
Request a copy of our slides
and complimentary
consultation.
We value your input.

59. 5959
www.phantomstock.com
www.vladvisors.com
Subscribe to our blog!

60. 6060
Special Offer
What is an Employee Value Proposition?
Request your copy on the final survey.

61. 6161
Post Webinar Intro
5 Minutes:
 Who We Are
 What We Do
 How We Do It

62. 6262
Q&A

63. 6363
Today’s Presenter:
Tom Miller
President
(949) 265-5700
tmiller@vladvisors.com
23201 Lake Center Drive, Suite 207 ⬧ Lake Forest, CA 92630 ⬧ 949-852-2288
www.VLadvisors.com ⬧ www.PhantomStock.com
ThankYou!

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Post Webinar Intro
5 Minutes:
 Who We Are
 What We Do
 How We Do It

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67. VisionLink’s Focus: Help Business Leaders Build and
Sustain a High Performance Culture
Accelerate performance through pay strategies that
transform employees into growth partners.

68. 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.

69. 6969
Today’s Presenter:
Tom Miller
President
(949) 265-5700
tmiller@vladvisors.com
23201 Lake Center Drive, Suite 207 ⬧ Lake Forest, CA 92630 ⬧ 949-852-2288
www.VLadvisors.com ⬧ www.PhantomStock.com
ThankYou!