EMPLOYEE BENEFITS AND INCENTIVES 14 th May 2015
KSW1 RESEARCH � Research into 20 of the most profitable agencies � Seven key trends and behaviours common across them were: � Culture of the agency and senior team � People: recruitment and retention � Agency positioning � The client-agency relationship with existing clients � Approach to new business � Commerciality � Financial tracking and measurement - processes and systems � Many are about your people! The right behaviour leads to success . �
EMPLOYEE INCENTIVES Zoe Wilson � Retention and Reward Ian Graham � Segmentation by employee � Bonus schemes & equity incentives Mike Hayes � Tax aspects
Retention & Reward Zoe Wilson – Director, HR Insight
How Far Would You Go? � “Boss treats 6,400 employees to French holiday, personally costing him £24Million” � “Williams F1 staff receive £2Million bonus despite £42.5Million company loss” � “American Airlines Chief gives up salary for stock (following the likes of Mark Zuckerberg of Face Book. 54% is now tied into a performance target” � “Morrisons to introduce new bonus scheme based on customer satisfaction levels” (HR Grapevine Articles April-May 2015)
Reward Overview � Aim to Attract, retain and motivate staff � Traditionally: � Salaries attract � Benefits retain � Bonus & incentive schemes motivate
It’s Not ALL About The Money! � Company Branding � Ethics, Values & Social Responsibility � Non Financial Reward � Access to Training and Development � Perception of Job Security
Pay Facts – CIPD Survey 2014 Just over half employees got a salary increase last year � Average was 2% � 34% have seen their salary grow at the same or higher rate than the � increase in cost of living 38% of those who didn’t get a rise, said they hadn’t since 2012 � Of those surveyed 28% have access to a cash bonus scheme – 75% � of those eligible did receive a bonus Main drivers for satisfaction on pay rise decisions were down to the � explanation given by the company for its decision and how satisfied the person was with that ( source: CIPD Employee Outlook Survey 2015)
How Do you Attract & Motivate Top Talent? � Think about the whole package and what that will cost the Company � Do you know what your competitors are doing? � The impact on current employees � Regular reviews � Communication
Terms & Conditions Salary, Allowances, PMI, Life Assurance, PHI � Enhanced Annual Leave or Sick Pay � Christmas Closure periods � Enhanced Maternity, Paternity and Shared Parental � Leave Core Hours � Discretionary or Non-Discretionary Bonus Scheme � Commission and Overtime � Flexible Working � Company Car �
Incentives, Recognition & Non-Financial Reward � Prizes & Gifts – merchandise, travel or retail vouchers � Bonus payments – Individual, Team, Ad Hoc or Business � Certificates and Presentations � A simple thank you � Tackling poor performance & rewarding good behaviour
Creating A Strategy Ask employees what they value, there is no point introducing � initiatives that aren’t valued by employees or candidates Benchmark your ideas against competitors – do you want to keep up � or exceed what they have to offer? Keep costs under consideration – explore tax and salary sacrifice � options Don’t forget auto-enrolment! � Consult on changes to increase awareness, credibility and remain � legally compliant Make communication a big part of your strategy and � Review regularly �
Creating A Strategy Review current rewards offered and consider if relevant in � supporting business objectives Link reward strategy to the business and HR strategy � Understand how business objectives can be achieved � through a new reward strategy Review and recommend new reward strategy � Involve all stakeholders to ensure buy-in across the � business Plan, communicate, implement and review new strategy �
Other Factors to Consider Reward can be a very individual thing and can vary based � on: � Personal circumstances � Career – promotions, development & succession planning � The ethos and values of the Company Induction and probation � You can fix benefits or have options for employees to � choose from Monitor take up, hold exit interviews and monitor � absence and turnover
Thank You Zoe Wilson – Director HR Insight 01708 758958 ZWilson@hrinsight.co.uk
SEGMENTATION OF EMPLOYEES BY BROAD CATEGORY Talent Top talent but more Top talent but more Key players vital to the Key players vital to the committed to working with committed to working with future, who would want to future, who would want to exciting clients and projects exciting clients and projects contribute long-term as contribute long-term as than to the company than to the company owners and managers owners and managers (“nomads”) (“nomads”) (“super stars”) (“super stars”) Variable talent of no Variable talent of no Hardworking and loyal, Hardworking and loyal, particular value to the particular value to the forming the backbone of the forming the backbone of the company (“transfer list”) company (“transfer list”) company. (“core team”) company. (“core team”) Time
POTENTIAL STRATEGIES - ONE FRAMEWORK FOR EVERYONE Nomads Nomads Super stars Super stars Profit- sharing with share purchase for some Simple discretionary Transfer list Transfer list Core Team Core Team bonus where appropriate
SIMPLE BONUSES � Simple is best � Retain some flexibility � Bonus Pool linked to company performance � They can be linked to individual and/or team performance � Benefits in kind instead of cash can be offered
INCENTIVES FOR “NOMADS” Talent Weaknesses Top talent but more PROFIT-SHARING SCHEME committed to working with (with handcuffs) exciting clients and projects than to the company (“nomads”) Opportunities Time
PERFORMANCE RELATED BONUS PLAN � Individuals participate in an annual profit-sharing pool Individuals are allocated points according to various performance criteria � Performance criteria will be assessed as part of the annual review process � � Individuals get bonus based on their proportion of overall points scored Name Individual New Client Contribution TOTAL profit Business satisfaction to POINTS Contribution Company (Max=40) management Ed 6 3 3 10 22 Nigel 1 8 8 22 24 Dave 9 4 6 8 27 Nick 3 1 8 3 15 19 16 25 28 88
INCENTIVES FOR “SUPER STARS” Talent Key players vital to future POTENTIAL and who would want to SHAREHOLDERS contribute long term as owners and managers (“superstars”) Opportunities Time
EQUITY INCENTIVES � Key individuals who: � make a top class contribution today � vital to long term development � are seriously interested in making a long-term commitment � Continuing contribution adds value to the existing shareholders � Restrict to a few individuals � Value more if have to pay for it � Mistake is often to include “Nomads”
SHARE INCENTIVES Phantom share schemes � � Employee offered the chance to buy shares � Unapproved Share Options � Enterprise Management Incentive (EMI) � Nil / part paid shares � Executive Share Options � Employee Share Ownership Plan (ESOPS) � Share Incentive Plan (SIP) (formerly known as All Employee Share Scheme) Founder shares / growth shares � Deferred or capital shares � Limited Liability Partnership � � Employee benefit trusts
SHARES OR OPTIONS ? Advantages of share options Advantages of share ownership No immediate cash outlay for option • Individual has usually made a financial • holder commitment to company Can attach conditions to options • Likely to be valued more than options • by individual No dividend entitlement • • Feeling of “involvement” / status in the No need to involve option holder in • company shareholder decisions • If dividend bearing then shares have an Options lapse if employment ends • immediate tangible value (simplicity) No commitment from employee if • share price falls No amendments to shareholders • agreement
EMPLOYEE BUYS SHARES � Immediate equity participation � Different class of shares provides flexibility � Quicker and cheaper than options � Test of commitment � What price? Uncertain tax treatment � Tax implications for recipient if buy at undervalue � Consider how to be funded � Reduced / no dilution of existing shareholder value
SHARE OPTIONS � Shares in the future at today’s value � No funds required on grant of the option � Usually have a “waiting period” � Number exercisable and/or timing of exercise can depend on performance � Options usually lapse if employment ends � Provides an incentive to stay until an event � Often exercisable on sale only � Earn-out participation on same basis as founders � If unapproved then usually income tax or PAYE/NIC payable on some or all of the gain � Enterprise Management Incentive (EMI) – an approved scheme is by far most popular
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