Opportunities and Challenges Stephanie Milliken, CHRP – Milliken HR Consulting Jan Boase, CHRP – Senior VP HR, Liberty International Underwriters Barbara Meens Thistle, CHRP – VP HR, ICBC and former Chief Human Resources Officer, Emera Inc.
Overview of Overview of Incentives Incentives ◦ Why ◦ For who ◦ Plan options ◦ Design issues ◦ Success criteria Practical Applications Practical Applications ◦ Sharing some real-life experiences Jan Boase – Sr. VP, HR, Liberty International Underwriters Barbara Meens Thistle – VP, HR, ICBC and former CHRO, Emera Inc. Your Questions Your Questions
Strengthen competitive advantage Be competitive with other employers Increase retention Share success with employees with less risk Reinforce shift in strategy Strengthen a bottom-line focus Motivate increased effort Recognize achievement Encourage cooperation and information sharing ……and the #1 reason for incentives ……and the #1 reason for incentives
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Job level ◦ How much of their total cash should be variable vs fixed? Job focus ◦ How strong is their line of sight to the organization’s goals? Performance contribution ◦ Are outcomes individually achieved or dependent on group achievement? Organization culture ◦ Is there alignment with the organization’s culture and the employee value proposition?
Individual Short-Term Incentives ◦ Merit Raise ◦ Merit Bonus ◦ Commission ◦ Piece Rate ◦ Special Purpose Suggestion Programs Attendance Programs
Group Short-Term Incentives ◦ Gain-Sharing ◦ Goal-Sharing ◦ Profit-Sharing ◦ Deferred Profit-Sharing
Long-Term Incentives ◦ Stock Plans Stock Bonus Stock Purchase Stock Option ◦ Phantom Stock ◦ Performance Share Plan Other Non-Stock Related Long-Term Incentives ◦ Performance Unit Plans ◦ Sabbatical
Performance Criteria Weights Gates Thresholds Performance Escalators Payment Frequency Performance Period Divestiture Dilution What happens when employees leave?
Alignment with: ◦ Organization’s business strategy ◦ Organization’s preferred culture ◦ Characteristics of your workforce ◦ Desires of your workforce Financially Attractive Trustworthy ◦ Transparent ◦ Easy to Understand Easy to Administer Cost Effective Effective in achieving goals of program Effective in achieving goals of program
Jan Boase, CHRP SVP, HR, Liberty International Underwriters
Pay for Performance Pay for Performance Pay growth Pay growth through through promotions promotions Competitive to Market Competitive to Market th Percentile – 50 50 th Percentile – Average verage th + Percentile – 75 75 th + Percentile – Top Tale op Tale nt nt
Who are you incenting? Who are you incenting? What’s their sweet spot? What’s their sweet spot? Traditionalists Traditionalists - Boomers - oomers - X - Y
What’s thing everyone wants MONEY!!!! and recognition and recognition
CA$H INCENTIVE$ Short-Term Incentive Long-Term Incentive RRSP Match DPSP EPSP
Pension Pension D efi ed B en efined enefit efit VAC VAC Voluntary Voluntary Ancillary Ancillary Contribution Contribution
Every employee participates Every employee participates Bonus Triggers: Bonus Triggers: % Global/Regional Business % Global/Regional Business Quantitative – Quantitative – financial targets inancial targets (Qualitative (Qualitative) Overachieve Overachieve % Individual Performance % Individual Performance Overachieve Overachieve
Example: Example: Assumptions: Assumptions: 50/50 split 50/50 split Business: Business: 125% 125% Personal: Personal: 140% 140% Salary Salary: $50K $50K Bonu Bonus: : 10% 10% Bonus Bonus at 100% t 100% = $5K = $5K Trigger Trigger Impact Impact @ 100% @ 100% Calc lculations ulations Bonu Bonus $ $ Busines Business 50% 50% 2,500 ,500 2,500 X 125% 2,500 125% = $ 3,125 $ 3,125 Personal Personal 50% 50% 2,500 ,500 2,500 2,500 X X 140% 140% = = $ 3,500 $ 3,500 TOTALS TOTALS 100% 100% $5,00 $5,000 With ith accelerators ccelerators $ 6,625 $ 6,625 Bonus Bonus at at 100% 100% Bonu Bonus w/acceler w/accelerators tors $5,00 $5,000 $6,62 $6,625 $1,62 $1,625
For executive business leaders only For executive business leaders only Based on Global business performance Based on Global business performance Results over a 3-year rolling cycle Results over a 3-year rolling cycle
Payout is based on Payout is based on global bu global business results over the 3 siness results over the 3 years years Example Example: 2014 – 2014 – Enter the plan January nter the plan January 1 1 2017 – 2017 – First payment based on irst payment based on 2014, 2015, 2016 2014, 2015, 2016 2018 2018 – Next payment based on Next payment based on 2015, 2016, 2017 2015, 2016, 2017 …. and …. and so on ….. so on …..
A divi A division of the n of the Lib Liberty Mutual Insura y Mutual Insuranc nce Comp e Company any
Barbara Meens Thistle, CHRP VP HR, ICBC Former CHRO, Emera Inc.
Drive Long Term Growth Strategies 1. Ensure Market Competitiveness to Attract 2. and Retain Top Talent Align Individual and Collective Performance 3. with Shareholder Expectations
RSUs PSUs 3 years 5 years Option 33 33 33 20 30 50
Industry Competition Role Individual growth potential
Governance NGOs Shareholders Board of Directors Customers
A “pay for performance disconnect”; Equity award grants that are time-based rather than performance-based; Retention or “mega” equity grants or bonuses; Performance goals that are insufficiently challenging; and Insufficient shareholder outreach.
Eliminate excise tax gross-up provisions; Decrease CEO pay to reflect lagging company performance; Increase % of performance-based equity; Decrease % benchmark to the median of peer group; Conduct robust shareholder outreach efforts; Increase CEO stock ownership requirements; Institute a clawback policy; and Institute an anti-hedging policy.
Anticipate Intervention Understand Full Spectrum of Expectations Shape Program to meet 3 objectives Build in ability to adapt/adjust Align HR with IR and Finance Work closely with Board HR Committees – understand their perspective in balance with “employee” expectations
YOUR TURN YOUR TURN Are there any questions we can answer to clarify this topic or give you the information you need to move forward?
WHAT ARE MY WHAT ARE MY TAKE- TAKE-AWAYS – YS – WHAT DID I HAT DID I LEAR LEARN? WHAT TIPS DO I WHAT TIPS DO I WANT WANT TO REM TO REMEMBER ER? WHAT DO I NEED TO FIND OUT MORE ABOUT? WHAT DO I NEED TO FIND OUT MORE ABOUT? WHAT’S THE NEXT WHAT’S THE NEXT STEP I STEP I NEE NEED TO TO TAKE IF TAKE IF I I WANT TO IMPLEMENT AN WANT TO IMPLEMENT AN EFFECTIVE INCENTIVE PROGRA EFFECTIVE INCENTIVE PROGRAM? M?
APPENDIX 1: SHORT-TERM INCENTIVES – Advantages, Disadvantages and Application PROGRAM ADVANTAGES DISADVANTAGES APPLICATION Individual Short ‐ Term Incentives Merit Raise ‐ highly valued by employees ‐ long ‐ term reward for short ‐ term ‐ non ‐ seniority based environments where Increase in ‐ considers all aspects of performance performance individual contribution / value can be base pay ‐ supports career advancement ‐ capped by top of range measured beyond cost ‐ differentiation between levels of of living performance is small Merit Bonus ‐ not guaranteed ‐ not guaranteed ‐ typically bottom ‐ line focused, non ‐ seniority Lump sum re ‐ ‐ self funded ‐ flexible based on ‐ may not support “collaborative” work based environments where individual ‐ focuses on a sub ‐ set of total behaviour contribution / value can be measured earnable financial results reward ‐ can be generous without long ‐ term resulting in other ‘un ‐ bonused’ aspects of the risk to employer job potentially being neglected ‐ can be used to reward specific ‐ investment needed to develop objective, outcomes or behaviours accurate measurements ‐ can off ‐ set merit raises for employees at top of range ‐ can have immediate visible impact Commission ‐ easy to set and measure ‐ only applicable to sales ‐ sales organizations Pay for sales ‐ unlimited opportunity for employees ‐ uncertain income may lead to turnover ‐ design depends on value, volume, and time ‐ volumes or ‐ reduces need for other employee ‐ lower earnings for newer employees frame of the sale and sales cycle number of controls ‐ may encourage overly aggressive sales transactions ‐ reduces employer risk behaviour ‐ clarifies performance expectations ‐ may cause conflict among employees ‐ highly motivational ‐ may focus effort on sales volume vs. profitability ‐ may lead to feelings of inequity as a result of territory assignments
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