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Which is Better Higher Salaries or Bigger Incentives? Todays - PowerPoint PPT Presentation

Which is Better Higher Salaries or Bigger Incentives? Todays Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 7700 Irvine Center Drive, Suite 930 Irvine, CA 92618 949-852-2288 www.VLadvisors.com


  1. Which is Better — Higher Salaries or Bigger Incentives?

  2. Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 7700 Irvine Center Drive, Suite 930 ⬧ Irvine, CA 92618 ⬧ 949-852-2288 www.VLadvisors.com ⬧ www.PhantomStockOnline.com 2

  3. To open or close the control panel: Click the red arrow For questions during Q: Are the slides available? A: Yes, more info will be provided at the end today’s presentation: Use the question area Webinar on your control panel 3

  4. Consultation Offer & Survey Take advantage of a one half-hour consulting call with a VisionLink principal at no charge. Indicate interest on final survey. Request a copy of our slides and complimentary consultation. We value your input. 4

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

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

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

  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.

  9. Governing Thought Pay the least amount you can “get away with” to attract the best talent available and drive the maximum performance possible. 9

  10. Questions  Pay higher salaries and price out the competition?  Competitive salary but higher upside?  A blend of those approaches? 10 10

  11. Is There Only One Formula for Creating a Balanced Rewards Strategy? 11 11

  12. No, the Situation is the Boss However… 12 12

  13. 3 Principles Have a clear value 1. creation definition. Align 2. compensation with your recruiting strategy. Build structured 3. flexibility into your pay strategy. 13 13

  14. 1. Have a Clear Value Creation Definition Value attributable to the productivity and performance of human capital. 14 14

  15. Case Study 15 15

  16. Assumed leadership of  Keith Williams UL in 2005 Company carrying  considerable debt Losing market share  Low employee morale  UL had become  bureaucratic and “ siloed ” 16 16

  17. 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.’ ” 17 17

  18. Pay the Company First Example: If UL’s target is “Basically, up to the $80 million-- company’s operating  100% of first $80 in profit target, all of the profit goes to company profits go to the  The next $20 million company; and only after goes to the incentive that target is met, do we pool start funding the  From there on, 50/50 incentive pool.” between company & incentive pool 18 18

  19. 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. 19 19

  20. Calculating Value Creation Focus on Productivity Profit 20 20

  21. Value Creation Example: 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 $25,000,000 Investment ROTRI™ 30.4% 21 21 ( ROTRI™ = Productivity Profit/Total Rewards Investment)

  22. ROTRI ™ Example: Item Figure Capital Account $20,000,000 *Variable Pay Plans (Value Sharing) are Cost of Capital 12% financed from Productivity Capital Charge $2,400,000 Profit Operating Income $10,000,000 *Productivity Profit $7,600,000 Total Rewards $25,000,000 Investment ROTRI™ 30.4% (Return on Total Rewards Investment) 22 22 ( ROTRI™ = Productivity Profit/Total Rewards Investment)

  23. Productivity Profit Answers… Two Questions: Can I afford to share  value? How much value can I  afford to share? 23 23

  24. Define Your Pay Philosophy A written statement of what the company is willing to “pay for.” Tie it to value creation. 24 24

  25. Compensation Philosophy Statement How value creation is defined.  How value is shared — and with  whom. Market pay standards.  How guaranteed pay and value-  sharing will be balanced. How short and long-term value-  sharing will be balanced. When or if equity will be shared.  How merit pay is defined.  25 25

  26. Pay Philosophy Answers… Three Questions: Where do we want to be vis a vis  market pay for salaries? With whom should value  (productivity profit) be shared? What form should it take?  ▪ Short-term vs. long-term ▪ Equity or no equity 26 26

  27. Rules of Thumb Short-term value sharing  should be tied to profit (specifically productivity profit) Long-term value sharing  should be tied to business growth 27 27

  28. 2. Align Compensation with Your Recruiting Strategy Assumes You Have a Recruiting Strategy Define skill “categories” needed to drive business  model Identify gaps  Identify talent pool  Form recruiting & retention strategy  28 28

  29. Talent Alignment Align People, Roles & Business Model Have top performers  working in roles that maximize their unique abilities Avoid placement in roles  that don’t have a strategic impact 29 29

  30. Recruit to a Role (Not a Position) Position: characterized by specific duties you  need someone to carry out. Role: defined by outcomes and stewardship.  Positions are filled. Roles are ful filled. 30 30

  31. Talent Pool: Millennials  Launchers  Accelerators  Catalysts 31 31

  32. Launchers  Many just left the university  1st or 2 nd career job  Most are single 32 32

  33. Accelerators  Experience with more than one company  Desire to rise in ability, recognition, contribution and influence.  Many single but a growing number are married and are starting families 33 33

  34. Catalysts  Mid-30s  Meaningful experience  Unique abilities  Able to affect significant (positive) change  Companies are competing for their talents  Have leverage  Many married and have children 34 34

  35. Understand the Employees ’ View of Pay How do employees look at compensation and what matters to them? 35 35

  36. 6 Reasons Employees Care About Pay Personal Lifestyle & Wealth 1. Accumulation Career Measurement 2. Contribution Ambitions 3. Business Roles, Expectations & 4. Priorities Partnership 5. Continuity & Fairness 6. 36 36

  37. Financial “Hierarchy of Needs” 5 Wealth Accumulation Wealth Multiplier Philosophy Short & Long-Term Incentive 4 Value Sharing Plans Qualified & Executive 3 Retirement Planning Retirement Plans Comprehensive, Flexible 2 Risk Protection Benefits Plan 1 Cash Flow & Living Standard Salary & Bonus Clear Pay Philosophy 37 37

  38. Hierarchy & Millennial Segments Launchers Area Orientation • Pay expectations still being Cash Flow/Standard of formed • Modest needs Living • Competitive salary and mentoring • Basic needs Risk Protection • Don’t want to pay anything • Small or little concern Retirement • More concerned about money VS/Wealth Accumulation for this weekend • Short-term preferred over 38 38 long-term

  39. Hierarchy & Millennial Segments Accelerators Area Orientation • Context: Cash • Experience Flow/Standard of • Peer Pay Living • Life Responsibilities • College Debt • Adequacy of coverage — Risk Protection family focus • Cost sensitive • Growing Focus Retirement • Emphasis on increased cash VS/Wealth Accumulation flow • Short-term preferred over long-term 39 39

  40. Hierarchy & Millennial Segments Catalysts Area Orientation • Prefer median of market Cash Flow/Standard of pay but with high upside potential Living • Want flexibility and options Risk Protection • Maximum Control • Two areas of focus: Retirement • Retirement accumulation • Current tax savings • Deferred compensation • Large area of emphasis VS/Wealth • Focus on long-term Accumulation opportunity • Mirror owner opportunity 40 40

  41. 3. Create Structured Flexibility 41 41

  42. Eight Components of Pay Compensation Benefits Salary  Core benefits  Performance incentives  Executive benefits  Sales incentives  Qualified retirement plans  Growth incentives  Supplemental retirement plans  Incentives should be in the form of value sharing. 42 42

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