Executive and management reward survey · 2017-04-27 · The past year has been quiet on the reward...
Transcript of Executive and management reward survey · 2017-04-27 · The past year has been quiet on the reward...
Executive and management reward survey Reward in 2016
www.pwc.co.uk
December 2015
PwC
PwC executive and management reward survey 2015 – Details
December 2015Executive and management reward survey
Slide 2
Group tier definitions
Tier Definition
1 Group Chief Executive Officer (CEO).
2 Main board (executive directors).
3 Executive committee (ExCo) – The most senior executive level below the main board, typically comprised of core function heads and CEOs of major divisions.
4 The next layer of senior management below the ExCo. Sub-function heads and heads of smaller core functions are usually at this tier. May also include deputy-heads of core functions.
5 Heads of departments, smaller sub-functions and roles responsible for business areas that sit within a function or sub-function.
6 Senior professionals/management, forming the next reporting level/grade below Tier 5.
FTSE 100
58 companies
FTSE 250
72 companies
Private & Other
91 companies
Over 15,000incumbents
7 Group executive
Tiers/levels
5 Division executive
Tiers/levels
PwC
The main messages for 2015The past year has been quiet on the reward front, but there are key reward challenges for 2016
• There is pressure to find ways through reward to find and create adaptable talent and future skills
• Organisations seeking, through reward and performance to shift productivity and change behaviours to gain competitive advantage.
• Continued focus on driving greater value for money in a cost-constrained environment
• Organisations seeking to justify reward spend –And reviewing reward programmes at different levels
• Board-level reward practices cascading to lower management tiers
• Salary increases stable between 2-3%
• 2% salary increases forecast for 2016 pay reviews
• Two-thirds of companies expect next year’s salary budget to be the same as this year
• Pay ‘hotspots’ emerging with more focussed differentiation in key functions and for key talent
• Increased focus on governance around pay –and responding to regulatory change
• Greater incentive target transparency sought –particularly at senior levels
• Questions about whether current incentive models are fit for purpose and delivering value for money
• Bonus opportunities unchanged at most tiers
• Bonus deferral increased at two to three levels below main board
• Performance share plans remain the most common type of long-term incentive, but with more measures
• The trend to operate only one long-term incentive gaining strength
• The four most popular benefits offered by companies reflect the varying lifecycles of individuals at different stages of their career: pensions; private medical cover; buy or sell annual leave; employee share schemes
• There is a potential mismatch between the benefits that companies are willing to flex and the benefits employeesmost value
• Pensions flexibility will become more important over the next few years as taxation begins to bite lower down the management hierarchy
• New models emerging around pension to ensure employees can save for the future – and improved education
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December 2015Executive and management reward survey
Overall remuneration Salary Incentives Pension and benefits
PwC
Reward priorities for the next 12 months?Performance management and equal pay will be key priorities over the coming year
0%
10%
20%
30%
40%
50%
60%
70%
Performancemanagement
Remunerationgovernance eg
policies andprocedures
Equal pay Compensationtechnology and
systems
Introduction offlexible benefits
Reduction in LTAfrom April 2016
Sales incentives
are focused onperformance management61%
are focusedon equal pay
46%
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December 2015Executive and management reward survey
PwC
Looking forward to 2016We see the following areas as priorities for 2016
Business imperative Reward response
Add value to the business – increased productivity and behavioural change
Responding to regulatory change
Simplification
Maximising reward value
• Reviewing performance management and reward outcomes
• New recognition programmes
• Redesign of incentive structures
• Addressing root causes of pay gaps
• Managing reward spend across business units
• Alternative pensions vehicles
• Ensuring incentive plans are relevant and well understood
• Improved communications
• Providing choice and flexibility in the delivery of benefits
• Considering the employee value proposition
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December 2015Executive and management reward survey
PwC
How do you plan to react to the following reward issues in 2016?
0% 20% 40% 60% 80% 100%
Changing the proportion and/or type of contingent and flexibleworkers in our business
Emerging trends in performance management
Adapting your reward offering to meet the needs of an increasinglydiverse workforce
A need to find and create adaptable talent and develop skillsneeded for the future
Digital transformation of business
Regulatory change in your sector
Taking action Considering action Need to think
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December 2015Executive and management reward survey
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Salary
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Slide 7
PwC
Salary budgetsSalary budgets are anticipated to be flat
0%
10%
20%
30%
40%
50%
60%
70%
Significantlylower
Slightlylower
About thesame
Slightlyhigher
Significantlyhigher
How does next year’s salary budget compare with your previous budget?
64%
plan to keep 2016salary budgetsbroadly in linewith 2015 figures
Actual 3%
Actual 2.4%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
2014 forecast(from 2013)
2015 forecast(from 2014)
2016 forecast(from 2015)
Exp
ecte
d b
ase s
ala
ry %
in
cre
ase i
nfo
rth
co
min
g y
ear
Expected base salary increasein next year
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December 2015Executive and management reward survey
PwC
Actual base salary percentage increaseLower salary increases at all levels in 2015
Differentiation in salary increases outside of the 2-3% range in some industries and key functions
Employers may face pay ‘hotspots’ in particular industries or for particular skills over the coming months
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
2012 2013 2014 2015
Base s
ala
ry %
in
cre
ase
Tier 1 Tier 2 Tier 3 Tier 4 Tier 5
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December 2015Executive and management reward survey
PwC
Talent shortages driving salary ‘hot spots’
0%
1%
2%
3%
4%
5%
6%
Custo
me
r
Te
ch
nic
al
HR
Leg
al &
secre
tari
at
Op
era
tio
ns
Fin
an
ce IT
Com
mu
nic
ation
s
Str
ate
gy
Sa
les &
ma
rke
tin
g
Ma
nu
factu
rin
g &
ope
ratio
ns
Salary increases by job function
0%
1%
2%
3%
4%
5%
6%T
ech
no
logy
Ba
sic
mate
rials
Co
nsu
me
r go
od
s
Fin
an
cia
ls
Te
leco
mm
unic
atio
ns
Con
su
me
r se
rvic
es
Indu
str
ials
Utilit
ies
Oil
& G
as
Salary increases by industry
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December 2015Executive and management reward survey
While 2-3% dominates, there are certain areas – Namely Customer and Technical areas which are commanding increased budgets and may be considered pay ‘hotspots’ in 2016
Across industries, the impact of commodities prices is impacting the Resources sector, while planned budgets in the Technology sector is well above the market
PwC
Incentives and shareholding requirements
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PwC
Annual bonus awardsBonus outcomes showed only small variations across mostjob levels
0%
20%
40%
60%
80%
100%
120%
140%
Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 Tier 6
Bonus awards as percentage of salary
2013 2014 2015
0%
20%
40%
60%
80%
100%
120%
140%
Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 Tier 6
Actual annual bonus as % of maximum
2013 2014 2015
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December 2015Executive and management reward survey
Bonus payments are stable as a percentage of salary, but there are small variations by job level. CEO bonuses are slightly up, while awards are slightly down at the lowest management tier
Bonus payments are also stable when measured as a percentage of potential opportunity. CEO bonuses reached 72% of the maximum in 2015 and Tier 6 awards were worth 60%
PwC
Annual bonus scheme structuresTarget and maximum bonus opportunities flat at most levels
90% 90% 75% 75% 65% 60% 40% 42% 30% 30% 25% 25%
180% 180%
150% 150%
120% 125%
80%75%
50%55%
50%55%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015
Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 Tier 6
Target Maximum
% salary
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December 2015Executive and management reward survey
Bonus scheme target and maximum thresholds are largely unchanged at senior levels, but there was a small upturn at the lowest management tiers
PwC
Bonus deferralIncreased use of bonus deferral, particularly at lower tiers
0%
10%
20%
30%
40%
50%
60%
70%
80%
2013 2014 2015
% o
f ro
les s
ub
ject
to c
om
pu
lso
ry d
efe
rral
Tier 1 Tier 2 Tier 3 Tier 4 Tier 5
Data not available
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December 2015Executive and management reward survey
Once the preserve of senior executives, bonus deferral has become more common at lowermanagement levels
Bonus deferral is usually compulsory with normally around half of the award set aside for three years. In most cases, all the deferred bonus is paid out at a single point in time, cliff vesting, as opposed to phased vesting periods
PwC
LTIP approachesUse of PSP as only LTIP is the most common approach at all tiers
0%
10%
20%
30%
40%
50%
60%
70%
No LTI DMA only PSP only Options only Other LTIonly
DMA andPSP
DMA andoptions
PSP andoptions
PSP andOther LTI
DMA/ PSP/Options/Other LTI
% r
ole
s
Tier 1 Tier 2 Tier 3 Tier 4 Tier 5
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December 2015Executive and management reward survey
Long-term incentive practice is dominated by performance share plans (PSPs), although other types of scheme continue to be employed
Participation falls away below the tier below the Executive population – and there is increased use of alternative designs
PwC
PSP policy award levelsPSP policy award levels edging up at most levels
0%
50%
100%
150%
200%
250%
2011 2012 2013 2014 2015
PS
P P
olicy a
ward
lev
el (%
of
sala
ry)
Tier 1 Tier 2 Tier 3 Tier 4 Tier 5
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December 2015Executive and management reward survey
There are signs that companies are beginning to increase PSP policy award levels. The upturn is noticeable across all management tiers
PwC
PSP targetsPSP targets are changing
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December 2015Executive and management reward survey
TSR remains the dominant PSP target, but increasingly used in tandem with other types of measure.
Nearly a quarter of PSPs are now based solely on performance measures outside the status quo of TSR and EPS.
Over 50% of FTSE 100 companies now have three performance measures or more.
0%
5%
10%
15%
20%
25%
30%
35%
TSR EPS TSR & EPS TSR & Other EPS & Other TSR, EPS &Other
Other
% plans
PwC
Shareholding requirementsIncreased use of share ownership guidelines at lower tiers and standardisation of requirement at board level
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
2013 2014 2015
Sh
are
ho
ldin
g r
eq
uir
em
en
t (%
of
sala
ry)
Size of shareholding requirement
Tier 1 Tier 2 Tier 3 Tier 4 Tier 5
71%
90% 90%
95%
67%
88%90%
90%
49%
59%
68%
85%
17%
28%30%
45%
1%4%
7%
17%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015
Ro
les w
ith
sh
are
ho
ldin
g r
eq
uir
em
en
t (%
of
role
s)
% of roles with a shareholding requirement
Tier 1 Tier 2 Tier 3 Tier 4 Tier 5
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December 2015Executive and management reward survey
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Pensions and benefits
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PwC
Benefits for a diverse workplaceMismatch between the benefits that companies are willing to flex and the benefits employees most value
0% 20% 40%
Life assurance – Self
Employee share schemes
Buy or sell annual leave
Private medical cover – Self or family
Defined contribution/benefitpension
Five most popular benefits
0% 20% 40% 60% 80%
Cycle to work
Travel insurance
Dental insurance
Healthcare cash plan
Buy or sell annual leave
Most flexible benefits offeredas part of a flexible package
0% 5% 10% 15% 20%
Gym membership
Childcare vouchers
Payroll giving
Healthcare cash plan
Cycle to work
Five least popular benefits
0% 20% 40%
Income protection
Life assurance – Self
Season ticket loan
Technology (e.g. computers/ tablets / phones)
Employee share schemes
Least flexible benefits
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December 2015Executive and management reward survey
PwC
Pension scheme eligibilityAn increasing number of individuals at lower tiers now receiving salary supplements. Trend likely to pick up pace as the pension tax changes start to impact in 2016
0%
10%
20%
30%
40%
50%
60%
70%
Group Tier 1 Group Tier 2 Group Tier 3 Group Tier 4 Group Tier 5 Group Tier 6
Pension scheme eligibility % of executives
Defined contribution Salary supplement Defined benefit
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December 2015Executive and management reward survey
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For further information contact…update
PwC’s Pay Performance and Risk team supports clients with the strategic and operational aspects of pay using robust data to support decision-making.
We work with organisations to help them benchmark, develop and implement remuneration frameworks that cascade down through the organisation in a way that is relevant for the participant regardless of their level, and is effective in linking individual performance and corporate strategy.
We have extensive experience advising clients on better aligning reward with business strategy to drive key behaviours and improve performance. We have supported numerous clients in the implementation of innovative remuneration arrangements including management of key stakeholders. We can provide detailed advice on performance metrics drawing on our sector expertise within PwC and dedicated financial modelling experts.
Marcus Peaker
Pay Performance and RiskPartner
T: +44 (0) 20 7804 0249M: +44(0 ) 7808 404044E: [email protected]
Steve Tatton
Executive Reward Team Senior Manager
T: +44 (0) 20 7804 5688M: +44(0) 7702 697624E: [email protected]
Alastair Woods
Pay Performance and RiskDirector
T: +44 (0) 20 7804 8102M: +44 (0) 7834 250359E: [email protected]
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December 2015Executive and management reward survey
PwC
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