Getting payback from pay February 2011

Getting payback from pay

by Toronto Training and HR

February 2011

Contents3-4 Introduction to Toronto Training and HR5-6 In the beginning7-8 Drill A9-20 What should we be paying…?21-26 Case studies A-C27-28 Pay strategy29-39 Executive pay40-42 Changing incentive schemes for

senior executives43-44 Drill B45-46 Graduate salaries47-48 Expatriates; year-end planning49-50 Performance-related pay51-53 Variable pay54-56 Effective and fair bonus schemes57-59 What does the future hold?60-65 Case studies D-F66-67 Conclusion and questions

Introduction

Introduction to Toronto Training and HR

• Toronto Training and HR is a specialist training and human resources consultancy headed by Timothy Holden

• 10 years in banking• 10 years in training and human resources• Freelance practitioner since 2006• The core services provided by Toronto Training and HR

are:- Training course design- Training course delivery- Reducing costs- Saving time- Improving employee engagement &

morale- Services for job seekers

In the beginning…

In the beginning…

Extrinsic and intrinsic rewardsObjectivesDirect v indirect reward

Drill A

What should we be paying…design professionals?

What should we be paying…design professionals?

FIFTIETH PERCENTILESolo Designer $52,000Owner/Partner/Principal $95,000Creative/design director $91,000 Art director $70,000 Senior designer $61,500Designer $45,000Entry-level designer $36,000Print production manager $60,000Web designer $55,000Copywriter $60,000

What should we be paying…EHS

professionals?

What should we be paying…EHS professionals?

Overall $100,000President or higher $150,000Vice president $147,500Director $120,000Manager $92,000Engineer $92,000Specialist $79,250Coordinator $74,000

What should we be paying…Project

Managers?

What should we be paying…Project Managers?

Resources (Agriculture, Mining, etc.) $120,000Consulting $116,000Pharmaceuticals $110,000Engineering $106,000Aerospace $105,000Government $104,832Food and beverage $102,000Utility $102,000IT $100,422

What should we be paying…experienced IT

experts?

What should we be paying…experienced IT experts?

Chief Technology Officer $111,750 - $174,250Information Technology Manager $88,250 - $127,000 Developer/Programmer Analyst $57,750 – $102,250Lead Applications Developer $85,000 – $117,500 Software Engineer $73,500 – $112,000 Systems Administrator $53,250 – $83,000 Database Manager $90,000 – $122,500 Senior Web Developer $58,000 – $94,250 Network Engineer $71,000 – $101,750 Project Manager/Senior Consultant $81,500 – $117,000 Systems Security Administrator $81,500 – $112,500

What should we be paying…healthcare

professionals involved in operating theatres?

What should we be paying…healthcare professionals

involved in operating theatres?

Overall $73,310Surgical services director/manager $86,543OR director/manager $80,657Clinical director/coordinator $89,800OR supervisor $71,667OR business/financial manager $83,708OR materials manager/coordinator $55,667Surgical instruments manager $52,667Other $65,667

What should we be paying…healthcare

professionals involved in infection control &

prevention?

What should we be paying…healthcare professionals involved in infection control & prevention?

Microbiologist $57,500Infection Preventionist $68,381Infection Control Practitioner $65,203Infection Control Nurse $57,151IC Manager $79,031IC Director $78,714IC Coordinator $67,575Epidemiologist $80,833Educator $67,500

Case study A

Case study B

Case study C

Pay strategy

Pay strategy

THREE BASIC FACTORSCompensationPerksHappy & healthy working environment

Executive pay

Executive pay 1 of 10

FLAWS IN CURRENT PACKAGESThe nature of awards and excessive leveraging.Lack of discipline in setting targets and assessing performance.Failure of incentive plans to match timing of payments with risk realization.Failure to integrate risk into incentive plans.


FINANCIAL STABILITY FORUM PRINCIPLESThe board must actively oversee the compensation system’s design and operation.The board must monitor and review the compensation system to ensure it operates as intended.Employees engaged in financial and risk control must be independent, have appropriate authority and be compensated in a manner that is independent of the business areas they oversee and commensurate with their key role in the firm.


FINANCIAL STABILITY FORUM PRINCIPLESCompensation must be adjusted for all types of risk.Compensation outcomes must be symmetric with risk outcomes.Compensation pay-out schedules must be sensitive to the time horizon of risks-mix of cash, equity and other forms of compensation must be consistent with risk alignment.


FINANCIAL STABILITY FORUM PRINCIPLESSupervisory review of compensation practices must be rigorous and sustained, and deficiencies must be addressed promptly with supervisory action.Firms must disclose clear, comprehensive and timely information about their compensation practices to facilitate constructive engagement by all stakeholders.


DRAWBACKS WITH CLAWBACKSA clawback does not encourage prudent performance. It punishes after the fact, which, perversely, can increase business risk by deterring disclosure, a situation that might result in the application of the clawback.Expanding the clawback to deal with excessive risk taking is difficult because the focus needs to be on risk-taking behaviour rather than on an occasional poor result.


DRAWBACKS WITH CLAWBACKSA clawback forces the company to recover funds from the employee, which is legally and practically difficult. Courts are unlikely to enforce clawbacks unless they are clear andunambiguous. Moreover, the company will need to incur legal and other costs to recover incentive amounts, and the employee may no longer have the funds to repay the amount.Dealing properly with taxation of a clawed-back bonus is complex.


SYNCHRONIZING THE TIMING OF PAYMENT & RISK REALIZATIONPayment of incentives based on results net of realized risks, with payment deferred until the associated risks have been realized. This provides for an integrated result and risk-based incentive.Payment of incentives based on results, with payment held in escrow until the end of the risk realization period. However, it can be complex to assess the effect and quantum risk and properly define the risk-realization period.


SYNCHRONIZING THE TIMING OF PAYMENT & RISK REALIZATIONPayment of incentives in the form of share-based compensation, with the shares held in escrow until the end of the risk-realization period. This allows share price to be a proxy for the real cost of realized risk, which can materially simplify the plan.


RESPONSIBILITIES OF THE COMPENSATION COMMITTEEEstablishing plan terms, set up and targets.Assessing expected pay-out levels.Monitoring performance against expectations and financial realities.Correcting errors.Having the courage to exercise discretion in both directions (increase payments when a plan does not generate a payment in deserved circumstances and decrease payments when the plan terms provide for overpayment).


RESPONSIBILITIES OF THE COMPENSATION COMMITTEEAllowing discretion requires real trust between the board and the executives, because the flexibility must be in the plan, and with it comes the risk that the board may reduce compensation even when targets are met.

Changing incentive schemes for senior

executives

Changing incentive schemes for senior executives 1 of 2Introduce new financial measure(s)

Introduce new non-financial measure(s)Introduce new relative measures Increase funding poolsDecrease funding poolsAdd a maximum funding cap, if one does not exist Increase range of performance for corresponding pay-out levelsDecrease range of performance for corresponding pay-out levels

Changing incentive schemes for senior executives 2 of 2Allow for increased discretion related to pay-

outs Allow for decreased discretion related to pay-outs Increase threshold pay-out opportunity Decrease threshold pay-out opportunity Increase maximum pay-out opportunityDecrease maximum pay-out opportunity Provide for mandatory pay-out of all or portion ofaward in share/share units

Drill B

Graduate salaries

Graduate salaries

Educational Services $33,883Retail/Wholesale Trade $41,805Government (Federal) $46,874Financial Services $49,218Accounting Services $50,371Consulting Services $55,148Engineering Services $56,070Banking (Investment) $60,806Petroleum & Coal Products $67,630Healthcare Services (For Profit) $73,728

Expatriates; year-end planning

Expatriates; year-end planning

Determination of expatriate compensationcontacts (stakeholders) Set deadlines Collection toolsDetermination of expatriate populationReporting

Performance-related pay

Performance-related pay

FACTORS CONTRIBUTING TO AN EFFECTIVE PAY FOR PERFORMANCE CULTURELeadership supportProcesses for differentiating performance processes for delivering pay to high performers REASONS FOR HAVING AN INEFFECTIVE PAY FOR HAVING AN INEFFECTIVE PAY FOR PERFOMANCE CULTURELimited compensation budget Inability for leaders and managers to deliver feedbackLack of leadership support

Variable pay

Variable pay 1 of 2

DRIVERS OF CHANGEBetter alignment with business strategyImprove company or team performanceCreate better alignment or line of sight between corporate and individual performanceEnsure market competitivenessReinforce specific business prioritiesImprove individual performanceImprove employee engagement

Variable pay 2 of 2

DRIVERS OF CHANGEEnsure retentionBetter balance of fixed and variable costsEase with which the program can be communicated and understoodSatisfy external stakeholders demands (investors, media, community) Comply with regulations or governance requirements Reduce risk

Effective and fair bonus schemes

Effective and fair bonus schemes 1 of 2

EligibilityPlan philosophyPerformance measuresLine of sightCalculationThreshold

Effective and fair bonus schemes 2 of 2

Payment calculationPercentage of salaryFixed amountTo base bonus on a predetermined bonus pool formulaTimingDosDon’ts

What does the future hold?

What does the future hold? 1 of 2

The dampening impact on salaries caused by the 2009 economic crisis is subsiding. Most employers are expecting to be in a position to afford more aggressive salary increases than they have implemented in recent years; though not to the same levels as experienced before the economic downturn.

What does the future hold? 2 of 2

Most employers are deciding it is important to reward employees with more substantial salary increases in 2011. There will be more salary increase dollars available in 2011 to reward and retain top performers. Assuming the economy continues to demonstrate recovery, given the upward momentum highlighted in the survey results so far, it is likely that actual salary increase budgets implemented in 2011 will exceed these preliminary levels.

Case study D

Case study E

Case study E

Canada’s top 100 CEOs

Case study F

Conclusion & Questions

Conclusion

SummaryQuestions

Getting payback from pay February 2011

Business

Transcript of Getting payback from pay February 2011