How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior...
Transcript of How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior...
![Page 1: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/1.jpg)
How to Create an Incentive Planthat Pays for Itself
![Page 2: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/2.jpg)
22
Today’s Presenter:
Ken GibsonSenior Vice President(949) [email protected]
23201 Lake Center Drive, Suite 207 ⬧ Lake Forest, CA 92630 ⬧ 949-852-2288
www.VLadvisors.com ⬧ www.PhantomStock.com
![Page 3: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/3.jpg)
How to Create an Incentive Planthat Pays for Itself
![Page 4: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/4.jpg)
44
We’re happy to provide a copy of today’s slides.
To open or close
the control panel:
Click the red arrow
For questions during
today’s presentation:
Use the question area
on your control panelWebinar
Q: Are the slides available?
A: Yes, more info will be provided at the end
![Page 5: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/5.jpg)
55
Take advantage of a one-half hourconsulting call with a VisionLinkprincipal at no charge.
Indicate interest on final survey.
Consultation Offer & Survey
Request a copy of our slides and complimentary
consultation.
We value your input.
![Page 6: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/6.jpg)
66
Post Webinar Intro
5 Minutes: Who We Are What We Do How We Do It
![Page 7: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/7.jpg)
77
23201 Lake Center Drive, Suite 207
Lake Forest, CA 92630
(888) 703 0080www.vladvisors.com
www.phantomstock.com
www.bonusright.com
Headquartered in Lake Forest, CA Founded in 1996 Over 600 clients throughout North America
![Page 8: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/8.jpg)
88
What Have You Learned?
During the lockdown– What organizational
flaws were revealed? What structural issues
had the biggest financial impact?
What changes have you instituted to minimize risk in the future?
![Page 9: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/9.jpg)
99
Key Question
How would your compensation strategy have been different had you known the coronavirus economy was coming?
![Page 10: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/10.jpg)
1010
Answer of Most Business Leaders
More flexibility Fewer high-cost
guarantees
![Page 11: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/11.jpg)
1111
Why?
Compensation is expensive and can wreak havoc on cash flow.
![Page 12: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/12.jpg)
1212
Flaws Revealed by COVID-19 Economy
Unbalanced Pay Offerings
Heavily weighted to guarantees (salaries, benefits)
Heavily weighted to short-term performance rewards (bonus or other STIP)
![Page 13: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/13.jpg)
1313
The Coronavirus Economy Dilemma
Sample Position
Salary Short-Term Value
Sharing
Total Cash Flow Impact
Plan A $110,000 $11,000 $121,000 $121,000
Plan B $100,000 $30,000 $130,000 $130,000
![Page 14: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/14.jpg)
1414
The Future Ideal
Sample Position
Salary Short-Term Value
Sharing
Long-Term Value
Sharing
Total Cash Flow Impact
Plan A $100,000 $5,000 $20,000 $125,000 $105,000
Plan B $100,000 $0 $30,000 $130,000 $100,000
Plan C $80,000 $10,000 $40,000 $150,000 $90,000
![Page 15: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/15.jpg)
1515
3 Keys to Creating an Incentive Plan that Pays for Itself
1. Measure & Reward Value Creation2. Adopt a Wealth Multiplier Pay
Philosophy3. Tie Rewards to Productivity Profit
![Page 16: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/16.jpg)
1616
1. MEASURE & REWARD VALUE CREATION
![Page 17: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/17.jpg)
1717
Case Study
17
![Page 18: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/18.jpg)
1818
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.’ ”
18
![Page 19: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/19.jpg)
1919
Pay the Company First
“Basically, up to the company’s operating profit target, all of the profits go to the company; and only after that target is met, do we start funding the incentive pool.”
Example: If UL’s target is $80 million-- 100% of first $80 in
profit goes to company The next $20 million
goes to the incentive pool
From there on, 50/50 between company & incentive pool
![Page 20: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/20.jpg)
2020
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.
20
![Page 21: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/21.jpg)
2121
Outcomes, not Methods
"You cannot hold people responsible for results if you supervise their methods.“
(Stephen R. Covey)
21
"You cannot hold people responsible for results if you pay them for their methods.“
(VisionLink)
![Page 22: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/22.jpg)
2222
Replace Incentives with Value-Sharing
The premise should be to promote value creation and value-sharing:
▪ “When you help us create value you participate in that value”
▪ Define value creation around the shareholders’ most important goals
![Page 23: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/23.jpg)
2323
Shareholder Priority
Sustainable and growing profitability
23
![Page 24: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/24.jpg)
2424
Key Metric
Focus on One of These:
Profit
Increase in Profits (% or $)
(Sometimes: Revenue Growth)
24
![Page 25: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/25.jpg)
2525
2. ADOPT A WEALTH MULTIPLIER PAY PHILOSOPHY
![Page 26: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/26.jpg)
2626
Compensation Philosophy Statement
How value creation is defined.
How value is shared—and with whom.
How market pay standards apply.
How guaranteed pay and value-sharing will be balanced.
How short and long-term value-sharing will be balanced.
How merit pay is defined.
![Page 27: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/27.jpg)
2727
Old School
Defensive
Wealth Creation
Wealth Multiplier
27
Pay Philosophy Evolution
![Page 28: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/28.jpg)
2828
Wealth Multiplier
Let’s Secure Growth Partners
PhilosophyShare economic value. "If you create financial value, you will participate in a generous portion of it."
Cost or Investment?Compensation is allocated to produce the highest possible return for both shareholders and contributing employees.
SalariesWe use data for benchmarking, but our pay philosophy drives where we want to be vis a vis market pay.
BonusesBonuses (value sharing plans) are tied to profits and are not capped.
Long-term Incentives (quasi-equity)
Viewed by top performers as the most meaningful part of their rewards program.
ResultsIf you want to be able to attract and retain the best talent in your industry and have them adopt a stewardship mindset regarding shareholder goals, this is your system.
![Page 29: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/29.jpg)
2929
Wealth Multipliers vs. Wealth Creators
Wealth Creators Profitability focus Recruit to skills and
experience Pay is an expense to be
contained Salaries and total pay
should be “at market” “Pay-for-performance”
Wealth Multipliers Accelerate value creation Recruit premier talent that
fits performance expectations
Pay is an investment that should produce a growing return
Market pay for bench marking but pay philosophy drive comp strategy
Sharing value with value creators.
![Page 30: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/30.jpg)
3030
The Value of Profit
Wealth Multiplier
Profits
Secure Business
Reward Employee
Results
Protect Shareholders
![Page 31: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/31.jpg)
3131
A Sense of Partnership Leads to a Growth
Multiple
The Value of Profit
Wealth Multiplier
Profits
Protect Shareholders
Secure Business
Reward Employee
Results
![Page 32: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/32.jpg)
3232
Wealth Multiplier Philosophy
We believe all stakeholders should participate in the wealth multiple they help create.
Fair
Prudent
![Page 33: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/33.jpg)
3333
Dual Focus
Peter Drucker once wrote that the manager’s job is to keep his nose to the grindstone while lifting his eyes to the hills. He meant that every business has to operate in two modes at the same time: producing results today and preparing for tomorrow. (Ken Favaro, Strategy+Business)
![Page 34: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/34.jpg)
3434
Key
One Value Sharing Philosophy
Rewards Plans for Two Distinct Performance Periods:
1. 12 months and under
2. 3 years and longer
![Page 35: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/35.jpg)
3535
Rules of Thumb
Short-term value sharing should be tied to profit (ideally productivity profit)
Long-term value sharing should be tied to business growth (increase in company value)
![Page 36: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/36.jpg)
3636
Setting Payout Thresholds
Base
Target (budget)
Superior
36
![Page 37: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/37.jpg)
3737
What’s Base?
Base is the threshold amount of profit that justifies employee bonuses
Begin sharing value above that threshold
Below Base = No bonus You should expect to achieve Base
performance 4/5 years
![Page 38: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/38.jpg)
3838
What’s Target?
Target is the amount of profit that is expected to be achieved
Bonus values at Target should be your “Market” opportunity
You should expect to achieve Target performance 3/5 years
![Page 39: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/39.jpg)
3939
What’s Superior?
Superior is the amount of profit that is achievable assuming exceptional performance
Bonus values at Superior should be impressive
You should expect to achieve Superior performance 1/5 years
![Page 40: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/40.jpg)
4040
Other Metrics
Minimum profit thresholds must be met first. Then…
Department or team metrics
Non-correlated factors (customer retention, customer or client increase, etc.)
Individual performance metrics
![Page 41: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/41.jpg)
4141
Ways to treat individual performance
Component of the allocation
Discretion
Modifier
![Page 42: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/42.jpg)
4242
Component of Allocation
Allocation to plan participants contingent on:
▪ Company Performance – Employees should have all or a majority portion of their bonus based on company performance
▪ Org Unit Performance – A portion of an employee’s bonus can be allocated based on department, location, division, or business unit
▪ Individual Performance – A portion of the bonus is allocated to Individual Results
![Page 43: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/43.jpg)
4343
Problems
Unless the slice is big, many employees will pay little attention to it
▪ “I can still get 75% of my bonus without worrying about that piece”
Performance management score may not be trustworthy
▪ “I hate to give him a low score because it will reduce his bonus”
![Page 44: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/44.jpg)
4444
Problems
Full (or even partial) discretion may lead to charges of unfairness or even discrimination
▪ “Why was he paid more than me?”
Lengthy list of employee goals may be hard to track fairly or accurately
▪ “I didn’t get that done because you asked me to focus on something new”
![Page 45: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/45.jpg)
4545
Performance ManagementRevolution
45
![Page 46: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/46.jpg)
4646
Individual Performance
Trend is to disconnect performance from incentive pay
Performance Management is still important
Managers more likely to be honest about performance if incentives are not directly correlated to performance rating
If performance is deemed “unacceptable” discretion should be utilized to eliminate incentive payment
46
![Page 47: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/47.jpg)
4747
Solution: Spot Bonuses
For employees that make special contributions over the course of the year…
Create a discretionary reserve inside of plan funding
Reserved for “exceptional” performers only
Point to clear contributions (the reason for the award)
Immediate recognition (not end of the year)
Nomination process
Budget a “reserve” to fund these awards
They don’t have to be big ($500)
47
![Page 48: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/48.jpg)
4848
9 Long-Term Value Sharing Alternatives
Stock Option
Performance Shares
Restricted Stock
Phantom Stock
Option
Performance
Phantom Stock
Phantom Stock Profit Pool
Performance Unit
Strategic Deferred
Compensation
![Page 49: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/49.jpg)
4949
Grant Equity or
Not Equity?
Full Value or
Appreciation Only?
Yes
Appreciation
Stock Option
Full Value
Performance Based?
Yes
Performance Shares
No
Restricted StockNo
Reward for Value
Increase or Financial
Performance?
Value Increase
Full Value or
Appreciation?
Appreciation
Phantom Stock
Option
Full Value
Performance Based?
Yes
Performance
Phantom Stock
No
Phantom StockFinancial
Performance
Appreciation-
Performance Based or
Employee Directed?
Performance
BasedReward for Profit/Cash
Flow or Other Metrics?
ProfitsAllocation or
Objectives Based?
Allocation
Profit Pool
ObjectivesOther Metrics
Performance Unit
Employee Directed
Strategic Deferred
Compensation
![Page 50: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/50.jpg)
5050
Phantom Stock
Company establishes a phantom share value (formula or valuation)
Employees given an award that has current value essentially equivalent to company stock value (subject to vesting schedule)
No rights of ownership
Rewards for past contributions and future growth
Payments will be made in cash (or stock) at pre-determined dates
Full value awards create a direct link to ownership
![Page 51: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/51.jpg)
5151
Performance Phantom Stock
Employees given the promise to receive phantom shares upon fulfillment of pre-determined (often annual) financial goals
Shares can be full value or appreciation only
“Double” pay-for-performance concept
▪ You earn shares based on performance
▪ Share values go up based on performance
![Page 52: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/52.jpg)
5252
Phantom Stock Options
Employees given a promise of cash payment at a future date
The value will be based on the appreciation in stock price from the date of award to the date of redemption (like stock appreciation rights)
Like stock options but without the need to pay for shares
Rewards employees for contributing to the increase in enterprise value
Can be part of the employee’s annual pay package
![Page 53: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/53.jpg)
5353
3. TIE REWARDS TO PRODUCTIVITY PROFIT
![Page 54: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/54.jpg)
5454
Replace Incentives with Value-Sharing
The premise should be to promote value creation and value-sharing:
▪ “When you help us create value you participate in that value”
▪ Define value creation around the shareholders’ most important goals
![Page 55: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/55.jpg)
5555
Shareholder Priority
Sustainable and growing profitability
55
![Page 56: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/56.jpg)
5656
Not Just Profit but Productivity Profit
Productivity profit is that surplus that can be attributable to the performance of your people.
![Page 57: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/57.jpg)
5757
Productivity Profit
The Secret to Creating an Incentive Plan that Pays for Itself
![Page 58: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/58.jpg)
5858
Productivity Profit CalculationItem 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 Investment
$25,000,000
ROTRI™Return on Total Rewards Investment
30.4%
(ROTRI™ = Productivity Profit/Total Rewards Investment) 58
![Page 59: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/59.jpg)
5959
Example:Item Figure
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 Investment
$25,000,000
ROTRI™ 30.4%
(ROTRI™ = Productivity Profit/Total Rewards Investment)
*Variable Pay Plans (Value
Sharing) are financed from Productivity Profit
59
![Page 60: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/60.jpg)
6060
Result: Unlimited Earnings PotentialItem Figure
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 Investment
$25,000,000
ROTRI™ 30.4%
(ROTRI™ = Productivity Profit/Total Rewards Investment)
*Variable Pay Plans (Value
Sharing) are financed from Productivity Profit
60
![Page 61: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/61.jpg)
6161
Special Offer
The Productivity Profit Workbook
Request your copy on the final survey.
![Page 62: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/62.jpg)
6262
Market a Future
Build a Sense of Partnership
![Page 63: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/63.jpg)
6363
The Coronavirus Economy Dilemma
Sample Position
Salary Short-Term Value
Sharing
Total Cash Flow Impact
Plan A $110,000 $11,000 $121,000 $121,000
Plan B $100,000 $30,000 $130,000 $130,000
![Page 64: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/64.jpg)
6464
The Future Ideal
Sample Position
Salary Short-Term Value
Sharing
Long-Term Value
Sharing
Total Cash Flow Impact
Plan A $100,000 $5,000 $20,000 $125,000 $105,000
Plan B $100,000 $0 $30,000 $130,000 $100,000
Plan C $80,000 $10,000 $40,000 $150,000 $90,000
![Page 65: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/65.jpg)
6565
Market a Future
Here’s the short-term picture
Here’s our vision for the future.
Here’s how we plan to get there.
Here’s the role we need you to perform.
Here are the resources you will be able to use.
Here’s our philosophy about pay and rewards.
Here are the specific pay programs you’ll participate in.
Here’s how our pay programs will work for you if we achieve our plan.
![Page 66: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/66.jpg)
6666
Employee Value Statement
Year 1 2 3 4 5
TargetedResults
100% 100% 100% 100% 100%
Salary $160,000 $166,400 $173,056 $179,878 $187,177
STVS $64,000 $66,560 $69,222 $71,991 74,871
LTVS(EOY)
-- $74,000 $186,000 $311,000 $448,000
401(k)@7%
$17,120 $36,123 $57,169 $80,428 $106,086
Total Cash
$224,000 $232,960 $242,278 $251,970 $262,048
WealthAccrual
$17,120 $110,123 $243,169 $391,428 $554,086
TotalValue
$241,120 $567,083 $942,407 $1,342,636 $1,767,343
![Page 67: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/67.jpg)
6767
3 Keys to Creating an Incentive Plan that Pays for Itself
1. Measure & Reward Value Creation2. Adopt a Wealth Multiplier Pay
Philosophy3. Tie Rewards to Productivity Profit
![Page 68: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/68.jpg)
6868
Take advantage of a one-half hourconsulting call with a VisionLinkprincipal at no charge.
Indicate interest on final survey.
Request Consultation & Take Survey
Request a copy of our slides, report,
complimentary consultation and BonusRight demo.
We value your input.
![Page 69: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/69.jpg)
6969
Special Offer
The Productivity Profit Workbook
Request your copy on the final survey.
![Page 70: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/70.jpg)
7070
![Page 71: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/71.jpg)
7171
www.BonusRight.comwww.bonusright.com
![Page 72: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/72.jpg)
7272
New SaaS tool
Build and manage your bonus plan online.
![Page 73: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/73.jpg)
7373
Free Tool
Introducing: The Total Rewards Assessment
Indicate on survey if you would like to schedule a demo.
![Page 74: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/74.jpg)
7474
www.phantomstock.com
www.vladvisors.com
Subscribe to our blog!
![Page 75: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/75.jpg)
7575
Post Webinar Intro
5 Minutes: Who We Are What We Do How We Do It
![Page 76: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/76.jpg)
7676
Q&A
![Page 77: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/77.jpg)
7777
Today’s Presenter:
Ken GibsonSenior Vice President(949) [email protected]
23201 Lake Center Drive, Suite 207 ⬧ Lake Forest, CA 92630 ⬧ 949-852-2288
www.VLadvisors.com ⬧ www.PhantomStock.com
Thank You!
![Page 78: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/78.jpg)
7878
Post Webinar Intro
5 Minutes: Who We Are What We Do How We Do It
![Page 79: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/79.jpg)
7979
![Page 80: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/80.jpg)
8080
![Page 81: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/81.jpg)
VisionLink’s Focus: Help Business Leaders Build and Sustain a High Performance Culture
Accelerate performance through pay strategies that transform employees into growth partners.
![Page 82: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/82.jpg)
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.
![Page 83: How to Create an Incentive Plan that Pays for Itself · 2 Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite](https://reader034.fdocuments.in/reader034/viewer/2022042921/5f6bc7bb1182af2028778615/html5/thumbnails/83.jpg)
8383
Today’s Presenter:
Ken GibsonSenior Vice President(949) [email protected]
23201 Lake Center Drive, Suite 207 ⬧ Lake Forest, CA 92630 ⬧ 949-852-2288
www.VLadvisors.com ⬧ www.PhantomStock.com
Thank You!