Mercer Total Rewards Optimizatoin

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Market Place Trends Talent Driving Talent Performance Changing Workforce Demographics Increasing Business / Human Capital Risk Explosion of Consumer Choice Convergence of Macro Economic Trends Total Rewards Decreasing prevalence of performance ratings, misaligning performance management and variable pay outcomes Applying analytics to predict/determine drivers of turnover, engagement, productivity, and satisfaction • Using career paths as a measure to address engagement, turnover, and changing drivers of satisfaction by generation Growing demand from proxy advisors regulation, resulting in increased risk mitigation around compensation practices Partnering with firms to provide Workday Advisory and Deployment services to simplify and drive strategic initiatives Organizations are re-thinking the proper labor market against which to compare compensation levels / mix Most companies are moving towards tighter Retirement / Investments Securing Retirement Outcomes Health & Benefits Navigating the Challenging H&B Landscape Controlling health care costs while providing employee choice. Improving workforce health and productivity. Educating and motivating employees to take accountability for their health. Complying with regulatory requirements. Providing competitive benefits as part of a strategy of attracting and retaining top talent. Establishing a seamless renewal Plan sponsors, fiduciaries, and individuals face unprecedented challenges in sustainable retirement provision, brought about by: New regulations and an increasing demand for transparency in governance and accounting practices. Increased economic volatility and investment risk. Rising pension liabilities. Changing demographics and longevity risk. The declining role of public Employer Implications Employee Implications

Transcript of Mercer Total Rewards Optimizatoin

Page 1: Mercer Total Rewards Optimizatoin

Market Place Trends

TalentDriving Talent Performance

Changing Workforce

Demographics

Increasing Business / Human

Capital Risk

Explosion of Consumer Choice

Convergence of Macro Economic Trends

Total Rewards

• Decreasing prevalence of performance ratings, misaligning performance management and variable pay outcomes

• Applying analytics to predict/determine drivers of turnover, engagement, productivity, and satisfaction

• Using career paths as a measure to address engagement, turnover, and changing drivers of satisfaction by generation

• Growing demand from proxy advisors regulation, resulting in increased risk mitigation around compensation practices

• Partnering with firms to provide Workday Advisory and Deployment services to simplify and drive strategic initiatives

• Organizations are re-thinking the proper labor market against which to compare compensation levels / mix

• Most companies are moving towards tighter pay grades to provide more structure around making pay decisions

• Companies are expanding eligibility for both short- and long-term incentives to differentiate and compete for top talent

Retirement / InvestmentsSecuring Retirement Outcomes

Health & BenefitsNavigating the Challenging

H&B Landscape• Controlling health care costs while providing

employee choice.• Improving workforce health and productivity.• Educating and motivating employees to take

accountability for their health.• Complying with regulatory requirements.• Providing competitive benefits as part of a

strategy of attracting and retaining top talent.• Establishing a seamless renewal process and

administering plans effectively and efficiently.

Plan sponsors, fiduciaries, and individuals face unprecedented challenges in sustainable retirement provision, brought about by:• New regulations and an increasing demand

for transparency in governance and accounting practices.

• Increased economic volatility and investment risk.

• Rising pension liabilities.• Changing demographics and longevity risk.• The declining role of public pensions and an

increasing burden on employers and employees.

Employer Implications Employee Implications

Page 2: Mercer Total Rewards Optimizatoin

Employer XYZ Total Rewards Optimization Review

Talent

Convergence of Macro Economic Trends

Total Rewards

Retirement / Investments Health & Benefits

Element Grade Overall Considerations

Base Salary• Aggregate aligned with target positioning of 50th percentile of market• Salary structure requires redesign: fewer structures, fewer grades, wider ranges

Annual Incentive Plan• Aggregate total cash positioning aligned with stated pay philosophy of 75th percentile• FY15 AIP heightens accountability by increasing weighting of individual objectives• FY15 AIP change in trigger represents an appropriate change

Long-term Incentives• Market leading design emphasizes long-term performance and sustainability, links to strategic plan imperative, and

offers retentive hook with 3-year, overlapping cycles

Retirement • Retirement benefits are between the healthcare market 25th percentile and median

Health & Welfare • Life, disability and health benefits are competitive with market practice

Perquisites • Elimination of perquisite program consistent with market trends, enhances optics

Employment Contracts & Severance • Current policy aligned with market; externally recruited “game-changers” require flexible agreements

85%

95%

105%

115%

125%

12/31/2012 12/31/2013 12/31/2014 12/31/2015

Fund

ed S

tatu

s

75% - 95%25% - 50% 50% - 75%5% - 25%

Fiscal 2013 Fiscal 2014 Fiscal 2015

Expense -$ 1m

Contribution $ 0m

Expense -$ 1m

Contribution $ 0m

FundedStatus / Surplus 111% / $ 10m

FundedStatus / Surplus 100% / -$ 1m

DB plan optimizationElement Current Plan ConsiderationsTarget Bonus • 100% of base • Aligned with market median

• Ensure that comparator group is revisited annually

Leverage • 50% ($200,000) threshold payout• 200% ($800,000) maximum payout

• 50% - 200% is aligned with market

PerformancePeriod

• 1 year • Aligned with market (vast majority of companies use 1 year period)

Funding Gate • None • Using a funding gate such as positive operating income ensures a minimum acceptable level of performance

• Data not available on prevalence but anecdotally we would suggest that 33% - 50% of organizations include this in their incentive plan

QuantitativeMetrics

• 60% company revenue• 20% company profitability• 20% financial scorecard which

includes 8-10 metrics chosen annually by the Board / Compensation Committee

• Consider reducing the number of metrics- Using 10-12 total measurements is more complex than typical plans;

may overlap and/or dilute effect of each metric• Revenue and profitability are the two most common incentive plan metrics,

but given Company’s focus on bottom line growth, consider weighting equally or more heavily weighting profit, rather than heavy skew toward revenue

Qualitative Metrics

• None • Some organizations use individual and/or qualitative metrics when there are significant responsibilities that may not be reflected by company performance

• However, this is a minority practice (12% of plans predominantly focus on qualitative)

Discretion • None • We do not recommend adding a structural discretionary component based on our understanding of the plan and plan goals, though allowing for downward discretion by the Committee is a typical practice that should be considered

Green = aligned with market practiceYellow = opportunities to revise plan