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A NEW WAY TO MANAGE EXECUTIVE PAY:NOT JUST AS A RISK BUT ALSO AS ABUSINESS DRIVERFebruary 12, 2014

MERCER WEBCAST

MERCER WEBCAST 1February 13, 2014

Today’s speakers

Gregg PassinSenior Partner & NAExec Rem LeadNew York

Jennifer ShenkerPrincipalRewardsSan Francisco

Teresa BayewitzPrincipalRewardsNew York

Peter SchlothPrincipalRewardsPhiladelphia

Andre RooksPrincipalRewardsChicago

Janet DenUylPartnerExecutive BenefitsNew York

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MERCER WEBCAST

AgendaWhat we’ll cover today

Landscape impacting executive rewards

Market responses and trends

Strategies for overcoming the divide

Client case studies

Wrap up

EXECUTIVE REWARDS LANDSCAPE &RESPONSES

MERCER WEBCAST 4February 13, 2014

The executive compensation landscape is increasingly complex

Context Implications

• Globalization and industryconsolidation are increasing sizeand scale of businesses.

• Shortage of qualified executivetalent to handle complexity oftoday’s global organizations.

• Global convergence of talentmarket.

• More recruiting and mobility ofexecutives across borders.

• Changes in technology and socialvalues are changing how work getsdone.

• Requirement for new leadershipcompetencies and quickeradaptation.

• Aging workforce and retirementcrisis is impacting talent pipelines.

• Succession plans are vulnerableto unpredictability.

• Regulatory environments areevolving around the globe towardsgreater regulation.

• Say-on-pay is gaining steam buttaking different forms; efforts tolimit pay emerge.

MERCER WEBCAST 5February 13, 2014

Yet many compensation committees are focused on risk mitigation

Reversionto theMean

ShareholderAdvisoryGroup

Standards

IndustryBenchmarking

Legal &Regulatory

RequirementsBusiness andTalent Context

MERCER WEBCAST 6February 13, 2014

Market trends bear evidence of this reversion to the meanDrivers of plan design

• Economic factors are less important, while proxy advisorinfluence continues to grow.

2013 2014 2013 2014

Annual Incentive Plan Design 18% 7% 10% 11%

Long-Term Incentive Plan Design 22% 6% 15% 17%

Use of Special Retention Grants 14% 4% 12% 13%

Changes in Grant Value 25% 3% 4% 7%

EconomicOutlook

Proxy AdvisorGuidelines

Source: Mercer 2013 Executive Rewards Trends Survey

MERCER WEBCAST 7February 13, 2014

Market trends bear evidence of this reversion to the meanVehicle mix

• Performance awards are on the rise and options are on the decline.

0%

5%

10%

15%

20%

25%

30%

35%

OptionsOnly

Rest.StockOnly

Perf.Awards

Only

Options +RS

Options +PA

RS + PA Options +RS + PA

Prevalence of Long-term Incentive MixCEO Grants – S&P 500

201020112012

Source: Mercer 2012 CEO Compensation Report

MERCER WEBCAST 8February 13, 2014

Market trends bear evidence of this reversion to the meanPerformance measurement

• TSR- and EPS-based performance share plans dominate.

38%

21%17%

13%9% 8% 7% 7% 6%

0%5%

10%15%20%25%30%35%40%45%

Performance Share MetricsS&P 1500

Source: Equilar 2013 Proxy Season Trends

MERCER WEBCAST

At the same time, we see more and more compensation committees takingon broader responsibilities, creating an executive compensation gap

9

Source: Mercer 2013 Executive Rewards Trends Survey

2013 2014

Succession Planning 53% 69%

Executive Candidate Evaluation 58% 69%

Leadership Development 28% 40%

Workforce Metrics 24% 33%

Board Oversight

MERCER WEBCAST 10February 13, 2014

Strategies for overcoming the gap

Key Strategies How to Implement

1. Reorient to theglobal talent market

• Go beyond US practices.• Enable comparisons across dissimilar packages .• Facilitate international mobility and cross-cultural

development.

2. Integrate executivetalent planning andrewards

• Expand the duties of the compensation committee.• Review succession and leadership development plans in

tandem with compensation.

3. Understand totalcareercompensation

• Consider realizable pay over an executive’s full tenure.• Analyze all elements of compensation, including benefits.

4. Harness the power ofdata

• Review a dashboard(s) with broad talent metrics.• Include sophisticated analytical techniques such as

projections, simulations, and predictive modeling.

5. Engage andcollaborate withmultiple stakeholders

• Seek input from a broad range of voices inside and outsidethe company.

• Improve collaboration between management and thecompensation committee.

CASE STUDIES

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Rewarding a global executive teamClient: Global consumer products company

12February 13, 2014

Challenge• IPO on Hong Kong exchange.

• Retention concerns with globalexecutive team.

• Divergent views of LTI amongglobally diverse board members.

Approach• Global shareholder perspective.

• Benchmarking based on global marketdata.

• Financial projections and impactmodeling.

Results• Competitive compensation across multiple geographies.

• Equity plan that was attractive to executives and sensitive to shareholderinterests:

– Expanded participation.– 100% stock options easy to understand and aligned with focus on growth.

Global Talent CareerComp Data Engage

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Leveraging workforce analytics to informrewards strategyClient: US energy company

13February 13, 2014

Challenge• Insufficient succession planning.

• Trouble managing impact ofretirement exits.

• Limited insight into competitivenessof pay for executives.

Approach• Internal labor market mapping to

understand talent inflows and outflows.

• “Total rewards” approach tobenchmarking.

• Retirement plan design review.

Results• Decision-making based on facts, not hunches.

• Integrated career, pay, and benefits strategy.

• Shift from tenure-based-pay to pay-for-performance.

Global Talent CareerComp Data Engage

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Internal Labor Market (ILM) map

78% Ret. Eligible

69% Ret. Eligible

63% Ret. Eligible

49% Ret. Eligible

32% Ret. Eligible

36% Ret. Eligible

43% Ret. Eligible

33% Ret. Eligible

41% Ret. Eligible

MERCER WEBCAST

Building a career rewards strategyClient: Global hospitality company

15February 13, 2014

Challenge• LTI at IPO; no benefit changes.

• GMs drive results, but no LTI.

• Global leveling project discoveredwide discrepancies in total rewards.

Approach• Global custom industry survey on LTI

and retirement practices.

• “Total rewards” approach tobenchmarking.

• Design recommendations.

Results• Globally-consistent LTI eligibility.

• Flexible LTI ranges with performance criteria.

• International pension plan limited to globally mobile; others migrated to local plans.

• Benefit formulas simplified to reflect level more than tenure.

Global Talent CareerComp Data Engage

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Supporting post-acquisition integration effortsClient: Diversified product & service provider

16February 13, 2014

Challenge• Strategic acquisition.

• Inconsistencies in titling, pay, andbenefits.

• Broad integration challenges.

Approach• Stakeholder interviews across business.

• Job evaluation using Mercermethodology.

• Global benchmarking across industries.

Results• Agreed upon global rewards philosophy.• Executive leveling, titling, and pay structures based on objective criteria.

• Enhanced clarity around future leadership requirements.• New insights into organizational design.

Global Talent CareerComp Data Engage

MERCER WEBCAST

Executive leveling, title and pay structure development

Executive Working TitleIPE Position

ClassMkt 50 Base

SalaryMkt 50

Bonus %CEO 76 993 100%President, BU 1 71 554 70%President, BU 2 69 496 65%CFO 67 502 68%President, BU 3 67 441 63%General Counsel 66 424 50%CTO 66 361 52%CMO 66 352 53%CHRO 66 344 48%President, BU 4 65 433 63%VP, BU 1, Large Division 65 275 42%SVP, BU 2 Large Region 64 297 44%MD, BU 2 Large Region 64 286 38%VP, Product Solutions 63 341 40%VP, BU 1 CFO 63 293 42%VP, BU 1, Med Division 63 248 42%VP, Rewards & HR Ops 63 230 34%SVP, BU 2 Supply Chain 63 224 33%SVP, BU 3Mftg Ops 62 292 38%VP, CIO BU 2 62 282 35%SVP, COO BU 1 62 280 36%VP, Channel Mgmt BU 1 61 213 28%VP, Technology BU 4 61 205 37%VP, Ops BU 2 60 237 32%SVP, Bus Dev BU 1 59 201 34%VP, IT Architecture 58 228 29%VP, Cust Service BU1 58 180 26%VP, Business Services BU 1 58 167 34%VP, Reg. Mftg Ops BU 3 58 167 27%

17

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Responding holistically to say-on-pay resultsClient: Global pharmaceutical company

18February 13, 2014

Challenge• Say-on-pay failure.

• Complex executive compensationand benefits programs.

• Text-heavy disclosures.

Approach• “Total rewards” approach to

benchmarking.

• Adoption of governance best practices.

• Proxy redesigned with help ofcommunication experts.

Results• Strengthened pay-for-performance story.

• Engaged shareholders through clear disclosures and targeted outreach.

• Increased favorable say-on-pay vote.

• Greater collaboration between the committee and management.

Global Talent CareerComp Data Engage

WRAP UP

MERCER WEBCAST 20February 13, 2014

How to start?

• Evolve your role to keep ahead of the shift to “HR committee”– Identify collaboration opportunities.– Gain access to more and different information / data sets.– Analyze situations and recommendations from multiple perspectives.

• Don’t succumb to data overload– Focus on telling the story, not regurgitating facts.– Identify the “critical few” metrics that are key to your business.

• Build judgment into the process– Pace analyses and committee agendas appropriately.– Give stakeholders multiple opportunities to provide input and surface

potential problems.– Allocate time to cross-pollinate information and build context.

• Establish guide posts– Clarify governance model and articulate guiding principles – and repeat!

MERCER WEBCAST 21February 13, 2014

Questions

QUESTIONSPlease type your questions in the Q&A section of the toolbar and we willdo our best to answer as many questions as we have time for.

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FEEDBACKPlease take the time to fill out the feedbackform at the end of this webcast so we cancontinue to improve. The feedback form willpop-up in a new window when the sessionends.

NEXT WEBCAST: EXECUTIVE REWARDS GLOBAL TRENDS 2014On March 19th hear about executive compensation trends from around the world. Register for this freeevent at www.mercer.com/webcasts

Gregg PassinNew York

Jennifer ShenkerSan Francisco

Teresa BayewitzNew York

Peter SchlothPhiladelphia

Andre RooksChicago

Janet DenUylNew York