retention strategies during difficult economic...
Post on 25-Mar-2020
6 Views
Preview:
TRANSCRIPT
Retention strategies during difficult economic conditions Results from a new Deloitte Survey
About the surveyThis survey was conducted in September 2008 and closed at the end of the month. At that time, the market was down 25% year to date. The survey generated 151 responses from companies of all sizes in all industries. See the demographic information about our participants at the end of this report.
Retention Strategies duringDifficult Economic Conditions
1
The Challenges Many companies are currently facing particular challenges retaining their valued employees:
•Long-termincentivesmayhavelostvalueduetothedeclining stock market
•Commoditypriceshaveloweredcompanyprofitability,reducing the potential for payouts from annual incentive plans
•Consumersarepurchasingfewerproductsandservices,reducingopportunitiesforcompanygrowth
Thesecompaniesaresearchingforwaystohelptheiremployeesfeelvaluedandmotivatedwhilestilladheringtotheirexistingcompensation philosophies and principles. Deloitte’s survey wasdesignedtocapturewayscompaniesareapproachingthisproblem.Over150companiesresponded.
How are companies faring?Atthetimethisreportisbeingwritten,thestockmarketisdown25%ormoreoverthepasttwelvemonths.Thecompaniesparticipatinginthissurveyhavebeensimilarlyhardhit–overone-halftoldustheircompany’sstockisdown10%ormore.Only20%ofcompanieshavemanagedtoseeanincreaseintheir stock price this year. (See Figure 1)
Companyearningshavealsobeenhit,butnotnearlyasbadlyasstocks.Nearlyone-thirdofcompanieshaveseenanincreaseintheirearningspershare(EPS)overthepasttwelvemonths.However,47%haveseentheirearningsdecline,including27%whohaveseenadecreaseinexcessof ten percent. (See Figure 2)
Asusedinthisdocument,“Deloitte”meansDeloitteConsultingLLP,asubsidiaryofDeloitteLLP.Pleasesee www.deloitte.com/us/aboutforadetaileddescriptionofthelegalstructureofDeloitteLLPanditssubsidiaries.
Figure 1. How has your company’s stock price changed over the past 12 months?
5%
14%
10%
7%
3%
18%
7%
38%
Up 10% or more
Up 5% – 10%
Up 0% – 5%
Unchanged
Down 0% – 5%
Down 5% – 10%
Down 10% – 20%
Down 20% or more
Figure 2. What has been the effect of recent economic conditions on your company’s earnings per share (EPS) over the past 12 months?
11%
10%
13%
6%
13%
22%
9%
17%
Up 10% or more
Up 5% – 10%
Up 0% – 5%
Unchanged
Down 0% – 5%
Down 5% – 10%
Down 10% – 20%
Down 20% or more
Retention Strategies duringDifficult Economic Conditions
2
Compensation plans are being hitTakentogether,decreasedearningsandafallingstockpricewilldestroythevalueinmostcompanies’annualincentiveandlong-termincentiveplans.While41%ofcompaniesexpecttheirannualincentiveplanstopayoutatorabovetarget,fully58%expectapayoutbelowtarget.Elevenpercentofcompaniesbelievethattheircurrentannualincentiveplanwillnotyieldabonusatallthisyear.(SeeFigure3)
Amongthosecompaniesofferingstockoptions,thenewsisalsodismal.Sixty-threepercentofcompaniesreportthatallormostoftheirstockoptionsgrantedwithinthepastfiveyearsarecurrently“underwater”(i.e.,theexercisepriceisabovethecurrentstockprice.)(SeeFigure4)Employeeswillneedtoseeasignificantriseintheircompany’sstockpricebeforetheirstockoptionswillhaveanyvalueatall.
Figure 3. Based on your company’s current performance, at what level are your company’s annual incentive plans likely to pay out for the current fiscal year?
21%
4%10%
27%
27%
10%
Significantly above target (>125% of target)
Some what above target (105% – 125% of target)
At target (95% – 105% of target)
Some what below target (75% – 95% of target)
Significantly below target (<75% of target)
Zero payout
Retention Strategies duringDifficult Economic Conditions
3
How are companies reacting?Companiesareclearlyfeelingtheneedtotakestepstoretaintheirvaluedemployeesduringthisdifficulttime.Approximately40%ofthecompaniesrespondingtooursurveyhavealreadyimplementedaretentionprogram;anotherone-thirdofcompaniesaretakinga“waitandsee”approach.Only27% of companies told us they currently have no plans to adopt anyretentionprograms.(SeeFigure5)
Ifacompanydoesnotplantoimplementaretentionprogram,whataretheirreasons?Themajorityofthesecompaniestoldusthatretentionhasn’tbeenanissuefortheminthiseconomy.Perhapsthey’reinanindustrythathasseenalotofjoblossesandemployeesareholdingontothejobstheyhave.Othercompaniesforeseeapossibledownsizinginthenearfuture,soimplementinga retention program doesn’t currently make sense. The position ofmanyofthesecompaniescanbesummedupinthecommentsmadebyoneparticipant,whotoldus,“Retentionhasn’tbeenaproblemforusyet,butwearewatching.Affordabilityisalimitingfactorifwedoneedtodosomething.”(SeeFigure6)
Figure 4. What percent of your stock option grants made within the past five years are currently “underwater”?
23%19%
7%
11%
40%
None
Less than 25%
25% – 50%
50% – 99%
100% (All)
Figure 6. If your company has no plans to implement a retention program, what is your primary reason?
3%
8%
68%
13%
10%
Retention hasn’t been an issue for us
We may need to down size
We can’t afford it
Shareholders reaction
Other
Figure 5. Has your company implemented any retention programs for your employees?
Yes, for senior executives
Yes, for middle managers and above
Yes, for certain business units
Yes, for all employees
Not yet, but we might depending on conditions
No, we have no plans to do so
0%
5%
10%
15%
20%
25%
30%
35%
18%19%
17%
7%
33%
27%
Retention Strategies duringDifficult Economic Conditions
4
Companiesthathavetakenactionfeelcompelledtostemthetideoflowemployeemoraleandtheresultinghighturnover.Manycompaniesfeelvulnerabletothepressurefromothercompaniescompetinginthewarfortalent.(SeeFigure7)
Theretentionprogramscurrentlybeingimplementedbythesecompanieswilltakemanyforms.Manycompaniesarehesitantto“changetherulesofthegame”inthemiddleofaperformanceperiod(eitherannualorlong-term).Themostprevalentresponsewastocreateastand-aloneretentionprogramfortheexecutiveandemployeegroupsthesecompaniesaremostconcernedaboutretaining.(SeeFigure8)
Changing the current plansThevastmajorityofcompanies(78%)arenotplanningtochangethis year’s annual incentive plan midstream. The companies that arewillingtomakemodificationsaretakingavaried,sometimeshighlyindividualizedapproach:
•Somewillmodifytheperformancetargetsbutkeepthesameperformancemeasures(6%),liketheparticipantwhotoldus,“wewilladjusttargetsbasedoninflationarypressuresincertainglobalregions.”
•Otherswillchangetheperformancemeasuresused (e.g.6%ofrespondentsindicatedachangefromrevenue/profitmeasurestostrategic/operational/individualgoals)
•Afew(3%)willcreateanewplanforthesecondhalfoftheyear.Oneparticipant“mayofferspecial2nd-halfplansforcertaingroupsonly.”Anothercompany“didamid-yearpayout.WechangedthepercentofbonustiedtoEBITDAsoitwasmorelucrativeforemployees.Manydivisionsdidnotreachgoal.”
Figure 7. What factors influenced your company’s decision to implement a retention program?
Peer company practices
Board of Director concerns
Shareholder reactions
Public/customer reactions
Other*
39%
26%
*Includes employee morale, turnover, management concerns, etc.
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
7%8%
33%
Figure 8. What form will your company’s retention program(s) take?
Modify the current AIP to improve the payout
Modify next year’s AIP to improve payout
Modify the LTI to improve the payout
Create a stand-alone retention program
Other
0%
5%
10%
15%
20%
25%
30%
35%
14%15%
26%
32%
5%
Retention Strategies duringDifficult Economic Conditions
5
•Stillfewer(2%)willadjustforunbudgetedexpenseincreases due to higher commodity prices.
•Anumberofcompanies(8%)couldnotcategorizetheirapproachduetotheindividualizednatureoftheirchanges.Oneparticipantsaid,“Wemayfundindividualbusinessunitsbasedontheirownperformance,andspecialpaymentsforhigh-performingindividuals.”Anothercompanycreateda“specialretention/incentiveprogramforafewkeyindividualsmostatrisk.”
Evenfewercompaniesarewillingtomakechangestotheircurrentstockoptionorlong-termperformanceplans.Oursurveyfoundthatfewerthan5%ofcompanies,ifany,companiesareplanninganyofthefollowingchanges:
•Re-pricingcurrentstockoptiongrants•Cancelingandre-issuingcurrentlyoutstandingoptionsoneithera1-for-1oravaluebasis
•Acceleratingfutureoptiongrants•Adjustingeithertheperformancetargetsormeasuresof
performance plans currently in cycle
Changes for next yearWhilecurrentincentiveplansarelikelytoremainstaticformostcompanies,changeswillbecomingin2009tohelpreassureemployeesthattheirbonusopportunityisworthstrivingforandhasarealisticpossibilityofpayment.Forexample,overone-half(53%)ofcompaniesareplanningtoadjustnextyear’sannualincentiveplansduetocurrenteconomicconditions,includingone-thirdofcompaniesthatwillmodifytheperformancetargetswhilekeepingthesameperformancemeasures.Another14%willactuallychangetheperformancemeasures,suchasincludingmorestrategic,operationalorindividualgoals.Similarly,anoticeablenumberofcompanieswithperformanceplans(19%)willmodifytheperformancetargets for upcoming plan cycles.
Stand-alone plansInkeepingwiththehighlyindividualizednatureoftheplannedretentionprograms,manycompanies(22%)willcreateastand-alonebonuspoolfor2008.Thesepoolsallowcompaniestheflexibilitytorewardemployeesandbusinessunitsthathaveshownexceptionalperformance,despitethecurrent economic environment. Most companies are keeping thepoolrelativelysmall,fundingitwith25%orlessoftheannualincentivepooltargetawards.(SeeFigure9)
Figure 9. What is the size of your discretionary bonus pool (as a percent of the annual incentive plan target award)?
4%
14%
62%12%
8%
Up to 25%
26%-50%
51%-75%
More than 75%
Other
Retention Strategies duringDifficult Economic Conditions
6
Mostofthecompanies(79%)thatarecreatingdiscretionarybonuspoolswillpayawardsincash,whiletheremainderwillpayawardsinbothcashandstock.Individualperformancewilldeterminepayoutsformostcompanies,althoughothermethodswillalsobeused.(SeeFigure10)
Aslightlysmallerpercentageofcompanies(18%)plantocreateastand-alonelongertermincentiveplan.Likethediscretionaryplans,mostwillpayawardsincash,althoughsomewillusestockorrestrictedstockunits.Theseplanswillspantwotofiveyears.Theyaretypicallyhighlytargetedtokeyexecutiveoremployeegroupsdeemedtobeatparticularriskofleavingtheirrespectivecompanies.Someplansspecificallyexcludeseniorexecutivesandfocusonmid-levelmanagersorhighlyspecializedfunctions,suchasIT.
Figure 10. How will you determine payments of awards from the discretionary pool?
Company performance relative to a peer group
Company performance relative to interim goals
Achievement of strategic or operational milestones
Individual performance
Other
11%
29%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
79%
36%
11%
Retention Strategies duringDifficult Economic Conditions
7
Other plansWhatelseisunderconsideration?Veryfewcompaniesplanonmakingmodificationstotheirexistingdeferredcompensationplan,suchassuspendingfuturedeferrals,fundingbenefitsinaseculartrust,orterminatingtheplananddistributingbalances.Asmallnumberofcompanies(6%)willallowparticipantstomodifyexistingdistributionelectionspriortoyearendasallowedundertheSection409Atransitionrules.
Similarly,veryfewcompaniesplantoimplementanewornewly-modifiedseveranceplan.Fewerthan14%ofcompanieshave adopted or changed their severance plan in response tocurrenteconomicconditions.Amongthefewcompaniesthathave,anearlyequalnumberhavemadechangesjustforexecutivesashavemadechangesforallemployees.
Companiesarewiselytryingtoeasethestrainonemployeesbyimprovingtheirworkenvironment.Manycompaniesareimplementingorexpandingworkforceprogramsthataredesignedtomakebalancingworkandfamilyeasier.Theseincludeflexibleworkschedules,telecommutingandcompressedworkweeks.(SeeFigure11)Whiletheseprogramswon’tputdollarsinemployees’pockets,theycangoalongwaytowardhelpingemployeesviewtheircompanymorefavorably,makingthemlesslikelytoleave.
Figure 11. Has your company considered implementing or expanding any other workforce programs to help retain employees?
Flexible work schedules
Telecommuting
Compressed work weeks
Part-time work
Subsidies for commuting costs
Paid leaves of absence/sabbaticals
Other
None of these
59%
46%
0%
10%
20%
30%
40%
50%
60%
70%
26%
34%
10%7%
29%
3%
Figure 12. What is your company’s primary industry?
4%
3%
3%
9%
12%
11%
11%
9%7%
6%
12%
5%
5%
4%
High Technology
Manufacturing
Business Service and Consulting
Financial Services
Trade – Wholesale/Retail
Insurance
Health Care and Pharma/Life Sciences
Real Estate/Architecture/Engineering/Construction
Telecommunications/Media
Aerospace/Defense and Automotive
Utilities
Consumer Products
Transportation
Other
Retention Strategies duringDifficult Economic Conditions
8
Figure 13. What is your company’s revenue during the most recent fiscal year?
12%
8%
13%
10%
28%
6%
24%
Less than $100 million
$100 – $500 million
$500 million – $1 billion
$1 – $5 billion
$5 – $10 billion
$10 – $20 billion
Greater than $20 billion
Figure 14. Approximately how many employees does your company have?
7%
13%
26%
7%
17%
30%
Fewer than 500
500 – 1,000
1,000 – 2,500
2,500 – 5,000
5,000 – 10,000
More than 10,000
Figure 15. Is your company:
33%
4% 3%
60%
Other
Publicly traded
Privately owned
Not for profit or government
For more information, please contact: Michael S. KesnerHumanCapital–TotalRewardsDeloitteConsultingLLPTel:+1-312-486-2555mkesner@deloitte.com
Memberof Deloitte Touche Tohmatsu
About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.
Copyright © 2008 Deloitte Development LLC. All rights reserved.
top related