mercer webcast a new way to manage executive pay: … · 2020-03-01 · mercer webcast february 13,...

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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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


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.


Yet many compensation committees are focused on risk mitigation

Reversionto theMean

ShareholderAdvisoryGroup

Standards

IndustryBenchmarking

Legal &Regulatory

RequirementsBusiness andTalent Context


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


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


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

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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


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.


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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

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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.


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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.


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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.


WRAP UP


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!


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.

To submit a question while in full screen mode, use the Q&A button, onthe floating panel, on the top of your screen.

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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

mercer webcast a new way to manage executive pay: … · 2020-03-01 · mercer webcast february 13,...

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