Compensation Solutions For a Bad Economy

Compensation Solutions For a Bad Economy
22 Today’s Presenter: Ken Gibson SeniorVice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite 207 ⬧ Lake Forest, CA 92630 ⬧ 949-852-2288 www.VLadvisors.com ⬧ www.PhantomStock.com
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 panel Webinar Q: Are the slides available? A: Yes, more info will be provided at the end
55 Take advantage of a one-half hour consulting call with a VisionLink principal at no charge. Indicate interest on final survey. Consultation Offer & Survey Request a copy of our slides and complimentary consultation. We value your input.
66 Post Webinar Intro 5 Minutes:  Who We Are  What We Do  How We Do It
77 23201 Lake Center Drive, Suite 207 Lake Forest, CA 92630 (888) 703 0080 www.vladvisors.com www.phantomstock.com www.bonusright.com  Headquartered in Lake Forest, CA  Founded in 1996  Over 600 clients throughout North America
88 Questions  What is the role of incentives in a bad economy?  How can you lower expenses but still reward performance?  What kind of pay strategy encourages value creation?  Should your compensation philosophy differ now from when times were good?  What kind of employee performance should be rewarded and how?  How do you make sure your pay approach is agile but also stable?  What is the least “expensive” way to compensate your people in this environment?
99 Overriding Aim Survive to Thrive
1010 VisionLink’s Survey of Business Community Profile  March 31, 2020  Clients & “Friends” of VisionLink  100 respondents  $10 million-$1 billion annual revenue  10-1,500 employees  Private companies
1111 Survey Highlights  44% indicated the economic condition has “hurt us a little,” while 46% have recognized a “significant negative impact.”  88% of participants feel their companies will emerge intact from the economic crisis. Only 1% feels the crisis threatens the survival of their businesses.  72% of the companies surveyed have not yet laid off any employees; 14% have laid off more than 20%, with the remaining 14% in between.  54% of respondents are retooling parts of their business model while 32% are “doubling down” on their current model. Only 4% feel they need to significantly alter their strategy to “weather the current storm.”  87% of company leaders are optimistic about the future of their enterprises even though their businesses have experienced some short-term loss.  The primary reason given for optimism was an overall faith in the U.S. economy and their company’s abilities to survive (53%), followed by 27% attributing their confidence to their ability to innovate.
1212 WSJ Editorial The Economy Will Survive the Coronavirus Don’t despair. Even amid the doom and gloom there are many things to be glad about. By Vernon L. Smith April 5, 2020 12:16 pm ET Once the pandemic passes and we go back to work, the country will recover quickly. The economy will reach new levels of prosperity…Don’t despair. This economic crisis will pass, and pass quickly, once the clampdown is lifted; especially if the financial shock is reduced by fiscal and monetary relief. (Mr. Smith is a professor at Chapman University and the 2002 Nobel Laureate in Economics.)
1313 In the Meantime… Let’s Talk about a Survive toThrive Pay Strategy
1414 Compensation Solution “Tool Kit” 1. Define the “Job” of Compensation 2. Re-Examine Your Rewards Philosophy 3. Emphasize Value Creation 4. Assess & Adjust Current Commitments 5. Think Outside the Box 6. Create Structured Flexibility
1515 1. DEFINE THE JOB OF COMPENSATION What are the outcomes compensation needs to help the company produce right now?
1616 Identify Compensation’s Job “When we buy a product, we essentially ‘hire’ something to get a job done. If it does the job well, when we are confronted with the same job, we hire that same product again. And if the product does a crummy job, we ‘fire’ it and look around for something else we might hire to solve the problem.” (Clayton Christensen, Theory of Jobs to be Done, Harvard Business School, Working Knowledge, Dina Gerdeman, October 3, 2016)
1717 Broader Application What if we applied this theory to all of the processes and systems we use in an organization including compensation?
1818 Ken Questions 1. What “job” does your compensation plan need to do for you right now? 2. What pay strategy is best suited to that “job? ”
1919 Key Outcomes Examples of outcomes your compensation strategy should be helping your achieve right now:  Create a focus on value creation.  Lessen fixed commitments.  Tie earnings to results.  Reinforce priorities.  Accelerate and reward innovation.  Create growth partners.  Build cost consciousness.  Create a unified financial vision for surviving then thriving.
2020 Start with Your Performance Framework Business Framework Talent Framework Compensation Framework
2121 Business Framework Phase One  Define Growth Expectations (Vision) ▪ Key outcomes that must be achieved  Define Business Model and Strategy ▪ Performance Engine ▪ How the company will compete ▪ Where are growth opportunities?  Identify Roles and Expectations ▪ Establish Performance Criteria ▪ Define “Success” Business Framework
2222 Compensation Framework Phase Two  Establish a pay philosophy ▪ Expansive vs. Selective—or Hybrid ▪ Define what the company is willing to pay for  Engineer a pay strategy ▪ Structure ▪ Mindset  Adopt a “Total Rewards” Approach Compensation Framework
2323 Talent Framework Phase Three  Identify Key Producers ▪ Meeting “success” standards  Identify Talent “Gaps” ▪ Recruiting Strategy  Communicate Expectations ▪ Define success  Communicate Rewards ▪ Philosophy ▪ Programs ▪ Value Statement Talent Framework
2424 2. RE-EXAMINE YOUR REWARDS PHILOSOPHY In the current environment, what should be rewarded and how? How should your philosophy differ now than during prosperous times?
2525 Compensation Philosophy Statement  How value creation is currently defined.  How value is currently shared— and with whom.  How market pay standards currently apply.  How guaranteed pay and value- sharing will be currently balanced.  How short and long-term value- sharing will be currently balanced.  How merit pay is currently defined.
2626 Key Areas to Focus On  Explore and refine “emergency” principles.  Determine priorities for cash and non-cash compensation, as well as benefits.
2727 Then What?  Put it in writing.  Refer to it frequently.  Communicate it…soon!  Emphasize what will be rewarded.  Create a sense of partnership.  Market the future.
2828 3. EMPHASIZE VALUE CREATION How will you define value creation for your business? How and with whom will value be shared? What measures will determine value- sharing?
2929 Case Study 29
3030 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.’ ” 30
3131 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
3232 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. 32
3333 The Value of Profit Wealth Multiplier Profits Secure Business Reward Employee Results Protect Shareholders
3434 A Sense of Partnership Leads to a Growth Multiple The Value of Profit Wealth Multiplier Profits Protect Shareholders Secure Business Reward Employee Results
3535 4. ASSESS & ADJUST CURRENT COMMITMENTS How will you handle incentive plans that are active but based on goals that are no longer relevant?
3636 Option: Restart  Revise goals  Set new starting and ending dates
3737 Option: Revise  Be transparent  Transition from fixed to discretionary plan  Wait and see approach
3838 Option: Substitute  Pause all short-term commitments  Set new results expectations  Emphasize long-term plans
3939 Option: Good Faith Expression  Executives forgo payouts for 2020  Strong message for lay-off situations  Combine with long-term plan substitute
4040 5. THINK OUTSIDE THE BOX What non-traditional strategies might help you “survive to thrive?”
4141 Criteria for “Outside the Box” Pay Strategies  Must be flexible  Must drive value creation (wealth multiplier philosophy)  Must minimize guarantees ▪ Share the risk  Must provide “upside” potential  Must promote and reinforce innovation
4242 Examples  Performance Agreements  Opt-In Plans  Long-Term Value Sharing Plans
4343 Performance Agreement  Typically done for executive or high-level management  Participants excluded from company’s incentive plans  Annual “deal” negotiated with CEO or other primary business leader  Deal memorialized on a “deal sheet” ▪ Defines financial, operational & leadership expectations ▪ Defines value of the award that could be generated  Quarterly self-evaluation against performance expectations with primary business leader
4444 Performance Agreement Outcomes:  Threshold for compensable performance is very high ▪ Small or even $0 payouts can occur  High-risk, high-reward—high upside  Self-evaluations create a mentoring environment  High performers think and feel like owners in the company’s success
4545 Opt-In Plans Most Ideal in Small Company or Start- Up Environment  Opt for: ▪ “Higher” salary plus modest incentives ▪ “Low” or no salary and high upside through short and long-term value sharing  Opt-In payments tied to a revenue or profit-sharing formula  Volatility: payments lowered &/or deferred ▪ Deferred payouts made when economics permit  Opt-In periods may differ ▪ Quarterly, semi-annual, annual
4646 Opt-In Plans Outcomes  Owners can limit guaranteed payouts  Employees have options  Highly flexible—can adjust to rapidly & frequently changing economics  Provides a “shared” entrepreneurial experience  Promotes an ownership mindset  “Self-identifies” key performers
4747 Long-Term Value-Sharing Plans Broad Application  Used in any size organization  Can be used with any of the previous approaches  Creates “wealth multiplier” mindset  Ties employees to vision and business plan of the company
4848 Long-Term Value-Sharing Plans Outcomes  No current cash flow impact  Emphasizes sustained performance  Provides alternative to short- term incentive plans (in weak economy)  Instills a sense of partnership
4949 9 Long-Term Value-Sharing Plans Stock Option Performance Shares Restricted Stock Phantom Stock Option Performance Phantom Stock Phantom Stock Profit Pool Performance Unit Strategic Deferred Compensation
5050 Grant Equity or Not Equity? Full Value or Appreciation Only? Yes Appreciation Stock Option Full Value Performance Based? Yes Performance Shares No Restricted Stock No 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 Stock Financial Performance Appreciation- Performance Based or Employee Directed? Performance Based Reward for Profit/Cash Flow or Other Metrics? Profits Allocation or Objectives Based? Allocation Profit Pool ObjectivesOther Metrics Performance Unit Employee Directed Strategic Deferred Compensation
5151 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
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
5353 Performance Unit Plan  Employees given award units (PUPs) with a current value  Units redeemable in a future year (3 years most common)  Payment is made in cash at the end of the period  The value of the PUP at redemption will depend on improvement in 2 (or 3) performance metrics  New PUP cycle starts each year, thus ultimately resulting in an annual payout
5454 6. CREATE STRUCTURED FLEXIBILITY How can you make sure your pay strategy is agile enough to address current conditions but enduring enough to be relevant when the economy rebounds?
5555 The Need for Pay Agility Compensation Solution Create a rewards strategy that is flexible and combine it with an operational structure that is enduring.
5656 Flexible but Enduring  Look at compensation strategy as you would an investment portfolio.  Individual pay components are your “asset classes.”  As things change, adjust weighting of each asset class.
5757 Develop a Balanced Approach The role of each pay component in relation to others within the comprehensive compensation strategy is coordinated and clear— and reflects the company’s pay philosophy.
5858 Eight Components of Pay Benefits  Core benefits  Executive benefits  Qualified retirement plans  Supplemental retirement plans Compensation  Salary  Performance incentives  Sales incentives  Growth incentives Incentives should be in the form of value sharing.
5959 Salary Performance Incentives Sales Incentives Growth Incentives Core Health & Welfare Plans Executive Benefit Plans Qualified Retirement Plans Nonqualified Retirement Plans Salaries Competitive with market standards? Tied to strong performance management process (merit)? Managed within a flexible but effective structure? Performance Incentives Tied to productivity gains? Clear, achievable and meaningful? Self-financing? Sales Incentives Challenging yet achievable? Reinforcing the right behaviors? Differentiating your offering? Growth Incentives Linked to a compelling future? Supporting an ownership mentality? Securing premier talent? Core Benefits Responsive to today’s employee marketplace? Allocating resources where most needed? Evaluated to eliminate unnecessary expense? Executive Benefits Flexible enough to address varying circumstances? Communicating a unique relationship? Reducing employee tax expense? Qualified Retirement Plans Giving employees an opportunity to optimize retirement values? Operated with comprehensive fiduciary accountability? Avoiding conflicts and minimizing expenses? Nonqualified Retirement Plans Optimizing tax-deferral opportunities? Aligning long-term interests of employees with shareholders? Structured to receive best possible P&L impact? An Aligned Compensation Strategy
6060 Build a Total Compensation Structure A total compensation structure gives you a comprehensive view of all compensation and benefit plans and ensures operational integrity.
6161 The Total Compensation Structure Min Mid Max 1 203,531 271,375 339,219 50.0% 100% 50% 50% 5% Yes 5% $11,141 Unlimited Unlimited 15,000 20,000 2 150,078 200,103 250,129 35.0% 75% 50% 50% 5% Yes 5% $11,141 Unlimited Unlimited 10,000 12,500 3 119,497 159,329 199,161 25.0% 50% 100% 0% 5% Yes 5% $11,141 25 5 5,000 8,000 4 102,632 136,843 171,054 20.0% 25% 100% 0% 5% $6,127 25 5 5,000 5 81,293 101,616 121,940 15.0% 5% $6,127 25 5 5,000 6 69,720 87,150 104,580 15.0% 5% $6,127 15 5 7 58,564 73,205 87,846 10.0% 5% $6,127 15 5 8 50,176 62,720 75,264 10.0% 5% $6,127 15 5 9 44,038 51,809 59,580 5.0% 5% $6,127 15 5 10 37,211 43,777 50,344 5.0% 5% $6,127 10 5 11 30,784 36,217 41,649 5.0% 5% $6,127 10 5 12 23,562 27,720 31,878 5.0% 5% $6,127 10 5 13 19,529 22,975 26,421 0.0% 5% $6,127 10 5 14 17,354 20,417 23,479 0.0% 5% $6,127 10 5 Annual Car Allow Grade/ Band Sick Days Salary Range Bonus Target LTIP Target Financial Planning Perk Deferred Comp Elegible Deferred Comp Max Match 401k Match Max % Vacation Days % Phantom Stock FV % Phantom Stock AO Health, Dental, Life
6262 Finding the Right Balance Total Compensation Structure Name Title/Position Tier Salary Short-term Incentive Target Long-term Incentive Target Total Direct Comp H&W Annual Value QRP Annual Value Security Plans Annual Value Total Indirect Comp TRI Jason Smith CEO 1 $ 300,000 $ 120,000 $ - $ 420,000 $ 18,200 $ 8,000 $ - $ 26,200 $ 446,200 Lucy Jones VP Marketing 2 $ 210,000 $ 45,000 $ - $ 255,000 $ 16,200 $ 7,000 $ - $ 23,200 $ 278,200 Rick Miller VP Sales 2 $ 160,000 $ 85,000 $ - $ 245,000 $ 9,200 $ 6,000 $ - $ 15,200 $ 260,200 Janice Johnson CFO 2 $ 195,000 $ 40,000 $ - $ 235,000 $ 10,200 $ 5,000 $ - $ 15,200 $ 250,200 Maria York Director 3 $ 160,000 $ 10,000 $ - $ 170,000 $ 12,200 $ 4,000 $ - $ 16,200 $ 186,200 Frank North Director 3 $ 150,000 $ 10,000 $ - $ 160,000 $ 11,200 $ 3,000 $ - $ 14,200 $ 174,200 Ricardo South Director 3 $ 140,000 $ 10,000 $ - $ 150,000 $ 7,700 $ 2,000 $ - $ 9,700 $ 59,700 Simon Lewis Director 3 $ 130,000 $ 10,000 $ - $ 140,000 $ 8,700 $ 2,500 $ - $ 11,200 $ 151,200 $ 1,445,000 $ 330,000 $ - $ 1,775,000 $ 93,600 $ 37,500 $ - $ 131,100 $ 1,906,100 Can we afford to make these payouts? Should we shift to a longer-term plan?
6363 What is the Right Allocation? Total Rewards Investment (TRI) Allocation TRI looks at each component of pay as a percentage of the total Name Tier Salary STI% LTI% H&W% QRP% SP% TRI Jason Smith 1 67.2% 26.9% 0.0% 4.1% 1.8% 0.0% $ 446,200 Lucy Jones 2 75.5% 21.4% 0.0% 7.7% 3.3% 0.0% $ 278,200 Rick Miller 2 61.5% 53.1% 0.0% 5.8% 3.8% 0.0% $ 260,200 Janice Johnson 2 77.9% 20.5% 0.0% 5.2% 2.6% 0.0% $ 250,200 Maria York 3 85.9% 6.3% 0.0% 7.6% 2.5% 0.0% $ 186,200 Frank North 3 86.1% 6.7% 0.0% 7.5% 2.0% 0.0% $ 174,200 Ricardo South 3 87.7% 7.1% 0.0% 5.5% 1.4% 0.0% $ 159,700 Simon Lewis 3 86.0% 7.7% 0.0% 6.7% 1.9% 0.0% $ 151,200 Salary STI% LTI% H&W% QRP% SI%
6464 Offering Options Sample Position Salary Short-Term Value Sharing Long-Term Value Sharing Total Option A $120,000 $0 $0 $120,000 Option B $100,000 $20,000 $30,000 $150,000 Option C $80,000 $40,000 $80,000 $200,000 Codified via a simple employment agreement
6565 Market a Future Build a Sense of Partnership
6666 Focus on the 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.
6767 Employee Value Statement Year 1 2 3 4 5 Targeted Results 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 Wealth Accrual $17,120 $110,123 $243,169 $391,428 $554,086 Total Value $241,120 $567,083 $942,407 $1,342,636 $1,767,343
6868 Compensation Solution “Tool Kit” 1. Define the “Job” of Compensation 2. Re-Examine Your Rewards Philosophy 3. Emphasize Value Creation 4. Assess & Adjust Current Commitments 5. Think Outside the Box 6. Create Structured Flexibility
7070 Take advantage of a one-half hour consulting call with a VisionLink principal 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.
7171 www.BonusRight.com www.bonusright.com
7272  New SaaS tool  Build and manage your bonus plan online.  Indicate on survey if you would like to schedule a demo.
7373 www.phantomstock.com www.vladvisors.com Subscribe to our blog!
7474 Special Offer How to Create an Incentive Plan that Pays for Itself Request your copy on the final survey.
7575 Q&A
7676 Today’s Presenter: Ken Gibson SeniorVice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite 207 ⬧ Lake Forest, CA 92630 ⬧ 949-852-2288 www.VLadvisors.com ⬧ www.PhantomStock.com ThankYou!
7878
7979
VisionLink’s Focus: Help Business Leaders Build and Sustain a High Performance Culture Accelerate performance through pay strategies that transform employees into growth partners.
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.
8282 Today’s Presenter: Ken Gibson SeniorVice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite 207 ⬧ Lake Forest, CA 92630 ⬧ 949-852-2288 www.VLadvisors.com ⬧ www.PhantomStock.com ThankYou!

Check these out next

Compensation Solutions For a Bad Economy

Recommandé

Contenu connexe

Présentations pour vous(20)

Similaire à Compensation Solutions For a Bad Economy(16)

Dernier(20)

Compensation Solutions For a Bad Economy