CIO Roundtable 1012
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Transcript of CIO Roundtable 1012
CIO Breakfast Roundtable Compensation Trends Discussion
Ken Wechsler
Director; Southern California Market Leader
October 11, 2012
1
Topics for Today
> Key indicators
> Hiring and turnover trends
> Salary budgets
> Cash incentive plans
> Equity strategies and practices
> Questions and answers
Key Indicators
3
US Economic Forecasts
*Q2 2012 US Commerce Department, July 2012
**July 2012
Sources: United States Bureau Economic Analysis,
Congressional Budget Office and Bureau of Labor Statistics
> Overall economic growth remains sluggish: Q4 2011 growth rate 4.1%; Q1 2012 growth rate 2.0%; Q2 2012 growth rate only 1.5%
> The overall unemployment rate is dropping, but for those unemployed, they may stay unemployed longer
Category 2008 2009 2010 2011 2012
GDP Year-Over-Year -0.3% -3.5% 3.0% 1.7% 1.8%*
Unemployment % 5.8% 9.3% 9.6% 8.9% 8.3%**
4
Unemployment Rates
Source: United States Bureau of Labor Statistics
> Both California and San Diego County unemployment rates have been higher than the overall US rates for the last few years, yet they are clearly improving
12.0%
12.5%
11.7%
9.8% 9.7%
9.0%
10.3% 10.4%
10.4%
5.5%
6.5%
7.5%
8.5%
9.5%
10.5%
11.5%
12.5%
Ja
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Sep
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No
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2009 2010 2011 2012
California Overall United States San Diego
10.7%
9.3%
8.2%
Stock Price Recovery
5 Stock price performance relative to 7/31/2009
Source: Yahoo! Finance
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
DJI IXIC NBI
> The Dow Jones (DJI), NASDAQ (IXIC) and Biotech Indices (NBI) are close to 12-month highs
> Apple recently set a record for company value at $660B. Previous record was Microsoft at $621B in December 1999
Hiring and Turnover
7
Hiring Trends – Life Sciences and Technology
Method
Life Sciences Technology
San
Diego* Bay Area Overall
US
San
Diego* Bay Area Overall
US
Hiring Freeze
0% 1% 2% 3% 0% 2%
Very Selective Hiring
35% 35% 38% 36% 27% 30%
Normal Hiring
55% 43% 42% 46% 53% 51%
Aggressive Hiring
10% 21% 18% 15% 20% 17%
> San Diego companies are now in competitive talent wars, yet slightly less aggressive
*55% of life sciences and 49% of technology companies anticipate growing their
workforce over the next 12 months; conversely only 6% of life sciences
companies and 14% of technology firms expect their workforce to decrease in
size
Source: Radford Trends Report – Q2 2012
8
Turnover – April 2011- April 2012
10.1% 9.6% 9.5%
12.9%
11.3% 10.5%
4.4%
7.0% 6.9%
8.0%
5.9% 6.6%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
San Diego Bay Area Overall US San Diego Bay Area Overall US
Voluntary InvountaryLife Sciences Technology
17.2% 16.4% 16.6%
17.1%
Source: Radford Trends Report – Q2 2012
14.5%
20.9%
> Voluntary turnover is rapidly increasing, especially for the San Diego market
9
Silicon Valley Sees Growth in Jobs
> Current unemployment stands at 8.3%
> 2012 Silicon Valley Index found job growth far outpaced the country as a whole
- Regionally added 42,000 or nearly 4% compared to nationwide increase of 1%
> Key industries adding jobs include cloud computing, mobile devices, mobile apps, internet companies and social media
> Silicon Valley non-technology workers still feeling the pain of the economic collapse
Source: Associated Press 6/8/2012
Salary Budgets
11
2012 Overall Salary Increase Budgets
Method
San Diego Bay Area Overall US
Life
Sciences Tech
Life
Sciences Tech
Life
Sciences Tech
75th Percentile 4.0% 3.9% 4.0% 4.0% 4.0% 4.0%
50th Percentile 3.6% 3.0% 4.0% 3.4% 3.5% 3.0%
25th Percentile 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Average 3.8% 3.3% 3.7% 3.4% 3.6% 3.4%
> Budgets in life sciences historically (and still in 2012) run slightly ahead of technology
*Undiluted
Source: Radford Trends Report – Q2 2012
Cash Incentive Plans
Cash Incentives
13
Criteria Tech Life
Sciences
Companies Expecting to Pay Bonuses in 2012 96% 96%
% of Total Population Receiving Bonus
Payment (down around 10 percentage points) 64% 76%
Size of Payments Relative to Last Year Tech
Life
Sciences
Similar 67% 71%
Larger 18% 18%
Smaller 15% 11%
> Almost all participants are expecting to pay bonuses in 2012
Source: Radford Practices Reports 2012
14
Cash Incentives – Individual Payouts
Performance Rating % of Individual Target
Award Level
Top 10% 125% to 150%
Next 20% 110% to 125%
Middle 50% 75% to 100%
Bottom 10% No Awards Issued
Level
Life Sciences Technology
Company Individual Company Individual
CEO 85% 15% 80% 20%
Executives 70% 30% 75% 25%
Directors 55% 45% 60% 40%
All Other Employees 40% 60% 50% 50%
> Most companies emphasize both overall company and individual performance
based on the level within the organization when determining actual award
payouts
> Individual award segments should have enough differentiation to adequately
reward top performers
Source: Radford 2012 Overall Practices Report
Equity Strategies and Practices
16
Equity Vehicle Mix
> Technology companies have shifted to using more restricted stock in their annual equity programs, with general industry companies placing an even larger emphasis on restricted stock
Level
Market Equity Vehicle Mix – Ongoing Grants
Technology General Industry
Stock Options
Only
RSUs Only Both
Stock Options
Only
RSUs Only Both
Executive 20% 35% 45% 5% 60% 35%
Director 20% 50% 30% 5% 80% 15%
Manager 15% 80% 5% 5% 85% 10%
Senior IC 15% 80% 5% 1% 94% 5%
IC 4% 95% 1% 1% 94% 5%
Support 2% 97% 1% 1% 94% 5%
Source: Radford 2012 Global Long-Term Incentives Report
(Cal companies).
17
Grant Sizes
> Similar to base salaries, long-term incentive values are higher in the technology industry than in the general industry
Level
Ongoing Equity Grants - 50th Percentile
Technology General Industry
Value
As a % of Salary Value
As a % of Salary
Executive $585,000 175% $535,000 140%
Director $43,500 25% $27,000 18%
Manager $19,500 16% $10,000 10%
Senior IC $22,000 16% $12,500 10%
IC $9,000 10% $5,000 6%
Support $1,000 2.5% $3,000 5%
Source: Radford 2012 Global Long-Term Incentives Report
(Cal companies).
18
Equity Vesting
> The vesting schedules between technology and general industry are comparable with the majority having a 4-year vest
Level
Ongoing Vesting Schedule
Technology General Industry
Stock Options
> 5-year vest - 6%
> 4-year vest - 77%
> 3-year vest - 17%
> 5-year vest - 9%
> 4-year vest - 68%
> 3-year vest - 18%
Restricted Stock
> 5-year vest - 6%
> 4-year vest - 58%
> 3-year vest - 32%
> 5-year vest - 11%
> 4-year vest - 50%
> 3-year vest - 39%
Source: Radford 2012 Global Technology Practices Report
(Cal companies).
Equity Vehicle Prevalence – Technology
Source: 2012 Radford Global Long-Term Incentive Report
Position/Level
Percent of Employees Receiving Different Vehicles
Southern Calif. Bay Area
Options Only
RSUs Only Both
Options Only
RSUs Only Both
CEO 6% 44% 50% 17% 35% 48%
Senior Vice President 8% 50% 42% 16% 38% 46%
Vice President 9% 56% 35% 12% 42% 47%
Director 19% 77% 4% 13% 62% 25%
Manager 8% 88% 4% 8% 88% 4%
Senior Individual Contributor 1% 98% 1% 9% 89% 2%
Individual Contributor 2% 97% 1% 4% 95% 1%
> Companies located in Southern Calif. are utilizing RSUs more so than companies located in the Bay Area
> Additionally, as you move lower in the organization we see companies in both regions placing a higher emphasis on RSUs
19
Equity Vehicle Mix – Technology
Position/Level
Value Delivered via Each Vehicle (Average Mix)
Southern Calif. Bay Area
Stock Options
Time RSUs
Perf. RSUs
Stock Options
Time RSUs
Perf. RSUs
CEO 34% 47% 19% 41% 42% 17%
Senior Vice President 31% 49% 20% 38% 45% 17%
Vice President 27% 59% 14% 34% 50% 16%
Director 23% 73% 4% 23% 67% 10%
Manager 11% 88% 1% 10% 82% 8%
Senior Individual Contributor
4% 96% 0% 10% 90% 0%
Individual Contributor 3% 97% 0% 5% 95% 0%
> Companies have been reluctant to move performance-based RSUs beyond the Vice President level in the organization
20 Source: 2012 Radford Global Long-Term Incentive Report
Annual Value Delivered – Technology
Position/Level
Annual Value Delivered ($000s) – 50th Percentile
Southern Calif. as a
Mult. of Bay Area
Southern Calif. Bay Area
Value Value as a %
of Salary Value Value as a % of Salary
CEO $1,801.8 265% $2,726.8 463% 0.7x
Senior Vice President $479.0 132% $724.9 192% 0.7x
Vice President $443.7 154% $461.0 152% 1.0x
Director $56.4 35% $39.0 23% 1.4x
Manager $27.1 24% $17.0 14% 1.6x
Senior Individual Contributor
$32.5 27% $13.5 12% 2.4x
Individual Contributor $20.6 21% $7.6 9% 2.7x
> Below the executive level, Southern Calif. companies are delivering more value to their employees on an annual basis than Bay Area companies
> The values as a percent of base salary in Southern Calif. are also higher than in the Bay Area
21 Source: 2012 Radford Global Long-Term Incentive Report
> Similar to the ongoing grants, Southern Calif. companies are providing more equity value to employees at the time of hire than Bay Area companies
> In Southern Calif., companies are generally providing new hire awards that are between 1.5x and 2.5x the ongoing awards while in the Bay Area the new hire grants are roughly between 2x and 3x the ongoing grants
New-Hire Value – Technology
Position/Level
New-Hire Value ($000s) - 50th Percentile
Southern Calif. as a
Mult. of Bay Area
Southern Calif. Bay Area
Value
Multiple of Annual Value Value
Multiple of Annual Value
Director $77.7 1.4x $85.7 2.2x 0.9x
Manager $63.0 2.3x $39.3 2.3x 1.6x
Senior Individual Contributor
$73.3 2.3x $36.7 2.7x 2.0x
Individual Contributor
$35.3 1.7x $24.8 3.2x 1.4x
22 Source: 2012 Radford Global Long-Term Incentive Report
23
Continued Emphasis on RSUs
> It has been a slow-and-steady transition but RSUs have replaced stock options as the vehicle of choice
Source: Radford’s Burn Rate/Overhang Proprietary Database
Historical RSU Allocation as a Percent of Total Pool
(using 3:1 option to RSU conversion ratio)
46%
53%
57%
62%
69%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2007 2008 2009 2010 2011 YTD
Chief Information Officer Compensation Program Trends
25
CIO Compensation Trends
> While overall cash compensation has remained flat, there has been a wholesale shift towards greater use of equity, equally spilt between stock options and restricted stock units (RSUs).
Component
Compensation Package Change
2010 2012
25th 50th 75th 25th 50th 75th
Base Salary $ 216.2 $ 250.0 $ 300.0 $ 210.1 $ 250.0 $ 310.0
Bonus Target 34.4% 40.0% 50.0% 30.0% 40.0% 55.0%
Total Cash $ 284.1 $ 354.3 $ 441.7 $ 274.1 $ 354.2 $ 473.5
Annual Equity Grant *
$ 97.9 $ 185.8 $ 373.0 $ 116.7 $ 245.3 $ 519.5
Total Direct Comp
$ 336.0 $ 456.4 $ 724.0 $ 332.8 $ 473.4 $ 860.9
Source: Radford 2010 & 12 Global Technology Survey
* Equity eligibility: 91.7% - 2010 and 83.8% 2012
26
CIO Compensation – By Organization Size
> Clearly the compensation package varies significantly by the size of the organization.
Component
Compensation Package
Annual Revenues
< $200M $200M-$1B > $1B
Base Salary $208.0 $ 245.0 $300.0
Target Bonus 30.0% 35.0% 50.0%
Target Total Cash $254.2 $ 325.3 $462.0
Annual Equity Grant *
$55.8 $ 130.6 $177.1
Total Direct Comp $259.9 $ 458.1 $641.1
Source: Radford 2012 Global Technology Survey
* Equity eligibility: 83.8% 2012