Compensation Planning 2013: Planning for Performance · Compensation Planning 2013: Planning for...
Transcript of Compensation Planning 2013: Planning for Performance · Compensation Planning 2013: Planning for...
Compensation Planning 2013:Planning for PerformanceSeptember 24, 2013
James Roth, AtlantaColleen O’Neill, AtlantaJeanie Adkins, Louisville
MERCER 1September 25, 2013
Today’s Speakers
James RothAtlanta+1 404 442 [email protected]
Colleen O’NeillAtlanta+1 404 442 [email protected]
Jeanie AdkinsLouisville+1 502 561 [email protected]
MERCER 9/25/2013
• Context for planning– Economic outlook– Talent context– Total rewards context– Pay equity concerns gaining momentum
• Current state of pay for performance
• 2012/2013 in review
• Pay for performance forecast for 2014– Base salary increases– Short term incentives– Promotions and careers– Recognition
• Call to action for 2014
Submit questions at any time:Use the Q&A tab on the bottomright-hand side of your screen
Today’s Topics
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Section 1
Context for Planning
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Economic Context for Compensation PlanningEconomic recovery continues to be slow, but steady
Exports not growing as fast due to mixed sentiments over an uncertain worldeconomy
More signs of economic improvement
• Steady employment and somewhat higher wages• Job growth remains weak but steady• Salary freezes down from 2012 and projected to decline further in 2014• Households benefiting from low interest rates• Residential construction market in the midst of a healthy upswing
Overall, US economy in a more robust condition than in 2011-2012,and is holding its own
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Economic OutlookGDP growth steady, unemployment below 8%
5September 25, 2013
Sources: Economist Intelligence UnitUS Department of Labor Bureau of Labor Statistics
* Quarter Forecast – Economist Intelligence Unit
1.5%
3.0%
1.7%
1.1%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2*
CPI GDP Growth Unemployment
2010 2011 2012 2013
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Talent Context“Talentism is the new capitalism”• Organizations are investing more in talent, but is it paying off?
• Key talent issues– Sustaining an adequate pipeline of leaders and critical talent– Attracting and retaining key talent and critical skills
(Buyers of talent still outweigh builders)– Engaging employees to maximize business performance– Aligning rewards with business priorities– Effectively managing costs of HR programs– Governing people risk
• Accelerators of talent—education, wellness, careers
Source: Klaus Schwab, Founder and Executive Chairman of the World Economic Forum
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Total Rewards ContextMost employers set pay strategy in a total rewards framework
• Rewards aligned withemployee value proposition
• Market strategies– 73% target pay and
benefits at median– 11% target above median– Remaining below median,
offset with othercomponents
• Focus on delivery tomaximize value
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Source: Mercer’s 2013 Pay for Performance Survey(Preliminary Results)
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Pay Equity Concerns Gaining MomentumOFCCP revised its investigative protocol in the Spring
• The OFCCP and EEOC are deploying more compliance resources
• OFCCP’s new protocol looks for “systemic” concerns, then at smaller units– Addresses a broader definition of compensation (base,
incentives/commissions, LTI, access to overtime pay and benefits)– Considers the equity of practices driving pay differences– Requests broader data in investigations– No protocol for evaluation: OFCCP will seek to make the best case– Regression still endorsed, and still legal standard
• Two recent BOA/Merrill Lynch settlements for $160 and $39 million
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Section 2
Current State of Pay for Performance
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Current State of Pay for PerformanceHalf of employers say their performance management needs work
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Current State of Pay for PerformanceMost organizations say they pay for performance…
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What are your organization’s primary objectivesin using pay for performance?
Current State of Pay for PerformanceThe objective is to drive higher levels of performance…
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Current State of Pay for PerformanceBut does it deliver?…less than 60% say it works well
Evaluate the effectiveness of your performance management approach.
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Which, if any, of the following roadblocks have most impeded your pay for performanceimplementation?
Current State of Pay for PerformanceTop roadblock to effective pay for performance is manager skill
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Your company uses a distribution or rankingprocess for which of the following? (Select allthat apply.)
To ensure differentiation betweenperformance levels, which of the followingprocesses are used by your company?(Select all that apply.)
Current State of PerformanceRanking and calibration processes complement manager input
*31% of companies discuss compensation decisionsin calibration meetings
*
*
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Current State of PerformanceWhat are the implications for pay for performance?
• Be very clear on your performance differentiation philosophy
• Know manager capability and calibration makes a real difference
• Consider programs in the context of others
– Performance management, pay levels, incentives, supervision, andleadership development all reinforce one another
• Test whether programs are getting you the desired returns
– Use analytics to measure progress
• Understand what is holding you back
– Design or implementation issues?
– Skill or “will” gap?
Section 3
2012/2013 in Review
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2012/2013 Compensation Movement in the Mercer MBD
• Base pay increases tracked below forecast for individual contributors
• Increases and incentives varied by industry, with energy and miningtracking high, and government, education and healthcare low
• Increases and incentives did not vary significantly by region
• Percentage of eligible employees earning an incentive payout declined forall groups except executives
• Similar to 2012, payouts were below target for all groups except executives
• Incentive payouts were down for all career levels and categories ofperformance except for the highest performing managers
• Proportion of eligible employees receiving LTI was up in 2013
Mercer’s 2013 Mercer Benchmark Database represents data from over 3,000 organizations and for 2M employees
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Section 4
Pay for Performance Forecast for 2014
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Mercer’s 2013/2014 US Compensation Planning Survey
• Represents data from 1,500 organizations and over 13 million employees
• Organizations represent a range of industries and sizes
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5% 6%
10%
6% 6%
9%11%
4%
8%
1% 1%
6%
20%
2%
5%
0%
5%
10%
15%
20%
25%
Participation by Industry Sector (N=1,495) Participation by Organization Size – Number of Employees (N=1,247)
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Pay for PerformanceRating distributions remain consistent over the last three years
Source: Mercer 2013/2014 US Compensation Planning Report
2%6%
54%
30%
8%
2%7%
54%
29%
8%
2%7%
54%
30%
7%2%
8%
55%
27%
8%
0%
10%
20%
30%
40%
50%
60%
Lowest (1) Low (2) Middle (3) Next Highest (4) Highest (5)
Perc
enta
geof
Wor
kfor
ce
Performance Rating
2011 2012 2013 2014 (projected)
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Pay for Performance in Base Salary IncreasesBase increases are set to remain steady into 2014
* All averages exclude 0’s
Source: Mercer 2013/2014 US Compensation Planning Report
2.6%
2.8% 2.9% 2.9%2.9%
2.3%
2.7% 2.7%
2.8%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
2010 2011 2012 2013 Projected2014
Projected
Actual
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Pay for Performance in Base Salary IncreasesOil and gas increases are poised to lead the market again
Source: Mercer 2013/2014 US Compensation Planning Report
4.4%
2.9%3.0%
2.9%2.7%
2.6%2.4%
2.9%
2.4%2.5%
4.5%
2.9% 2.9% 2.9%2.7%
2.6%2.8% 2.8%
2.5%2.4%
4.3%
3.1% 3.1% 3.0% 2.9% 2.9% 2.9% 2.9%2.6%
2.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Oil and Gas Utilities(Energy)
Bus/ ProfServices
Pharma Retail Telecomm Finance &Banking
Hospitality Healthcare Education
2012 2013 Projected 2014
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Pay for Performance in Base Salary IncreasesCompanies plan to give top performers higher increases
Source: Mercer 2013/2014 US Compensation Planning Report
2% 7%
54%
30%
7%
2% 8%
55%
27%
8%
3.5%
4.6%
0.2%
0.9%
2.6%
3.6%
4.7%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
0%
10%
20%
30%
40%
50%
60%
Lowest (1) Low (2) Middle (3) Next Highest (4) Highest (5)
Aver
age
Pay
Incr
ease
Perc
enta
geof
Wor
kfor
ce
Performance Rating
% of Workforce (2013) % of Workforce (Proj. 2014)
Average Pay Increase (2013) Average Pay Increase (Proj. 2014)
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Pay for Performance in IncentivesIncentive payouts for top performers are expected to be higherthan for average performers across career streams
Source: Mercer 2013/2014 US Compensation Planning Report
11%
22%
39%
46%
56%
4%
10%
20%25%
34%
2%6%
11%15%
22%
5%9%
19%23%
34%
0%
10%
20%
30%
40%
50%
60%
Lowest (1) Low (2) Middle (3) Next Highest (4) Highest (5)
Mea
nST
IPay
out%
Performance Rating
Executive Management Professional (Non-Sales) Professional (Sales)
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Pay for Performance in Promotions5 to 7% of employees likely to be promoted in 2014—promotional increases range 6%-8%, up since 2012
Source: Mercer 2013/2014 US Compensation Planning Report
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
2010 2011 2012 2013 Projected 2014
Executive
Management
Professional(Sales & Non-Sales)
Office/Clerical/Technician
Trades/Production/Service
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Pay for Performance in PromotionsCareer pathing and leveling is gaining prominence
Source: Mercer 2013/2014 US Compensation Planning Report
14% 11%17% 18% 15%
31% 34%
72%
53%
45%39%
34% 33%
24%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Job-familybased career
paths
Broad careerlevels
Competencybased
performance
Dual careerpath
Multi-raterfeedback
Formalcareer
framework
Formalcareer
planning
Considering Practice (%) Practice Exists (%)
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Pay for Performance in RecognitionRecognizing results is the rationale behind key contributor awards
62%
85%
18%
68%
43%
66%
86%
15%
57% 54%
66%
82%
15%
50%54%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Recognize Efforts Recognize Results SalaryDifferentiation
Retention Project Milestone
Executive Management Professional (Sales & Non-Sales)
Source: Mercer 2013/2014 US Compensation Planning Report
Section 5
Call to Action 2014
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6. Enhance your pay for performance analysis
3. Communicate to realize the value of rewards delivered
2. Build manager skills in making pay decisions
4. Assess and assure readiness for pay equity challenges
Call to ActionWhere to focus for 2014?
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5. Confirm the right technology to support rewards
1. Confirm your organization’s pay for performance strategy
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Emerging Best Practice: Pay for Performance AnalysisAlign philosophy with measurement and rewards
Say linkperf
& pay
Measurepeople mgmt
Rewardpeople mgmt
89%
36%
10%
80%
40%
60%
100%
0%
20% 42%measure pay forperformance link
Source: Mercer’s 2013 Performance Management Survey
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• Over time, do we really reward our employees who consistentlyreceive high performance ratings through: Greater pay increases;bonuses; promotions and career opportunities?
• How do we handle pay outliers, e.g., employees who have received alow performance rating but an above median pay increase?
• Which employees received high performance ratings both this yearand last year?
• Which employees have received high performance rating over thepast three to five years?
• Which employees received low performance ratings more than threetimes in their past five reviews?
• What are the characteristics of employees that upgraded from amedium to high performer?
• What are the characteristics of employees that downgraded from ahigh to a medium performer? From a medium to a low performer?
Emerging Best Practice: Performance Management AnalysisCritical questions answered
Reward forPerformance
$
New EmployeeSegments
Downgradesand Upgrades
32Source: Mercer’s 2013 Performance Management Survey
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Emerging Best Practice: Performance Management AnalysisSustained performance ratings and right link to rewards
• Identify employees that have"Sustained HighPerformance" over a longerperiod e.g., 3, 4, 5 years.– We want to ensure that
these employees have asubstantially differentemployment experience(through pay, performanceetc.) compared to the restof our employeepopulation.
33Source: Mercer’s 2013 Performance Management Survey
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Questions & Answers
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QuestionsPlease type your questions in the Q&A section of thetoolbar and we will do our best to answer as manyquestions as we have time for.
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Additional resources: Visit imercer.com/performance to learn moreabout our Global Performance Management reports
James RothAtlanta+1 404 442 [email protected]
Colleen O’NeillAtlanta+1 404 442 [email protected]
Jeanie AdkinsLouisville+1 502 561 [email protected]
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