THE MOST IMPORTANT COMPENSATION PLANNING CONSIDERATIONS FOR 2015

Transcription

1 THE MOST IMPORTANT COMPENSATION PLANNING CONSIDERATIONS FOR 2015 SEPTEMBER 23, 2014

2 TODAY S SPEAKERS MARY ANN SARDONE North America Practice Leader Workforce Rewards ILENE SISCOVICK North America Talent International Leader 1

3 CONTENTS FOR OUR DISCUSSION TODAY Context for Planning Mercer Research Insights Trends for 2015 and Beyond Call to Action 2

4 CONTEXT FOR PLANNING 3

5 ECONOMIC AND MARKET CONTEXT The US economy is positioned to experience strong growth in the second half of Economic recovery continues to be slow, but is expected to accelerate. GDP contraction in Q1 2014, but projected to perform well for rest of year. More signs of economic improvement: Unemployment steadily declining, back to pre-recession level at 6.1%. Consumer Confidence Index at its highest since January Households paying off their debt. Salary freezes down from 2012 and projected to decline further in Housing market recovering with 11% year over year growth in April. The world economy is growing slowly due to weakening trends in emerging economies. Salary freezes expected to drop to 0.7% by end of

6 ECONOMIC AND MARKET CONTEXT GDP growth is expected to slowly rebound, after drops at the end of 2012 and Quarterly % Growth in GDP 4.0% 3.5% 3.0% 2.5% Feb to Mar 2014 Best hiring stretch in two years! 2.0% 1.5% 1.0% 0.5% 0.0% 2014 Q1 Consumer confidence at its highest since Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2* Q3* Q4* Source: Economist Intelligence Unit *Quarter Forecast Economist Intelligence Unit 5

7 BASE SALARY INCREASES VS. CONSUMER PRICE INDEX Avg. salary increases about 1% above CPI 2014 CPI by U.S. Department of Labor is current of May, 2014, estimate for 2015 is unavailable. 2014/2015 CPI by Economic Forecast Center of Georgia State University is current as of May, Salary increase percentage includes zeros. 6

8 COMPANIES CONTINUE TO INCREASE FOCUS ON THE BROADER DEFINITION OF TOTAL REWARDS EMPLOYER PERSPECTIVE MONEY CAREERS WORK/LIFE PAY BENEFITS Performance and Base pay Short-term incentives Long-term incentives Allowances Financial recognition programs Deferred compensation Retirement Savings Medical/Dental/Vision/ Prescription Drug, etc. Life insurance Short- and long-term disability Accident coverage accountability Career opportunity and pathing Mobility Leadership Experiential rewards Talent development Time off Wellness programs Dependent care Workplace flexibility Non-financial and status recognition Commuter programs Workplace facilities and perquisites EMPLOYEE PERSPECTIVE My value today My financial security and protection My future value My quality of life EMPLOYEE EXPERIENCE 7

9 INVESTMENTS IN CAREER DEVELOPMENT AND TRAINING ARE KEY IN MATURE MARKETS LIKE THE US Base Salary Increases 27% 28% Career Development/Management Programs 26% 35% Training Opportunities 23% 28% Mature Markets S/T Incentives 9% 11% Emerging Markets Non-Cash Recognition 8% 16% Work Environment 8% 12% 0% 5% 10% 15% 20% 25% 30% 35% 40% Source: Mercer 2014 North American Total Rewards Survey of 355 Organizations 8

10 IT AND ENGINEERING CONTINUE TO BE VIEWED AS HOT IN MATURE MARKETS Information Technology 44% 62% Engineering Research & Development 38% 42% 44% 53% Executives Sales 36% 41% 41% 42% Mature Markets Emerging Markets Legal/Compliance 15% 17% Customer Service 8% 11% 0% 10% 20% 30% 40% 50% 60% 70% Source: Mercer 2014 North American Total Rewards Survey of 355 Organizations 9

11 UNDERSTANDING AND FOCUSING PROGRAMS ON CRITICAL TALENT IS KEY CRITICAL TALENT INFOGRAPHIC 10

12 MERCER RESEARCH INSIGHTS 11

13 MERCER RESEARCH YOU The More Informed Compensation Professional! 12

14 2014/2015 US COMPENSATION PLANNING SURVEY PARTICIPANT PROFILE 1,500PARTICIPANTS 6 % 5 % 24 % Financial Services Consumer Goods Services (Non-Financial) 11 % Energy 5 % Life Sciences 9 % 7 % 11 % 6 % 10 % Insurance Retail and Wholesale Source: Mercer 2014/2015 US Compensation Planning Survey Report Other Non-Manufacturing Other Durable Goods Manufacturing High Tech 13

15 2014/2015 US COMPENSATION PLANNING PARTICIPANT PROFILE Fewer than 100 employees 4 % % % ,000 or more 39 % NUMBER OF EMPLOYEES 1 % % 1,000 2,999 3,000 4,999 % 13 Source: Mercer 2014/2015 US Compensation Planning Survey Report 14

16 SALARY FREEZES ARE LARGELY A THING OF THE PAST Source: Mercer 2014/2015 US Compensation Planning Survey Report 15

17 2015 SALARY INCREASE PROJECTIONS CONSISTENT WITH PRIOR YEARS UNITED STATES (all industries, all locations, excluding zeros) YEAR ALL EMPLOYEES EXEC MGMT PROFESSIONAL CLERICAL TRADES/ PRODUCTION % 3.0% 3.0% 3.0% 3.0% 3.0% 2014 (actual) 2013 (actual) 2012 (actual) 2011 (actual) 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 2.9% 3.0% 2.9% 2.9% 2.9% 2.9% 2.9% 3.0% 2.9% 2.9% 2.9% 2.8% 2.9% 3.0% 2.9% 2.8% 2.8% 2.8% Source: Mercer 2014/2015 US Compensation Planning Survey Report 16

18 THE ENERGY INDUSTRY CONTINUES TO LEAD THE WAY ENERGY Transportation Equipment High Tech Mining & Metals Insurance Life Sciences Retail & Wholesale Other Durable Goods Manufacturing Financial Services Other Non-Durable Goods Manufacturing Other Non-Manufacturing Services Consumer Goods average all-employee increase increase Source: Mercer 2014/2015 US Compensation Planning Survey Report 17

19 AVERAGE MERIT BUDGETS AT NOT FOR PROFITS ARE SLIGHTLY LOWER THAN OTHER OWNERSHIP TYPES Percentage merit budget 3.30% 3.20% 3.10% 3.00% 2.90% 2.80% 2.70% Publicly Traded Privately Held Public Sector Joint Venture Not for Profit Source: Mercer 2014/2015 US Compensation Planning Survey Report 18

20 MORE THAN HALF OF ORGANIZATIONS USE A 5-LEVEL RATING SYSTEM # OF PERFORMANCE RATINGS 11% 56% 14% 19% Three Four Five Other Source: Mercer 2014/2015 US Compensation Planning Survey Report 19

21 PERFORMANCE DISTRIBUTION HAS NOT CHANGED MUCH 60.0% Salary Differentiation by Performance Rating 50.0% Percentage of the workforce 40.0% 30.0% 20.0% Actual 2012 % of Workforce Actual 2013 % of Workforce Actual 2014 % of Workforce Projected 2015 % of Workforce 10.0% 0.0% Lowest Low Middle Next Highest Highest Source: Mercer 2014/2015 US Compensation Planning Survey Report 20

22 LIMITED DIFFERENTIATION IN PERFORMANCE AND REWARDS PERCENTAGE OF WORKFORCE 57% Average salary increase 25% 8% 8% 0.1% 3% 3.7% 2.7% 0.9% 4.8% Lowest Low Middle Next highest Highest 2014 Actual Performance Rating Source: Mercer 2014/2015 US Compensation Planning Survey Report 21

23 INCENTIVE PAYOUTS FOR TOP PERFORMERS ARE EXPECTED TO BE HIGHER THAN FOR AVERAGE PERFORMERS ACROSS EMPLOYEE LEVELS % OF TARGET AS A FUNCTION OF PERFORMANCE 160% 140% 120% 100% 80% 60% 40% 20% 0% 12% PERFORMANCE RATING 139% 121% 122% 119% 115% 99% 97% 96% 93% 52% 54% 53% 52% 10% 9% 11% 152% 147% 146% Lowest Low Middle Next Highest Highest Executive Management Professional (Non-Sales) Professional (Sales) Source: Mercer 2014/2015 US Compensation Planning Survey Report 22

24 PROFESSIONAL, OFFICE, AND CLERICAL ROLES ARE INCENTIVE ELIGBILE IN A NUMBER OF INDUSTRIES 100 INDUSTRY DETAIL % WITH INCENTIVE PROGRAM Percent (%) Professional (Non-Sales) Office/Clerical - Financial Services Consumer Goods Energy Life Sciences Mining & Metals Insurance Transportation Equip. Other Dur. Goods Manuf. High Tech Retail & Wholesale Other Non-Manuf. Services (Non-Financial) Other Non-Durable Goods Manufacturing 23

25 EXECUTIVES AND MANAGEMENT RECEIVE THE LARGEST PROMOTIONAL INCREASE 8.5% Typical award as % of base salary % of group promoted 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% Most organizations budget about 1% of payroll for promotions 5.0% 5.0% All Employee Groups Executive Management Professional Office/Clerical/ Technician Trades/Producti on/ Services 24

26 TREND #1: THE INTEGRATION OF TALENT AND REWARD PROGRAMS CAREER FRAMEWORKS 25

27 THE EMPLOYER PERSPECTIVE We need to build our talent from within by identifying the right skills and creating career paths. Employees are asking for clarity on expectations at each step of the career journey as they move up and laterally. There is too much ad hoc and discretionary deal-making leading to manager angst and employee mistrust. 26

28 THE EMPLOYEE PERSPECTIVE I don t see a clear path to progress in this organization. I would love to navigate future possibilities starting from my current job and company. There is no consistency injob level or pay, making me question the organization s promise to me. 27

29 EMPLOYEES WANT TO EXPLORE OPPORTUNITIES TO MOVE VERTICALLY AND HORIZONTALLY WITHIN THEIR ORGANIZATION FUTURE OPPORTUNITIES SALES R&D OPS MARKETING HR IT FINANCE FUTURE ROLE? CURRENT ROLE FUTURE ROLE? 28

30 WHAT IS A CAREER FRAMEWORK? 29

31 CAREER FRAMEWORKS ANCHOR JOBS TO A COMMON VERTICAL AND HORIZONTAL STRUCTURE CAREER STAGES E E3 E2 Executive Management CAREER STREAMS E1 Professional D P6 P5 M4 M3 Support C P4 P3 M2 M1 B A P2 P1 S4 S3 S2 S1 CAREER LEVELS 30

32 AND THE VERTICAL CAREER LEVEL STRUCTURE APPLIES TO ALL FAMILIES WITHIN AN ORGANIZATION HR IT. Learning & Dev. Network Architecture Applications Development.. E3 E2 E1 P6 M4 P5 M3 P4 M2 P3 M1 P2 P1 S4 S3 S2 S1 JOB FAMILIES / SUB-FAMILIES Generally recognized major professional area, often requiring a unique set of technical competencies 31

33 CAREER LEVELS CAN BE DEFINED FOR EACH TYPE OF ROLE Note: Can be customized on a company basis MANAGERIAL EXECUTIVE Organizational impact Complexity of work Knowledge Team interaction Organizational impact Complexity of work Knowledge Team interaction Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations E3 E2 E1 Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations P6 P5 P4 P3 M4 M3 M2 M1 P2 P1 S4 S3 Organizational impact PROFESSIONAL Complexity of work Knowledge Team interaction Organizational impact SUPPORT Complexity of work Knowledge Team interaction S2 S1 Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations Job factor expectations 32

34 CORE COMPETENCIES DESCRIBE BEHAVIORAL EXPECTATIONS AT EACH STAGE AND ARE COMMON FOR THE ENTERPRISE Core Competencies are defined by stage Career Stage Delivering Strategy Driving Results Fostering Innovation Maintaining Customer Focus Building Relationships Coaching & Developing E D Creates long-term and viable vision and business plan to ensure the organization is strategically aligned with evolving market needs Anticipates and evaluates contingencies; adapts and implements plans quickly to changing and/or ambiguous situations Expertly navigates through complexity and ambiguity and optimizes utilization of resources and investments across regions/ functions Leverages clear understanding of Company's strategy to establish aligned functional goals and objectives and business processes Critically evaluates complex data and information and identifies trends/risks to make recommendations to improve existing processes Proactively engages the right resources from across the organization. Focuses on the critical few projects that have longer-term business impact Encourages team members to seek opportunities to take on big challenges or problems above and beyond current commitments to grow the business and resolve customer issues Challenges teams to consistently seek higher standards of performance; models behavior that continually raises the performance bar Willingly takes major calculated business or personal risks to fundamentally change the organization to create Engages team(s) in setting challenging goals and targets and instills sense of ownership to improve performance; role models responsiveness by acting immediately on mission- critical issues Assesses how results were achieved and provides recognition for outstanding efforts, and provides candid and constructive feedback to individuals and teams to improve performance Demonstrates good judgment and takes full accountability for Creates a working environment Acts in the best interest of the and culture where breakthrough key customers regardless of ideas and opportunities are whether it has a short term encouraged, cultivated, and impact on the business utilized Consistently uses good Commits significant judgment and effectively investment to reap major balances the best interest of rewards based on in-depth both the business as well as the assessment, judgment, and ongoing leadership throughout the Foresees future trends in the customer process global market and identifies unique business opportunities Creates a learning culture and champions on-going review of programs/ processes to protect the core and identify transformational approaches Acts as a role model in creating an open, transparent and collaborative culture Establishes organization's image by building high-impact strategic relationships with key stakeholders Inspires teams across our company to build broad and deep networks internally and externally Develops new concepts that Emphasizes the contribution of Identifies experts or third are unique to the industry and to the business in the value chain in parties that could be influential the market Proactively looks outside traditional processes/ order to be seen as a trusted partner and not just a vendor Maintains deep and far in specific situations based on expertise or relationships and enlists their support and channels/products to anticipate reaching relationships with key assistance future needs and identify opportunities to enhance competitive advantage customers Anticipates emerging marketplace issues and Spends time with key individuals to build relationships that can be used in the future for Routinely draws upon valuable leverages experiences to resolve support learning from others, past experiences, and new information to determine key business opportunities complex business issues Develops internal and external alliances in the short term for use in the longer term Creates an open and energizing environment that motivates people to engage in candid dialogue and give their personal best Creates a development mindset across the business, personally taking accountability for building organizational capability Personally invests time to assess the bench strength against future talent needs, and develops and retains talent across the organization Provides constructive feedback and frequent development discussions to motivate and support team members to reach higher levels of performance Initiates strategies to develop internal talent, balancing them with external hires Spots talent gaps and determines the right mix and level of talent required to support current and future objectives Note: Can be customized on a company basis 33

35 FRAMEWORKS CAN CONNECT TALENT MANAGEMENT, CAREERS, AND COMPENSATION MANAGEMENT CAREER FRAMEWORK E3 E2 Compensation Program Base Salary Ranges 30% 28% Career Stages E E1 25% P6 P5 M4 M3 20% 18% D P4 P3 M2 M1 15% 12% C P2 P1 S4 Short-term Incentive Targets 10% 8% B S3 5% S2 S1 5% 5% A 34

36 CAREER FRAMEWORKS ARE BECOMING MORE COMMON Don't have a career framework and not planning to implement one 30 % 3 % 8 Have a career framework CAREER FRAMEWORKS Don't have a career framework, but planning to implement one 32 % 35

37 COMPETENCIES AND JOB EVALUATION MOST OFTEN USED TO UNDERPIN CAREER FRAMEWORKS Market 5 % 2 % Other Job Evaluation / Job Leveling 25 % UNDERPINNING CAREER FRAMEWORKS 40 % Core and Technical Competencies Core Competencies 28 % 36

38 MANY ORGANIZATIONS ARE ALREADY CONNECTING THEIR FRAMEWORKS TO OTHER TALENT MANAGEMENT PROCESSES BUT THERE S STILL ROOM FOR IMPROVEMENT 68% Succession planning 65% 62% Training and development Performance management 57% 56% Career pathing (vertical and/or horizontal movement) Rewards (base salary and incentive management) 46% Recruitment and selection 32% Job titling 37

39 TREND #2: THE TECHNOLOGY ENABLEMENT OF HR AND COMPENSATION S ROLE 38

40 WHAT WE ARE HEARING FROM OUR CLIENTS We re implementing a new HRIS and our job data is horrible. We have a job title and code for every person. Our job catalog needs to reflect the work of the future 39

41 THE EVOLUTION OF HR TECHNOLOGY STANDALONE HR SYSTEMS Payroll, Benefits, HR Administration Mainframe or server based PAYROLL DRIVEN AUTOMATE AND COMPLY TALENT MANAGEMENT APPLICATIONS Performance appraisal, LMS, Recruiting, Applicant tracking Standalone applications PC or internet based AUTOMATION OF PROCESSES REFINEMENT OF PROCESSES REPORTING AND ANALYTICS INTEGRATED TALENT MANAGEMENT SUITE Employee profiles, Performance management, Succession planning HR Talent platforms SaaS based SUCCESSION, SELECTION, RICH TALENT PROFILES, WORKFORCE REDEPLOYMENT, PAY FOR PERFORMANCE PEOPLE MANAGEMENT SYSTEMS Career development, Workforce deployment/planning SaaS Based CAREER MOBILITY, WORKFORCE PLANNING, REDEPLOYMENT, INTEGRATION WITH HRMS WHERE IS YOUR COMPANY GOING? 40

42 CLOUD COMPUTING AT THE HEART MAKING EVERYTHING EASIER DATABASE APP SERVER MOBILE PC 41

43 JOB AND EMPLOYEE DATA KEY TO ENABLING THE TECHNOLOGY PLATFORM AND UNLOCKING DATA INSIGHTS Better Information Better Workforce Insights EMPLOYEE DATA LEVELING AND HIERARCHY JOB DATA TECHNOLOGY PLATFORM Mercer Internal Labor Market Analysis (ILM) 42

44 COMPENSATION IS AT THE HEART OF BETTER JOB AND EMPLOYEE INFORMATION COMPENSATION PROFESSIONAL Job title $ Career levels Job coding Organized families of work 43

45 TREND #3: PAY FOR PERFORMANCE

46 WHAT WE ARE HEARING FROM OUR CLIENTS Our employees tell us performance is not recognized in their pay. Are we retaining our highest performers? Are we really paying for performance or just saying it? Are the reward programs getting us the right business outcomes? 45

47 PAY FOR PERFORMANCE 2.0 IS ABOUT MEASURING EFFECTIVENESS 82% of companies say they are pay-for-performance Only 22% measure its effectiveness. Source: Mercer 2014/2015 US Compensation Planning Survey Report 46

48 CONNECTING WHAT WE SAY WITH WHAT WE DO Pay for Performance 2.0 starts when organizations begin to examine the effectiveness of their pay-for-performance programs though deeper data and insights. Employee survey, HRIS, or business performance data taken in isolation provide an incomplete picture. Employee perception doesn t always align with employee behavior just as employee perception may not accurately reflect how organizational practices actually play out. There are often material differences and trade-offs between statistical significance in the information and psychological significance to employees By connecting what we say with what we do, organizations can cut through potentially misleading data and focus efforts on the true drivers of employee engagement and business outcomes. 47

49 FOR THIS COMPANY, SURVEY RESULTS WERE UNFAVORABLE WITH RESPECT TO PERFORMANCE MANAGEMENT ISSUES % Favorable I am paid fairly given my performance and contributions to my line of business Case example: Finance Company Our performance appraisal process adequately distinguishes poor, average, and good performers Year 1 Norm Year Year Norm 48

50 DEEPER DIVE ANALYTICS TELL A DIFFERENT STORY Zero pay growth DATA ANALYSIS SHOWED SIGNIFICANT DIFFERENCE IN PAY GROWTH BY PERFORMANCE TURNOVER ANALYSIS SUGGESTS LOWER PERFORMERS HAVE HIGHER TURNOVER 49

51 MERCER S OWN DEEPER DIVE ACROSS PROJECTS SHOWS THAT EMPLOYEE RETENTION IS SIGNIFICANTLY MORE RESPONSIVE TO BASE PAY THAN TO VARIABLE COMPENSATION Evidence where higher base pay is associated with lower turnover, i.e., fewer future decisions to quit Pay effects on turnover All segments Negative - Lower turnover No effect Positive - Higher turnover 20 # of cases Base Base growth Var-Receipt Var-Amount LTI-Receipt LTI-Amount Pay component Represents pay-turnover relationships for a total of 60 segments for 34 clients. The models on which these results are based are controlled for individual attributes, organizational factors, and external influences. 50

52 TREND #4: SEGMENTED APPROACH TO A REWARDS STRATEGY 51

53 WHAT WE ARE HEARING FROM OUR CLIENTS We can t pay at median for our marketing roles if we want superstars. Merit pay is not enough for our hourly workforce. The technology group wants more from their rewards, pay is not enough they want development. 52

54 BUSINESS STRATEGY SHOULD DRIVE YOUR REWARDS STRATEGY BUSINESS STRATEGY PEOPLE STRATEGY REWARDS STRATEGY How will the organization manage and motivate a workforce that can execute the business strategy? 53

55 REWARD STRATEGIES ARE BASED ON GUIDING PRINCIPLES AND SEGMENTATION IS KEY EXAMPLES OF GUIDING PRINCIPLES Segmentation (degree of differentiation for workforce categories). Role of compensation element (purpose of each compensation vehicle). Comparator group (competitive business/labor market). Competitive positioning (target percentile). Performance orientation (differentiation, point of measurement, metrics). Internal equity (importance of the internal relative value of work). Affordability and sustainability (degree of cost control required). Governance and accountability (decision-making structure). Administration (approach and point of management). Communication and transparency (approach and vehicles for information sharing). Success measures (measuring and monitoring results, analytics). 54

56 A ONCE-SIZE-FITS-ALL STRATEGY MAY NOT WORK Blueprint (sample) COMPENSATION BENEFITS CAREERS PRINCIPLE Base Pay Annual incentives Long-term incentives Group benefits Retirement Perquisites Performance management Work/life balance Workforce planning/ career pathing ROLE OF REWARD ELEMENT Attract and retain; reward building skills Reward individual business unit and corporate performance Link to shareholder value creation Personal risk management Wealth accumulation Tax efficiency Goal setting/ accountability Compelling place to work Adequate supply of talent COMPETITIVE POSITIONING 25 th percentile Base + STI = 75 th percentile Base + STI + LTI = 90 th percentile Leading edge design: 50 th percentile 50 th percentile Market practices Support build talent strategy Environment difficult to match by competitors Balance pay and benefits with career opportunities IMPACT OF POSITIONING Risk tolerance Performance orientation Rewards long-term growth Desirable employer Facilitate orderly retirement Employmen t brand Focused efforts Attraction and retention of qualified staff Support build talent strategy METRICS Acceptance rate turnover; appropriate skills Business results Stock price growth Cost and value delivered Retirement income adequacy; financial management Cost: commitment index Scorecard results Commitment index turnover Percentage of outside hires 55

57 APPROACHES TO SEGMENTATION CAN DIFFER BASED ON BUSINESS NEEDS ORGANIZATIONAL KEY TALENT PREFERENCES Geography Business Unit Business Life Cycle Brand Job Level Leadership High Performers High Potentials Hot Skills Critical Roles Job Family Age Gender Culture Career Aspirations 56

58 EXAMPLE OF WORKFORCE SEGMENTATION DRIVEN BY STRATEGIC IMPORTANCE AND NATURE OF COMPETITION FOR TALENT Return on Improved Employee Performance High (Driving Job Families) Medium (Enabling Job Families) Low (Foundational Families) Segment 3 Segment 1 Segment 2 Segment 4 Segment 5 Segment 6 Below Average Average/ Above Average Emerging Businesses Country A Country B Competition for Talent High and/or Special Requirements 57

59 EXAMPLE OF PAY PROGRAM DESIGN SEGMENTED BY JOB FAMILY AND CAREER LEVEL POPULATION TR ELEMENT SEGMENT 1 SEGMENT 2 SEGMENT 3 Senior VPs Population Size <1% <1% ~1% VPs Pay Position 60th %ile 50th %ile 40th %ile Directors % Fixed 40% 50% 70% Bonus Leverage 2.5x 2x 1.5x Bonus Linkage 100% Business Unit LTI Linkage 50% Business Unit / 50% Parent Company Manager 1 & 2 Population Size ~5% ~15% ~12% Senior IC Pay Position 60th %ile 50th %ile 40th %ile % Fixed 50% 70% 90% Bonus Leverage 2.5x 2x 1.5x Bonus Linkage 100% Business Unit LTI Linkage 50% Business Segment / 50% Parent Company N/A Junior IC Population Size ~9% ~20% ~15% Pay Position 60th %ile 50th %ile 40th %ile % Fixed 85% 90% 95% Bonus Leverage 2.5x 2x 1.5x Bonus Linkage 25% Business Segment / 75% Group Non-Exempts Population Size ~23% Pay Position 40th %ile % Fixed 100% LTI & STI Eligible Only STI Eligible No Variable Pay 58

60 EXAMPLE OF SEGMENTATION BY BUSINESS LIFE CYCLE LIFE CYCLE: Emerging market Moderate growth Decline/harvest SEGMENT: Performance drivers Performance enablers Legacy performance driver BRAND: Liability Neutral Asset OPPORTUNITY Premium+ Standard Discount ROLE OF COMPENSATION ELEMENTS Attract Attract and retain Retain COMPARATOR GROUP(S) Future business competitors Current labor competitors Current business competitors COMPETITIVE POSITIONING (INCLUDING MIX) Target: Base pay: STI: LTI: P90+ P50 P75 P90+ P50 P50 P50 P50 P25 P50 P25 P75 P25 PERFORMANCE ORIENTATION Differentiation: Time horizon: Measurement unit: Less Long-term Group Standard Balanced Individual and enterprise More Short-term Individual 59

61 SEGMENTATION BY LEVEL AND JOB FAMILY ARE PREVALENT IN MATURE MARKETS 80% 60% 40% 20% 0% 59% 70% 36% 50% 52% 47% 25% 21% Mature Markets 43% 32% Emerging Markets 26% 23% 18% 13% Source: Mercer 2014 North American Total Rewards Survey of 359 Organizations 60

62 CALL TO ACTION 61

63 CALL TO ACTION WHERE TO FOCUS FOR 2015? ü ü ü ü Examine segmentation and differentiation but measure your business outcomes using higher level analytics For example, what does pay for performance really look like in your organization? Pay attention to base pay it s important Based on our research it s a driver of retention Think about changes in technology delivery as an opportunity to refresh your reward and talent infrastructure Opportunity to enhance employer insights to increase employee engagement and business outcomes Create an ecosystem to optimize and leverage your talent and total reward programs through Career Frameworks 62

64 UPCOMING US BASED RESEARCH Mercer s 2015 US Compensation Planning Report UPDATE or Mercer s Incentive Plan Design Survey or Mercer Benchmark Database Survey (MBD) or Mercer s Global Compensation Planning Report or 63

65 Questions Mary Ann Sardone North America Practice Leader Workforce Rewards Ilene Siscovick North America Talent International Leader QUESTIONS Please type your questions in the Q&A section of the toolbar and we will do 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, on the floating panel, on the top of your screen. FEEDBACK Please take the time to fill out the feedback form at the end of this webcast so we can continue to improve. The feedback form will pop-up in a new window when the session ends. CLICK HERE TO ASK A QUESTION TO ALL PANELISTS View past recordings and sign up for upcoming webcasts MERCER WEBCAST September 23,

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