Who You Should Hire and How to Pay Them

Who You Should Hire…and How to Pay Them

Vision: Help You Become a Wealth Multiplier Organization

Transform the way you use compensation to share value with employees.

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.

44

Key Questions

Why is this an issue? What do trends and

data say? Therefore, what?

55

The Issue

One of the biggest headaches for CEOs is making sure that the organization has the right people to cope with what lies ahead. There’s the basic question of planning for the skills that are needed now and in the future: Which roles will be automated? What new roles will be needed to manage and run emerging technology? What skills should the company be looking for, and training their people for? Where will we find the people we need?

PwC’s 18th Annual Global CEO Survey

66

But more importantly, CEOs need to be sure that the business is fit to react quickly to whatever the future may throw at it – and that means filling it with adaptable, creative people, working in a culture where energy fizzes and ideas spark into life. If they can’t be found, they must be created.

PwC’s 18th Annual Global CEO Survey (continued)

77

Key Talent Trend

By 2020, the worldwide shortage of highly skilled, college-educated workers could reach 38 to 40 million, or 13% of demand.

(Source: McKinsey Global Institute)

88

Attracting Premier Talent3 Keys

1. Define What Talent You Need 2. Recruit to a Role (not a Position) 3. Market a Partnership

99

1. Know What Talent You Need

Talent & Business Model Alignment

Have top performers working in roles that maximize their unique abilities

Avoid placement in roles that don’t have a strategic impact

1010

Talent Assessment

Define skill “categories” needed to drive business model

Identify gaps Form recruiting strategy

1111

Millennial Career Segments

Launchers

Accelerators

Catalysts

1212

Launchers

Many just left the university

1st or 2nd career job

Most are single

1313

Accelerators

Experience with more than one company

Desire to rise in ability, recognition, contribution and influence.

Many single but a growing number are married and are starting families

1414

Catalysts

Well into their 30s or early 40s

Meaningful experience

Unique abilities

Able to affect significant (positive) change

Companies are competing for their talents

Have leverage

Many married and have children

ELON

MUSK

1515

The Emergence of Catalysts

The New Corporate Garage

…Apple’s inventiveness is no anomaly; it indicates a dramatic shift in the world of innovation. The revolution spurred by venture capitalists decades ago has created the conditions in which scale enables big companies to stop shackling innovation and start unleashing it.

Harvard Business Review, September 2012

1616

Catalysts Change Growth Trajectory

“…entrepreneurial individuals, or ‘catalysts,’ within big companies are using those companies’ resources, scale, and growing agility to develop solutions to global challenges in ways that few others…”

Harvard Business Review, September 2012 (continued)

Jony Ive

1717

2. Recruit to a Role (Not a Position)

Position: characterized by specific duties you need someone to carry out.

Role: defined by outcomes and stewardship.

Positions are filled. Roles are fulfilled.

1818

The Role Principle

Three Components

Stewardship Expectations Recruiting Philosophy Pay Philosophy

1919

Key Questions

What outcomes need to be achieved if the company’s growth goals are going to be fulfilled?

What specific skill sets are needed to produce those outcomes?

What value proposition will attract and retain that kind of talent?

2020

3. Market a Partnership

1.Compelling Future2.Positive Work

Environment

3.Opportunities for Personal and

Professional Growth4.Financial Rewards

Total Rewards

2121

1. Compelling Future

I see myself in the company’s future.

I want a “seat at the table” in determining the direction of the company.

I like the direction the company is headed.

I embrace the company’s values.

I believe the company can achieve its growth goals.

2222

2. Positive Work Environment

I like the nature of the work I’m doing.

I am working within my unique ability.

My responsibilities have strategic purpose.

I like the team of people with whom I work.

There are channels and processes for solving problems and decision making.

2323

3. Personal and Professional Development

As a result of my immersion in the culture and resources of this organization, my unique abilities will improve—and I will experience personal and professional fulfillment.

2424

4. Financial Rewards

I have some control over how much I can earn if I produce.

I feel a sense of partnership with ownership.

There is a philosophy that guides pay decisions and I relate to it.

There is a mechanism for sharing value with those who help produce it.

Link Company & Employee GoalsEmployee “Hierarchy of Needs”

Cash Flow & Living Standard

Risk Protection

Retirement Planning

Value Sharing

Wealth Accumulation

Qualified & Executive Retirement Plans

Comprehensive, Flexible Benefits Plan

Short & Long-Term Incentive Plans

Salary & Bonus

Wealth Multiplier Philosophy

Clear Pay Philosophy

1

2

3

4

5

2626

Hierarchy & Millennial Segments

Launchers

Area Orientation

CashFlow/Standard of Living

• Pay expectations still being formed

• Modest needs• Competitive salary and

mentoring

Risk Protection • Basic needs• Don’t want to pay anything

Retirement • Small or little concern

VS/Wealth Accumulation

• More concerned about money for this weekend

• Short-term preferred over long-term

2727


AcceleratorsArea Orientation


• Context:• Experience• Peer Pay• Life Responsibilities

• College Debt

Risk Protection • Adequacy of coverage—family focus

• Cost sensitive

Retirement • Growing Focus


• Emphasis on increased cash flow

• Short-term preferred over long-term

2828


CatalystsArea Orientation


• Prefer median of market pay but with high upside potential

Risk Protection • Want flexibility and options• Maximum Control

Retirement • Two areas of focus:• Retirement accumulation• Current tax savings

• Deferred compensation


• Large area of emphasis• Focus on long-term

opportunity• Mirror owner opportunity

2929

The Compensation Landscape

Pay Strategies Expansive SelectiveWorkspan (World at Work)The War for Stars, May 2012

3030

Criteria for Value Proposition

Appeal to top talent (catalysts)

Promote and reinforce innovation

Flexible Tied to business growth Minimize guarantees Large “upside” potential

Value creation and sharingfocus

3131

Future Trends for Defining a Financial Partnership

Performance Agreements Opt-In Plans Internal Venture Capital Long-Term Value Sharing Plans

3232

Performance Agreements

Prominent Media Company High performers excluded from profit

sharing-type incentive plan Annual negotiated “deal” “Deal sheet” Quarterly self-evaluation

3333

Performance Agreement

Outcomes High performance threshold Small or even $0 payouts can occur High-risk, high-upside Mentoring environment Ownership mindset High retention

3434

Opt-In Plans

Most Ideal in Start-Up Environment Opt for:

“Higher” salary plus modest incentives

“Low” or no salary and high upside through short and long-term value sharing

Tied to a revenue or profit-sharing formula Volatility: payments lowered &/or deferred Opt-In periods may differ

3535

Opt-In Plans

Outcomes Employees feel in control Owners limit exposure Highly flexible “Shared” entrepreneurial experience Promotes an ownership mindset “Self-identifies” key performers

3636

Internal Venture Capital

Highly Entrepreneurial Approach Larger organizations Establish venture capital

account Define access criteria Fund innovative ideas Performance criteria set Value sharing plan tied to

performance criteria Accompanied by performance

agreements or “opt-in” comp plans

3737

Internal Venture Capital

Outcomes Accelerate innovation Attract catalysts Share risk Identify potential future leaders

and owners

3838

Long-Term Value Sharing Plans

Broad Application Any size organization Can be tied to any of

previous approaches Creates “wealth

multiplier” mindset Links employees to

company vision and business plan

3939

Select the Right Plan Type

Stock Option

Performance Shares

Restricted Stock

Phantom Stock

Option

Performance

Phantom Stock

Phantom StockProfit Pool

Performance Unit

Strategic Deferred

Compensation

4040

Grant Equity or

Not Equity?

Full Value or

Appreciation Only?

Yes

Appreciation

Stock Option

Full Value

Performance Based?

Yes

Performance Shares

No

Restricted StockNo

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 StockFinancial

Performance

Appreciation-

Performance Based or

Employee Directed?

Performance

Based Reward for

Profit/Cash Flow or

Other Metrics?

ProfitsAllocation or

Objectives Based?

Allocation

Profit Pool

ObjectivesOther Metrics

Performance Unit

Employee Directed

Strategic Deferred

Compensation

4141

Market a Future that’s Relevant

Build a sense of partnership Demonstrate commitment

To the future business

To key contributors

Promote don’t just communicate

Be consistent

4242

Communicate and Promote the Plan

1. Explain, celebrate and reinforce the total value proposition

2. Communicate a sense of partnership

3. Project the wealth multiplier opportunity

4343

Employee Messaging (Customary)

Here’s the job Let’s see if you qualify Looks like you do…here’s

the pay package

$160,000

40% target bonus

Great benefits

4444

Employee Messaging (Preferred)

Here’s our philosophy about pay and rewards

Here are our specific pay programs

Here’s how our pay programs could work for you if we achieve our plan

Here’s our future Here’s how we’re

going to get there Here’s the role we

picture for you Here’s how we

encourage our people to grow and contribute

4545

Key Producer Employee Value Statement

Sample EVSYear 1 2 3 4 5

5-Year Plan

Achievement Level 100% 100% 100% 100% 100%

Current and Inflated

Salary $ 160,000 $ 166,400 $ 173,056 $ 179,978 $ 187,177

Cash Incentives Paid at

Target $ 64,000 $ 66,560 $ 69,222 $ 71,991 $ 74,871

LTIP Vested Value at

Year End $ - $ 74,000 $ 186,000 $ 311,000 $ 448,000

Retirement Plan Value

(at 7%) $ 17,120 $ 36,123 $ 57,169 $ 80,428 $ 106,086

Total Cash Received $ 224,000 $ 232,960 $ 242,278 $ 251,970 $ 262,048

Total Wealth

Accumulation $ 17,120 $ 110,123 $ 243,169 $ 391,428 $ 554,086

Total Paid or

Accumulated $ 241,120 $ 567,083 $ 942,407 $ 1,342,636 $ 1,767,343

4646

Evaluate & Refine

Line of Sight

Vision Where?

Model &

Strategy How ?

Roles and

ExpectationsMy Contribution?

Rewards

What’s in it

for me?

4747

4848

THANK YOU!(888) 703-0080

www.VLadvisors.comwww.PhantomStockOnline.com

[email protected]

http://www.vladvisors.com/

http://www.phantomstockonline.com/

http://www.bonusright.com/

Leadership & Management

Who You Should Hire and How to Pay Them