1. Short Term Bonus: Link to Performance
NiM C&B Introduction Program
Michael Pos
June 4th
Human Resources | C&B Operations| Michael Pos
21 September 2018

2. Guidelines of Target % for Senior Positions
PC 68-71
PC 64-67
PC 61-63
PC 58-60

3. Corporate Direction of STB
Composition of STB 2013 for Key Business Positions in operating companies of Zones

4. Corporate Direction of STB
Composition of STB 2013 for Key Business Positions in operating companies of Globally Managed Businesses (GMB)
Measure
RBH
CBM
Functional Managers
GMB results
20%
Regional results
80%
30%
70%
Regional or Country results (as applicable)
Country results
Functional/ personal results

5. Areas of focus to drive performance?
Employee surveys & the “Nestlé and I” survey said…
“I want to see better alignment between business targets and my individual objectives!”
“Can we have a more transparent link between our individual performance and reward?”
Each year you have resoundingly said there was variability of the quality of setting objectives, variability of the quality of discussions on achievements, quality in people’s understanding of the process.
Also, people wanted a much better alignment between what they are doing, what the business is doing and how they are rewarded for all that they do. And, a transparent link between what they do and their reward.
These areas are key to helping us build toward a high performing work environment.
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6. Reward Differentiation: Pay for Performance
We all know that the PE tool is being used to drive and evaluate the right performance
Let’s understand what we mean by
…Pay-for-Performance…
planning, coaching, and evaluating performance
and then
aligning rewards(pay) with performance outcomes
During the roll out of the Global 4 Behaviors and the PE/PDG training in the second half of 2009 we shared with you how the initiatives delivered to Nestle’s Global Strategic and Performance framework by driving Oceania’s step change initiatives and of supporting our global HR framework of People, Performance and Culture.
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7. Broad Process Steps planning, coaching, and evaluating performance
OBJECTIVE SETTING
INTERIM REVIEW
PERFORMANCE CALIBRATION
YEAR END REVIEW
REWARD DIFFERENTIATION
COMPLIANCE
…Pay-for-Performance…
…Key Drivers…
planning, coaching, and evaluating performance
HR BPs +
expertise support
from market MD teams
aligning rewards(pay) with performance outcomes
Market
Reward & Remuneration
Team
STB Design input from C&B for Objective setting
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8. Cycle, Components and timings..
Fixing Clear Targets
&
Aligning Objectives
Performance
Evaluation
Performance Calibration
Year-End Review
Performance Improvement
Objective Setting
Dec – Feb
Jan - Feb
Measuring
Progress
STB Payout
ABS Review
RSU allocation
Reward & Remuneration
Jul – Aug
Interim Review
Mar – April
STB Payout
ABS Review
RSU allocation 8

9. Short Term Bonus (STB)
The Short Term Bonus (STB) provides an opportunity to recognise employees who deliver tangible improved results for the business
PE tool helps everybody to be focused on objectives that support business performance
Objectives are defined by the manager and agreed between both the employee and manager and created in line with Smart x 2 principles
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10. Smart x 2
The principles of Smart X 2 objectives is fundamentally that they are outcome focused and measurable.
Quantitative refers to a quantity of something. As an example, the target for an objective that is quantitative would include numbers from reportable analysis i.e. financials such as RIG, profitability or service levels etc; something you can measure
The term Qualitative refers to objectives that may require feedback from others to determine whether they have been met. As an example we may determine that a project has been rolled out effectively based on feedback from employees and discussions with the business unit.
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11. A B C WHAT WHAT PE HOW PE “WHAT” and “HOW” – Collective Individual
(indirect) A B C
Business targets shared with others, usually cascaded from higher level, indirect and collective responsibility (Outside of PE Form)
WHAT
Individual
(Direct) PE
Individual Business/ Function Objectives Targets with direct and individual responsibility - bonus
Objectives Not Measure with Achievement %
HOW PE
Individual 4
Behaviours
Initiative
Result focus
Proactive cooperation
Practice what you preach
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12. A Short Term Bonus B C “WHAT” and “HOW” WHAT WHAT HOW Collective
(indirect) A B C
Business targets shared with others, indirect and collective responsibility
Short Term Bonus
WHAT
Individual
(Direct)
Individual Business/ Function Objectives Targets with direct and individual responsibility PE PE
HOW
Individual
Initiative
Result focus
Proactive cooperation
Practice what you preach 4
Behaviours
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13. Bonus Example – Head of Sales
STB - Objective
Weighting
Bonus Split A
50% W H A T
Quantitative
Collective
Business
Objectives
Indirect
30%
30%
1) Market Targets: RIG, OG, EBIT, ATNWC
70%
2) BU Targets: RIG, OG, EBIT B
50%
Quantitative where possible
Individual Business /
Function
Objectives
Direct
50% *
NPS of $xxx to deliver RIG % by implementing agreed category strategy. Min NPS $xxx with exceed value of $xxx
30% *
2) TTS not to exceed $xxx to drive RIG and deliver ATNWC Spend in line with agreed customer strategy of at least $xxx and not more than $xxxx PE
20% *
3) Customer Contribution Statements objective to be defined
Objectives Smart x2, weighted & measured
To build a high performance organisation it has been agreed by the Senior Leadership Team that all employees will have 50% of their bonus aligned to the collective objectives and 50% aligned to their individual objectives that have a direct impact on business achievement and that the employee is able to directly influence.
Each objective in Groups A and B needs to be weighted. In Group A when someone is aligned to the Business Unit, their Oceania objectives will contribute 30% of the weighting and the BU 70%.
In Group B the weighting will be determined by the direct manager. No single objective should be assigned more than 50% weighting, and not less than 10%. As we are asking the managers to set out the key high impact objectives that will align what is done to the delivery of the business or functional goals it is considered that everyone would have at least two key objectives in their roles that can be measured. If the objective is key and of high impact it is unlikely to attract less than 10% weighting of its importance.
Measure of success is described at the time the objective is set
- 80% achievement description
- 100% achievement description
- 130% achievement description
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14. Calculation Example – Head of SalesPE
Not given a % achievement tied to a bonus PE
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15. Can We Improve Link to Performance?
YES - This is why in the Pay for Performance initiative bonus design is a big part: To be covered by Jerome when discussing this part in the next session
Multiplier?
Payout maximums tied to PE?
Unifying practice across the group on design?
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16. Challenges & Clarifications on Design
Individual Component?
Guidelines for Design for Managers below ManCom?
Guidelines for Bonus % Below 25% level?
Weighting of functional Objectives?
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17. Individual Component
Composition of STB 2013 for Key Business Positions in operating companies of Zones
Objective
Market Head
Country Manager
BEM
Functional Managers
Nestlé Group results
20%
Key Market Heads
10%
Other Market Heads
Market results
80%
30%
70%
Market, Country or Category results (as applicable)
90%
Country results
Category/ personal results
Functional/ personal results

18. Individual Component
Composition of STB 2011 for Key Business Positions in operating companies of Zones
Objective
Market Head
Country Manager
BEM
Functional Managers
Nestlé Group results
20%
Key Market Heads
10%
Other Market Heads
Market results
80%
30%
70%
Market, Country or Category results (as applicable)
90%
Country results
Category/ personal results
Functional/ personal results ? ?
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19. Individual or not? Zone Europe Only AOA & AMS
Discussion moving forward on new bonus design – Related to Pay for Performance (session to cover this).
Report - EBM this summer to outline intent of design change on how to approach the bonus design: Mr Freixe is the sponsor

20. Market Heads & Country Managers

21. Guidelines for Design for Managers below ManCom?
Some markets following the ManCom guideline and some the principle of a 50% - 50% between Collective and Individual Business /Function Objectives outlined in the principles of PE and reward

22. Guidelines for Design for Managers below ManCom?
Recommend that you follow the 50% - 50% split between Collective and Individual Business /Function Objectives outlined in the principles of PE and reward
Good Example is Oceania:

23. Guidelines for Bonus % Below 25% level?
Clarification from Centre in 2009 on recommended bonus target % down to employee
Now the markets to determine the target bonus % below PC 58 which should be based on market practice but with C&B Ops being aware

24. Weighting of functional Objectives - History
  There was a request for consideration to reevaluate the weighting for Functional Positions taking into account that when the results of the business are bad the functional positions many times have a higher bonus payout % versus other line management positions.

25. Take Away
The target bonus % for Personal Grade E and above is determined by the Centre (driven by Personal Grade and not position)
Design weighting of ManCom of the Market is determined by the markets - The rest is in the hands of the market
Objectives should be SMART and tied to cascaded market OMP
PE helps to tie to personal objectives and not Group
Good practice for positions below ManCom is (personal and collective, but determined by Market)
We are looking to improve bonus design to more reflect a pay for performance culture – Project in the works