1. Pay for Performance Building a High Performance culture through Rewards & Recognition
C&B Operations
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

2. Presentation Outline Key slides shared with PV
Discussion slide used with key stakeholder
Action/Suggestions/Options and next steps
Your valuable input !!!
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

3. Nestlé & I : Pay for Performance is an improvement area
Questions
TOP 5
Company makes quality products
High performance culture
Understand what is expected in job
Pride in working for company
Intend to stay
BOTTOM 5
Link between pay and performance
Paid fairly
Time to take advantage of training
Recognition
Effective support from other groups
Process for evaluating performance is fair
Comparison to trend
MOST IMPROVED
Care and concern for employees (+4)
Feel motivated (+4)
Process for evaluating performance is fair (+4)
Opportunity to achieve career goals (+4)
MOST DECLINED
Responding effectively to changes in the business environment (-1)
Company’s prospects over the next 2-3 years (-1)
Note these are the only two items that declined
Comparison to HP Norm
MOST ABOVE
Intent to stay (+16)
Safe work environment (+6)
Making quality products (+5)
Innovative in how work is done (+4)
Understand and meet needs of consumers (+4)
MOST BELOW
Recognition (-13)
Link between pay and performance (-10)
Employee benefits (-10)
Sharing of ideas and resources across the company (-9)
Work life balance (-8)

4. Areas most below HP Norm
Dimension
MOST BELOW HIGH PERFORMING NORM
% Favorable
Versus HP Norm
Cycle I vs. Cycle II
Reward & Recognition
I receive recognition when I do a good job 53
-13 +1
The better my performance, the better my pay will be 43
-10 +2
Rate your company on providing employee benefits that meet your needs 60
Cooperation
How would you rate the sharing of ideas and resources across the company 57 -9
Respect & Treatment
My company supports me in achieving a reasonable balance between my work life and my personal life 56 -8 +3
My work group receives high quality support from other groups on which we depend -7
There is good cooperation and teamwork within my work group 73
Manager Behaviors
How would you rate your manager on coaching you to improve your skills/performance 62 -6
How would you rate your manager on listening to your ideas and opinions* 70 -5
* Item included as an illustration – several other lower scoring items
© 2013 Hay Group. All rights reserved
16 January 2019

5. Pay for Performance Indicators – Dashboard 2013 Nestle Global Overall population
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

6. 2013 Human Resources Priorities
Corporate focus
Market focus HR
Strategy
Identifying Best Practice /
Evaluating / Prioritising
Designing /
Constructing / Piloting
Implementing
Sustaining Practice 1
Talent Diversity
Gender Balance 2
Employer Branding 3
Enhance Leadership Capabilities 4
Focus on Performance Management and
Effective Reward and Recognition 5
Provide NCE Education & Training
Pillar Expertise 6
Living a Responsible Culture
Safety & Health
Working Conditions 7
Continue Developing HR Capabilities 8
Expand the scope of
implementation of NCE in HR
Human Resources | C&B Operations | Jérôme Dano
16 January 2019

7. Pay for Performance - Objectives
HRLT OMP
Driver – Improve Pay for Performance in the group
Pay for Performance - Objectives
If effectively constructed, Pay for Performance compensation plans should help us fulfil the following objectives:
Recruit and retain the highest quality employees
Communicate and reinforce the values, goals and objectives of the company
Engage employees in the organization's success
Reward contributors for successful achievements
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

8. Pay for Performance - Line of Sight
The combination of rewards strategies that we institute should help to draw a correlation in the mind of the employees between interdependent elements:
Vision - where is this company going?
Strategy - how is it going to get there? Zone/Business Blueprints/ MBS/OMP
Roles and Objectives - what role does each key person have in that strategy and what is expected of him or her in that role? – Job Success Profiles & PE & TA
Rewards
How will each employee be rewarded for the achievement of the expectations associated with his or her role ?
How will each employee be rewarded for collective achievements ?
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

9. Pay for Performance - Elements
Performance & Pay through Reward and Recognition
Organization Result
Individual Contribution/
Team Result
Behaviors Demonstrated
Total Reward
Base Salary
Short Term Incentive (Bonus)
Long Term Incentive (RSU)
Benefits (Medical, Retirals etc)
Recognition Programmes
Growth & Promotion
Compensation’s role
Attracting and Retaining Talent
Driving Discretionary Effort
Differentiation
Motivation
Engagement
Compelling Offer
Vary across workforce demographics
Change with economic and regulatory changes
Organisation Performance
Individual/Team Contributions Organisation Result
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

10. Compensation Elements– Driving retention and attraction
Category Avg
Compensation
4.24
Attributes
Benefits
4.47
Development & Work Environment
3.70
Work- Life Balance
3.88
Company Environment
3.88
Importance Score
Source CLC

11. Change In Discretionary Effort
Compensation’s Role in Driving Discretionary Effort
Connection
Connecting pay to performance has the greatest impact on discretionary effort
Satisfaction
Change In Discretionary Effort
….while over all satisfaction with Total compensation is also influential
Equity
Compensation Levers
Each bar represents a statistical estimate of the maximum total impact on discretionary effort each lever will produce through its impact on rational and emotional commitment
Source CLC

12. Leverage Reward elements in creating a Performing Culture
Performance
Reward elements
High
Behaviours
Individual Contribution Team Results
Organisation Results
Sales Incentive
Base Pay
Evolution
Long Term Incentive
Career Growth
Bonus
Recognition
Benefits
earnings
Low
Shorter Term
Longer Term
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

13. Our approach to Reward and link with performance
What is evaluated ?
Reward Elements
Sales Incentive Plans
Short Term Bonus
Long Term Incentive
Base Salary Evolution
Recognition
Benefits
Growth/Career
Organisation Results
Financial Result
Team Result
Business Result
Individual Results
PE Evaluation
Individual Behaviour
Sustained Long Term contribution
Talent Assessment
Professional Potential
To build connection/engagement, there is a need to further improve pay for performance link and work towards communication to improve perceptions
Linked with share value at pay out
Depending on Bonus design ?
Managed within Markets
Collective
Depending on Bonus design ?
Managed within Markets
Depending on Bonus design
Explore Bonus design options
Project to create recognition program ?
Managed within Markets ? ?
Individual ?
past allocation considered ?
Scope to improve perception ?
Link talent data to LTI allocation
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

14. Possible Directions for moving forward to enhance link of Reward and link with performance
Better reflect Nestle Strategic Performance Framework into Managers Individual Objectives (Non Financial/Leadership/Nestle in Society objectives)
Manage a Performance distribution more aligned with the Business performance ? Or forced distribution
Improve Performance Management ?
Ensure Bonus Pay-out Link beyond the Financial targets, through a multiplier
Give guidance for a coherent approach between Collective (Business and Team) and individual component
Design Bonus Structure more dynamically ?
How can HR( Corporate/ Market) add value ?
Leverage Sales Incentives better ?
Link RSU’s to Talent category
Deepen the usage of LTI’s as a retention solution
Leverage the LTI better ?
Budget and Salary Matrix
Differentiation through pay : targets(dashboard)
Strengthen the link between Performance and Salary
Give a stronger boost to the recognition project ?
Accelerate strategic Recognition project ?
Define a reference communication to support the markets and train managers
Improve our Communication Framework ?
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

15. Directions for moving forward to enhance link of Reward and link with performance- Outcome of discussions
“We should better reflect Nestle Strategic Performance Framework into Managers objectives, beyond Financial targets like people leadership, CSV, Compliance ?”
“We should have a Performance distribution more aligned with the Business performance”
Improve Performance Management
“Beyond the Financial targets, we should ensure Bonus Pay-out Link to “soft “objectives more and behaviours (HOW in PE)”
“ We feel guidance could be given for a coherent approach between Collective (Business and Team) and individual component”
Design Bonus Structure more dynamically
“We should link LTI with the Long term contribution AND Talent category
“Especially in markets facing acute Talent Retention challenges , we should deepen the penetration of RSU’s to lower level and key talents.”
Leverage the LTI more
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

16. Directions for moving forward to enhance link of Reward and link with performance- Actions
Action 1 : Enrich PE Objective Setting
Action 2 : Enhance Differentiation through Performance Ratings Distribution
Improve Performance Management
Action 3 : Enhance the Bonus Design
Design Bonus Structure more dynamically
Action 4 : Long Term Incentive – Retain Key Talent in the Markets
Action 5 : Long Term Incentive – Explore Link to Talent Category
Leverage the LTI more
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

17. Action 1 : Enrich PE Objective Setting
Improve Performance Management
Action 1 : Enrich PE Objective Setting
Introduce a defined share(%) of Objectives towards Nestle 4x4 Strategic Framework and “People Leadership” under Individual Business/ Function Objectives in the PE.
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

18. Improve Performance Management
Action 2 : Enhance Differentiation through Performance Ratings Distribution
Differentiation in Performance Evaluation will better support an effective link between Pay and Performance
Option 1 : Targeted / Managed Distribution
PE Distribution
25%
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

19. Improve Performance Management
Action 2
Option 2 : Flexible Distribution based on Business Performance
Business Performance Level
80%
100%
130%
15%
25%
PE Distribution
30%
This is a guideline showing the expected performance distribution for different levels of businesses performance over the review period (performance year).
Corporate HR | Talent & Performance | Tarun Wadhwani

20. Directions for moving forward to enhance link of Reward and link with performance- Suggestions
Action 1 : Enrich PE Objective Setting
Action 2 : Enhance Differentiation through Performance Ratings Distribution
Improve Performance Management
Action 3 : Enhance the Bonus Design
Design Bonus Structure more dynamically
Action 4 : Long Term Incentive – Retain Key Talent in the Markets
Action 5 : Long Term Incentive – Explore Link to Talent Category
Leverage the LTI more
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

21. Difference is % pay-out between level of Performers is not significant – Pay for Performance perception ?
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

22. Directions for moving forward to enhance link of Reward and link with performance- Suggestions
Action 1 : Enrich PE Objective Setting
Action 2 : Enhance Differentiation through Performance Ratings Distribution
Improve Performance Management
Action 3 : Enhance the Bonus Design
Design Bonus Structure more dynamically
Action 4 : Long Term Incentive – Retain Key Talent in the Markets
Action 5 : Long Term Incentive – Explore Link to Talent Category
Leverage the LTI more
Option I
Continue with current additive design with directions to the markets
Option II
Option I , with the individual component as a % which is translation of PE Rating
Option III
Multiplier Method with Collective Achievement x Individual Component, % which is translation of PE Rating
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

23. Action 3 - Option I Collective Achievement + Individual Achievement
Design Bonus Structure more dynamically
Action 3 - Option I
Continue with current additive design but give directions to the markets to ensure at least a defined minimum weightage on Individual Component for all positions
Bonus Pay-Out
Collective Achievement Individual Achievement
Direction to Markets :
Eg: All positions to have at the most 50% Individual component in the Bonus Pay out
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

24. Action 3 - Option II Collective Achievement + Individual Achievement
Design Bonus Structure more dynamically
Action 3 - Option II
Option I, but the individual component is a % which is translation of PE Rating
Bonus Pay-Out
Collective Achievement Individual Achievement
Not anymore calculated on the PE form but based on over all PE Rating which includes WHAT and HOW
Suggested PE Rating vs Individual Pay – out % Table
PE Rating
Individual Pay out %
(alternative as a range)
3/3
120%
115% - 120%
3/2 , 2/3
110%
105% - 115%
2/2
100%
95% - 105%
3/1 , 1/3
90%
90% - 95%
2/1 , 1/2
80%
60% - 80%
1/1
50%
20% - 40%
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

25. Action 3 - Option III Collective Achievement X Individual Achievement
Design Bonus Structure more dynamically
Action 3 - Option III
Multiplier Method
Bonus Pay-Out
Collective Achievement X Individual Achievement
% based on over all PE Rating which includes WHAT and HOW
Suggested PE Rating vs Individual Component % Table
PE Rating
Individual Pay out %
(alternative as a range)
3/3
120%
115% - 120%
3/2 , 2/3
110%
105% - 115%
2/2
100%
95% - 105%
3/1 , 1/3
90%
90% - 95%
2/1 , 1/2
80%
60% - 80%
1/1
50%
20% - 40%
Other Point – We could look at capping at a Maximum Pay-out
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

26. Directions for moving forward to enhance link of Reward and link with performance- Actions
Action 1 : Enrich PE Objective Setting
Action 2 : Enhance Differentiation through Performance Ratings Distribution
Improve Performance Management
Action 3 : Enhance the Bonus Design
Design Bonus Structure more dynamically
Action 4 : Long Term Incentive – Retain Key Talent in the Markets
Action 5 : Long Term Incentive – Explore Link to Talent Category
Leverage the LTI more
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

27. Leverage the LTI more
Action 4 - Long Term Incentive – Retain Key Talent at lower levels in the Markets
Feedback from the Zones to provide avenues/tools to retain selected key talent below the Nestle Grade E level in the markets.
Similar companies in the competition already providing LTI at much lower levels than currently eligible population in Nestle – Nestle Markets loose competitive advantage in retaining top talent at that level
Suggestion
Option I
Allocate every year a maximum budgeted number of shares for each market/Zone/GMB to include unique talent at lower level (clear criteria to be defined like a discretionary offer of restricted shares in a year on selective and strictly one time reward basis
Option II
Create a clear category with defined criteria (eg: consistent Performance Rating over sustained period). This category to be rewarded the RSUs only mid session (bis) as a one time reward /very selective and defined criteria basis.
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

28. Action 5 - Long Term Incentive
Leverage the LTI more
Action 5 - Long Term Incentive
“Should we determine individual RSU allocation primarily by the Talent Rating instead of PE Rating category”
Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019

29. Your Thoughts !! Human Resources | C&B Op’s | Madhumita Chaudhary
16 January 2019