1. Avoiding Compensation Complacency:
Designing Programs that Withstand Market Fluctuations
Guest Presenters: Brennan Rittenhouse and
Jeff Swerdlow Alvarez & Marsal
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3. Compensation Management Made for Managers
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5. About the Presenters AGENDA Talent Takeaways Series
Brennan Rittenhouse is a Managing Director with Alvarez & Marsal in Denver, Colorado, specializing in compensation and benefits planning and consulting.  He brings an expertise in all areas of executive, independent director, and broad-based compensation consulting. Some of the areas in which he has significant experience include compensation benchmarking, designing and implementing both short- and long-term incentive plans, and creating salary structures. He is also a subject matter expert in all areas of equity plan administration, including systems, implementation, accounting, reporting, and tax.
Jeff Swerdlow is a Director with the Alvarez & Marsal, LLC Compensation & Benefits group based in Denver, CO.  Jeff specializes in executive and broad-based compensation consulting, incentive compensation plan design and implementation, nonqualified deferred compensation consulting, equity plan administration, golden parachute calculations, institutional investor pay for performance analyses, and litigation support/expert testimony.  After attending Muhlenberg College for his undergraduate degree, Jeff attended law school at Stetson University College of Law and obtained his LL.M. in Taxation from the University of Denver Sturm College of Law.
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6. Agenda

7. Contents 1 Agenda 2 Poll Question #1 3 Stuck in a Different Era? 5 4
Designing a Sustainable Compensation Program 10
Using Total Rewards to Increase your Value Proposition 15 6
Poll Question #2 19 7
Consistency, Consistency, Consistency! 21 8
Questions? 23

8. Poll Question # 1
Do you have a group or function that you benchmark to the market 75th percentile?

9. Stuck in a Different Era?

10. Signs of an Outdated Compensation Program
Compensation Philosophy
Compensation Philosophy targets market percentiles that are no longer representative of the actual market for talent
If the target is too low, the program may have been designed before demand for talent reached current levels
If the target is too high, the program may have been designed in a much different market for talent
Guaranteed or expected increases baked into the compensation philosophy

11. Signs of an Outdated Compensation Program
Pay Mix
Is your compensation philosophy overly weighted to pay-for-performance or vice versa?
Compensation structures dependent on large bonus payouts to align with market may not be suitable for times when company performance is not certain
Compensation structures overly weighted to base salary are inflexible, as it is very difficult to “manage down” fixed pay

12. Signs of an Outdated Compensation Program
Short-Term Incentive Compensation
How many plans?
A one-size-fits all may be a sign of a plan from an outdated era
What types of goals is the plan based on?
Plans overly weighted to company performance may not pay out if the market turns
While that may be expected at the senior levels, often perceived as unfair for broad-based employee populations that have little impact on financial results
Private companies are utilizing between 2-4 short-term incentive (“STI”) plans
Multiple plans geared for different levels (executive vs. department vs. broad-based)
Executive only incentive plans are now in the minority in private sector

13. Signs of an Outdated Compensation Program
Equity Vehicles
What types of equity does your company award?
Effectiveness of equity vehicles (relative to the compensation expense) varies depending on the market and the growth stage of the company
Stock options provide little value for large, stable companies, as there is less growth to be had (requiring more options, and therefore more expense, to be granted to deliver any substantial value)
If the equity program is largely option based, often times a sign that it was designed for an “up” market and not positioned for a downturn (when options can become worthless)

14. Designing a Sustainable Compensation Program

15. Finding the Right Balance
Pay Mix
If bonuses don’t pay out, is your compensation structure still reasonably aligned with market?
If too focused on bonus, base salaries will be significantly below market
If too high on base, costs may not be sustainable
What do my employees expect?
Key is to stress test

16. Finding the Right Balance
Stress Testing
Bottom up cost analysis
What’s the total cost of the program, both in good and bad years?
Don’t forget to account for annual increases: COLA & merit
Is the program affordable?
Do my metrics make sense?
Will bonus plans pay out too much in down years?

17. Finding the Right Balance
Taking Advantage
Down markets are a great time for options
Make employees earn their equity: vesting, holding, and retention requirements
Nonqualified deferred compensation as an opportunity
Bonus conversions: paying out bonuses in stock or deferring and converting

18. Finding the Right Balance
Total Rewards
How can we increase our total rewards value proposition without increasing costs?
Total rewards opportunities and emphasizing work- life balance opportunities

19. Using Total Rewards to Increase your Value Proposition

20. Finding the Right Balance
Total Rewards
How can we increase our total rewards value proposition without increasing costs?
Total rewards opportunities and emphasizing work- life balance opportunities
Don’t just guess! Ask!

21. Finding the Right Balance
Total Rewards
Variations between Employee and Employer perspectives when attracting employees:
*Data obtained from the Willis Towers Watson 2016 Global Talent Management Rewards and Global Workforce Studies report

22. Finding the Right Balance
Total Rewards
Variations between Employee and Employer perspectives when retaining employees:
*Data obtained from the Willis Towers Watson 2016 Global Talent Management Rewards and Global Workforce Studies report

23. Do your employees “expect” a bonus every year?
Poll Question # 2
Do your employees “expect” a bonus every year?

24. Consistency, Consistency, Consistency!

25. The Importance of Consistency in Messaging
Managing Expectations
Shifts from “what has always been” have potential to significantly impact morale and employee concerns
Impact of the workforce generations, employees more willing to jump ship
Manage messaging to ensure employees are getting the info they want and need
Don’t mix messages! If bonuses aren’t paying out, don’t talk about how great things are!
Align executive pay programs with broader population: making employees feel the pain while the executives are not is a recipe for disaster

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27. Resources & Support HRsoft.com AGENDA AGENDA Resource Library
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28. Jeff Swerdlow, Director jswerdlow@alvarezandmarsal.com 303-220-2078
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Brennan Rittenhouse, Managing Director
Jeff Swerdlow, Director

29. Avoiding Compensation Complacency
November 13, 2018
Designing Programs that Withstand Market Fluctuations
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