2014-15 Compensation Trends A closer look at the Canadian technology - - PowerPoint PPT Presentation

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2014-15 Compensation Trends

A closer look at the Canadian technology market Trista Straver, Senior Survey Consultant October 23, 2014

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Agenda

• Global and Canadian Market Trends
• Q2 Hot Topics Report: Performance Management
• Evaluating the Effectiveness of Variable Pay

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Global and Canadian Market Trends

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Canadian Market Outlook

• 2.5%

3.2% 2.9% 1.8% 1.5% 2.3% 0.3% 1.8% 2.9% 1.5% 1.5% 1.5% 8.3% 8.0% 7.6% 7.3% 7.3% 7.0% 0.9% 2.6% 3.0% 3.1% 3.0% 3.0%

• 4.0%
• 2.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

2009 2010 2011 2012 2013 2014

GDP Inflation Unemployment Salary Increase

Source: IMF WEO Database, April 2014, Radford Trends Report (Canada), Q3 2014 Technology edition.

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Global Market Trends

• Similar to years past, Canada has relatively low turnover, and less aggressive

hiring and market movement; however, we are seeing a slight increase in average voluntary turnover (+0.7%) over last year

Region Average Voluntary Turnover Aggressive Hiring Expected Workforce Increasing* Average 2014 Overall Salary Increase Budget (Diluted)

Argentina 11.3% 2.9% 11.3% 20.3% Brazil 10.6% 6.1% 15.2% 7.6% Canada 9.3% 4.4% 15.9% 3.0% China 12.8% 10.9% 32.9% 7.9% India 13.9% 13.0% 28.9% 10.5% Russia 10.9% 1.8% 11.5% 7.6% United Kingdom 11.6% 9.8% 24.6% 3.1% United States 11.2% 16.4% 42.8% 3.2%

Source: Radford Trends Report (Canada), Q3 2014 Technology edition.

*Percent of companies responding

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Canadian Historic Hiring Environment

• Normal hiring is stable in Canada vs. more aggressive hiring in the US
• Notably, aggressive hiring at Canadian companies has increased from 2013 to

2014; the hiring freeze rate has decreased

3.7% 5.8% 5.6% 3.7% 4.4% 16.4% 37.6% 35.4% 31.6% 29.8% 30.2% 27.1% 56.3% 52.9% 56.7% 60.3% 63.3% 54.9% 2.4% 5.9% 6.1% 6.2% 2.2% 1.7% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2010 2011 2012 2013 2014 US 2014 Percent of Companies Aggressive Selective Normal Hiring Freeze

Source: Radford Trends Report (Canada), Q3 2010, Q3 2011, Q3 2012, Q3 2013 and Q3 2014 Technology editions.

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Canadian Expected Workforce Changes

• Over the next 12 months, two-thirds of companies expect to stay the same size
• The percent of companies expecting to remain the same size is the same as

last year, while the number of companies expecting to increase headcount is up almost 2%

Source: Radford Trends Report (Canada), Q3 2014 Technology edition

4.3% 65.7% 12.3% 3.6% 14.1% 0% 10% 20% 30% 40% 50% 60% 70% Decrease Stay The Same Size Increase by up to 10% Increase by more than 10% Unknown % of Companies

Expected Changes in Full-Time Workforce (Next 12 Months)

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7.6% 9.2% 9.3% 8.6% 9.3% 9.7% 4.4% 8.0% 6.8% 6.8% 0.0% 5.0% 10.0% 15.0% 20.0% Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Voluntary Involuntary 17.3% 13.6% 17.3% 15.4% 16.1%

Canadian Historical Turnover

• Voluntary turnover is up slightly from Q3 2013 to Q3 2014
• Overall turnover is slightly higher year over year
• Lack of aggressive hiring affects voluntary turnover

Source: Radford Trends Report (Canada), Q3 2010, Q3 2011, Q3 2012, Q3 2013 and Q3 2014 Technology editions.

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How can we address turnover in hot jobs?

• First, it is important to look at turnover in detail
• Is “regrettable turnover” a significant problem?
• Is compensation the “real issue”?
• Second, confirm whether “hot jobs” are roles or skills
• For role-based issues, look at recently-added survey jobs—for example, Data

Scientist, Social Media Analyst, Online Merchandising

• Skills-based issues like cloud computing and data security are not often captured in

job titles/HRIS making analysis harder

US Annual Base Salary Radford Survey Job July 2010 July 2014 Change Social Media Relations Spec 1 $43,364 $45,966 5.7% Social Media Relations Spec 2 $53,887 $58,412 7.7% Social Media Relations Spec 3 $68,626 $75,675 9.3% Social Media Relations Spec 4 $93,483 $104,891 10.9%

Source: Radford Trends Report (Canada), July 2013, 2014 Technology edition.

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Canadian Base Salary Increase Trends

• Overall salary increases are stable at around 3% since 2011— this mirrors the

trend in the US, where budgets are static and 3% increases remain the norm

Source: Radford Trends Report (Canada), Q3 2009, Q3 2010, Q3 2011, Q3 2012, Q3 2013 and Q3 2014 Technology editions.

0.9 2.6 3.0 2.8 2.8 2.8 2.5 2.8 3.2 3.0 3.0 3.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Canada Overall Actual Average (Undiluted) Canada Overall Actual Average (Diluted)

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Canadian Merit and Overall Increases

Average Diluted Salary Increases 2014 Budget 2014 Actual 2015 Budget Merit Overall Merit Overall Merit Overall

Overall Population 2.7% 3.0% 2.6% 2.8% 2.9% 3.2% Sales Population 2.4% 2.7% 2.3% 2.5% 2.7% 2.9%

Source: Radford Trends Report (Canada), Q3 2014 Technology edition.

Salary Increase Delivery Trends Prior Year/Next Action 2014 to 2015

Freeze/Freeze 2.1% Freeze/Increases 4.1% Increases/Increases 93.8%

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Q2 Hot Topics Report on Performance Management

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How Well Do Pay and Performance Connect?

• In Q2 2014, our Hot Topics survey examined the connection between merit

increase levels and the number of performance ratings in use at a company (e.g., 3 ratings vs. 6 ratings)

• Results show that much more work can be done to connect performance

ratings to actual salary increase outcomes

• To begin, companies reported number of ratings:

Radford Q2 Hot Topics Survey Questions Number of Performance Ratings Levels 3 Levels 4 Levels 5 Levels 6 Levels Other Prevalence of Companies with this Number of Performance Ratings Levels 14% 18% 59% 6% 3% Prevalence of Employees with the Highest Rating (“Top Performers”) 20% 12% 6% 4% n/a

Source: Radford GTS Trends Report (Canada), Q2 2014 edition, Hot Topics.

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Employee Population Receiving Increases

• Over 60% of companies still provided more than 90% of employees with salary

increases in 2013

Source: Radford Trends Report (Canada), Q2 2013 Global Technology Edition Hot Topics Survey

7.4% 11.7% 17.5% 53.6% 9.9%

0% 10% 20% 30% 40% 50% 60% Under 60% 60% to 79% 80% to 89% 90% to 99% 100%

50th Percentile

Percentage of Global Population Receiving a Salary Increase

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Performance Management Deep Dive

Are You Considering Eliminating Performance Ratings? Yes 8% No 92%

Yes 84% No 16%

Do You Have A Formal Performance Management System?

Yes 90% No 10%

Do You Have the Same System for All Countries?

Source: Radford Trends Report (Canada), Q2 2014 Technology edition, Hot Topics.

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How Do Companies Manage Performance?

Performance Management Approach United States

% of Companies Written reviews and formal rating 87% Written reviews, no formal rating 6% Rating, no written evaluation 3% Formal feedback, no rating or written evaluation 4%

Source: Radford Trends Report (Canada), Q2 2014 Technology edition, Hot Topics.

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How Do Companies Allocate Ratings?

• Most technology companies responding to our survey rely on general

“guidelines” for assisting managers in allocating performance levels, and 24% have no forced ranking system at all

Forced Ranking System Used/ Performance Rating Distribution Controlled 2014

Technology Limit top rating to specific % of employees 7.5% Require specific distribution of employee ratings 9.9% Recommended distribution 53.5% No target or guideline rating distribution requirements in use 23.5%

Source: Radford Trends Report (Canada), Q2 2014 Technology edition, Hot Topics.

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How Do Companies Score Performance?

• Most companies use a 5-rating system to provide two levels above the middle

to identify “high performers”; no changes over several years

16% 13% 16% 14% 24% 23% 19% 18% 52% 59% 56% 59% 8% 5% 9% 9% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2007 2008 2012 2014 Percent of Companies 3 Ratings 4 Ratings 5 Ratings Other (6+ Ratings)

Source: Radford Trends Report (Canada), Q2 2014, Q2 2012, Q4 2008 and Q1 2007 Technology editions, Hot Topics.

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What About Companies Without Ratings?

• For companies without formal ratings, manager discretion largely determines

merit increases

• Performance plays a role in the manager’s decision about pay increase size,

even without a rating scheme and formal written reviews

• No rating is intended to focus the conversation on development opportunities

rather than evaluation

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How Well Do Pay and Performance Connect?

• Why do we believe more work can be done? Consider this...the top 12%, 6%

and 4% of employees at companies with 4, 5 and 6 ratings levels, respectively, all get the same average salary increase

• In sum, it pays to work at a company with fewer performance ratings
• 2.9%

2.5% 1.0%

• 4.0%

3.3% 2.7% 2.0% 4.5% 3.6% 3.0% 4.5% 3.6% 4.7% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 3 Ratings 4 Ratings 5 Ratings 6 Ratings Merit Increase Percentage 20% at top rating 12% at top rating 6% at top rating 4% at top rating

Source: Radford Trends Report (Canada), Q2 2014 Technology edition, Hot Topics (US Data).

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Evaluating the Effectiveness of Variable Pay

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Evaluating Incentive Plan Effectiveness

Design Element

• Measuring Results (Competitive, Culturally Appropriate, Differentiates

Performance, Drives Engagement and Retention, Affordable) Program Type, Eligibility, Receipt and Targets

• Eligibility and participation in formal, discretionary and profit-sharing plans
• Targets by job level (multi-function rollups) or by function

Corp vs. Individual Weighting

• Define success (corporate, unit, individual)
• Non-corporate paid independently or tied to corporate performance
• Impact assessed in engagement studies, historical turnover analysis

Metrics

• Scorecard of financial and non-financial measures reflects priorities

Funding Gate

• Minimum thresholds and maximum payouts determine affordability

STI Payout

• Varies greatly by company size and industry (assess peer group practices)
• Evaluate STI expenditure by function considering geography and % headcount

Payout Curve

• Distribution analysis on payout vs. target by performance (and by function)
• Data from performance management discussions and exit interviews
• Correlation to engagement scores

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STIP Eligibility, Receipt and Targets

99% 96% 82% 66% 80% 73% 63% 35% 95% 85% 70% 30% Exec Dir/Mgr Sr Prof Entry Mkt Eligibility Mkt Receipt ABC Co Receipt 70% 95% 99% Bonus Receipt by Performance Below ME EE 35% 22% 15% 10% 5% 40% 20% 15% 8% 3% Exec Dir Mgr/Prin Spv/Sr Entry Market Avg Target Bonus % ABC Co Target Bonus %

Are eligibility and receipt competitive?

Example: ABC Co How egalitarian is participation in the plan? Are targets competitive?

Source: Radford Global Technology Survey Practices Report (Canada), Q2 2014 edition. Radford Generator (Canada) 2014.

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Corporate vs. Individual Weighting

Goal Corporate Only Siloed Multiplicative

• Ex. bonus funding is based on

corporate achievement only (note: there may be discretionary modification by individual)

• Ex. bonus payout is

determined 75% based on corporate goals and 25% on individual objectives (individual component increases at lower employee grades)

• Ex. individual achievement

factor multiplied by corporate achievement factor

Flexibility to reward individual success in years of below plan financial performance Manage costs in years when the Company is not in a suitable financial position Keeps things simple (e.g., communication, goal setting) Individual success is linked to company results Maximize participant upside/ downside opportunity Ability for individual to directly impact payout Fully meets the goal Partially meets the goal Does not meet the goal

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Incentive Plan Metrics

Source: Radford Global Technology Survey Practices Report (Canada), Q2 2014 edition.

• Most companies use sales/revenue level or growth, profit/income and other

non-financial measures as their main bonus metrics

• Using a balanced scorecard with non-financial metrics reflects priorities; look

back on measures vs. priorities and successes

• Track performance vs. plan to examine goal setting

Bonus Metric

*(more than one may apply)

% of Companies Example Scorecard (Weighting) Sample Target Goal

Sales/Revenue Level or Growth 78% 40%

• 10% year-over-year

Profit/Income 75% 30%

• $150M operating income

Other Non-Financial 72% 15%

• Implement HRIS by Q2

Customer Satisfaction 22% 15%

• Customer satisfaction at 8.5

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Funding Gate

Source: Radford Global Technology Survey Practices Report (Canada), Q2 2014 edition.

• Most companies expect to fund formal bonus plans (based on FY 2014

performance), with 76% reporting payouts similar to 2013

• Thresholds and maximums signal good plan governance to shareholders
• In Radford’s experience, mature companies tend to have a narrower

performance range and steeper payout curve; less mature – wider range and flatter curve

% of Companies and Policy Levels

Threshold Requirement Prevalence 66% Performance Level 78% Funding 52% Maximum Requirement Prevalence 59% Performance Level 140% Funding 159%

80% 85% 105% 50% 60% 100%

2012 2013 2014

Example Historical Tracking

Corporate Goal Attainment vs Plan Funding/Payout

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Total Variable Bonus Payments

Source: Radford Global Technology Survey Practices Report, (Canada) Q2 2014 edition.

• Canadian companies are spending slightly more than 1% of revenue on

incentive payments

• The large differences between the 50th and 75th percentiles highlights the

degree to which some companies push for a competitive advantage using incentives

• Expenditure varies significantly by company size and industry – choosing a

peer group is key; consider tracking over time

Total Variable Payments % of Base Payroll % of Global Revenue % of Global Operating Income 50th 75th 50th 75th 50th 75th

Canada Survey Totals 7.2% 11.8% 1.3% 1.9% 10.6% 28.1% Peer Group Your Company

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STIP Expenditure and Payout Curve

42% 9% 9% 52% 10% 9% 34% 5% 11% 32% 6% 11% PD OP FA Mkt % of HC ABC Co % of HC Mkt % of TI Spend ABC Co % of TI Spend

1

2.5 3.1 2.2 2.0 2.0 1.5 1.8 1.6 1.7 2.3 P3 P5 M3 M5 VP Mkt ABC Co 94% 99% 105% Average Actual % of Target by Rating Below Meets Exceeds How are incentives allocated by function? Degree of upside 90th vs. 50th Example: ABC Co Do payouts reflect performance?

Source: Radford Global Workforce Analytics Database, 2014. Radford Data Generator 2014.

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Sample Sales Compensation Dashboard

16.3% 14.5% CCOS (Global)1 $125 $178 Avg Actual Comp (000) (Global) 62.0% 100.6% Actual Commission as a % of Target (Global) 148% 192% LYA Incentive 90th/TI 50th What is the strategy for growing revenue and managing sales comp expense? How is the

• rganizational

composition (role types and levels) driving cost? How do quotas and incentive plan leverage impact total cost? How do quotas and incentive leverage impact pay differentiation?

Sales Acct Mgr. Lvl 3 – New Business

Company X Software

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Closing Thoughts

• Hiring sentiments are healthy, the majority of companies expect to remain the

same size into next year

• Merit budgets are generally consistent with past years at around 3%
• Gauging the degree of alignment between your overall organizational talent

and approach to differentiation is key (but remember, pay is only one of many pieces to the puzzle)

• Monitoring sales compensation performance and assessing the outcomes of

specific sales plan design decisions is critical to managing your program for your sales team

• See Radford’s Q3 Trends Report for the latest hot topic data on engagement,

use of new-hire bonuses, and more

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Questions? We’re here to help... Thank you!

Name Email Phone

• Trista Straver, Radford

trista.straver@radford.com +1 604.362.8355

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Incentive Plan Eligibility, Receipt and Targets

Source: Radford Global Practices Report, Q2 2014 edition. Radford Data Generator, Country Totals.

• 62% to 99% of employees across are eligible to participate
• Receipt rate can be affected by turnover and new-hire eligibility
• Evaluate egalitarian vs. performance-based philosophy (i.e., more receive less

competitive vs. less receive more competitive)

Radford Level Eligibility Receipt Market Avg Target Bonus %

Executive (VP and above) 99% 75%-80% 35%+ Director (M5/M6) 98% 75% 22% Manager (M3/M4) 93% 70% 14% Supervisor (M1/M2) 80% 42% 10% Expert/Principal (P5/P6) 88% 65% 16% Career/Advanced (P3/P4) 76% 60% 11% Entry/Developing (P1/P2) 70% 35% 7% Support Individual Contributor 62% 32%-55% 5%