©2007 Pearl Meyer & Partners When Surveys Collide May 8, 2007

©2007 Pearl Meyer & Partners

When Surveys Collide

May 8, 2007

2©2007 Pearl Meyer & Partners

Artist & Cast Introductions

Gene Baker, Keane

Ken Cardinal, Pearl Meyer & Partners

Patrice Daprino, IBM

Tina Mulligan, Nortel

Andrea Sears, Sprint Nextel


The Problem

Many firms use multiple survey sources and the numbers from these sources may or may not match.

Compensation professionals may be challenged by data that is inconsistent with data they are using.

One thing is certain, the answers are always as much art as science…

+


Today

• We’ll explore typical problem areas

• Handling multiple survey sources• Dealing with internet data• Differences between types of data

» Sales» Executive» Professional» Administrative

• Geographic issues• Industry issues• Job scope issues• International data issues


Collisions

• We’re talking about collisions of competing information.

• In our discussion, we’ll also introduce situations compensation professionals routinely face

• Difficult employees & managers• Employees with access to the internet• Employee distrust of “management”• Base salary vs. total cash compensation• Internal equity issues


Our First Example

• Concerns looking at survey data from within

the same survey…


Actual Survey Data

CHiPS P&M Total Compensation Survey

Job Family Family Code AR

Job Level Age to Date 2/14/2007 Survey Job Code ARI3

Industry/Region Aging Factor 0.00%

Position Summary / Demographics J ob Family Description:

# Incumbents Reported: 9608

# Companies Matching: 175

Years Tenure: 9.1

Average Experience: 20.3

% of Employees with Exempt FLSA Status: 100%

Survey Effective Date: 4/1/2006

Total Aging Factor: 0.0%

Compensation Summary

Aggregate BaseTotal Target

CashTotal Actual

CashTotal Actual

Direct

Average $67,880 $71,904 $71,792 $74,278

10th Ptile $54,808 $57,720 $57,474 $57,685

25th Ptile $59,650 $62,400 $62,361 $62,576

50th Ptile $66,322 $69,628 $69,464 $70,000

75th Ptile $74,545 $79,044 $78,882 $80,545

90th Ptile $83,763 $90,414 $89,921 $96,107

The Finance/Accounting Roll-Up job family is a combination of the following job families - Accounting (AC), Cost Accounting (CA), Finance (FA), and Finance/Accounting Default (AF).

Finance/Accounting Roll-Up

Individual Contributor 3

All Firms

$0.0 $20.0 $40.0 $60.0 $80.0 $100.0

10th Ptile

25th Ptile

50th Ptile

Average

75th Ptile

90th Ptile

Base STI LTI

CHiPS P&M Total Compensation Survey

Job Family Family Code AR

Job Level Age to Date 2/14/2007 Survey Job Code ARI3

Industry/Region Aging Factor 0.00%

Position Summary / Demographics J ob Family Description:

# Incumbents Reported: 710

# Companies Matching: 60

Years Tenure: 6.2

Average Experience: 18.1

% of Employees with Exempt FLSA Status: 100%

Survey Effective Date: 4/1/2006

Total Aging Factor: 0.0%

Compensation Summary

Aggregate BaseTotal Target

CashTotal Actual

CashTotal Actual

Direct

Average $81,003 $86,523 $86,241 $95,083

10th Ptile $64,716 $68,209 $68,000 $69,626

25th Ptile $72,000 $76,205 $76,211 $77,400

50th Ptile $81,618 $87,026 $86,209 $89,149

75th Ptile $90,210 $97,024 $95,000 $108,773

90th Ptile $95,525 $103,948 $104,453 $128,261

The Finance/Accounting Roll-Up job family is a combination of the following job families - Accounting (AC), Cost Accounting (CA), Finance (FA), and Finance/Accounting Default (AF).

Finance/Accounting Roll-Up

Individual Contributor 3

Silicon Valley

$0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0

10th Ptile

25th Ptile

50th Ptile

Average

75th Ptile

90th Ptile

Base STI LTI

Base

$81,003

Base

$67,880

U.S. wide

Silicon Valley


Our Next Examples Are A Little More Fun…

• A “standard” collision

• An internet collision

• An international collision

• An executive compensation collision

• A sales compensation collision


Survey Collision – Product Development

Survey Source Number of

Companies

Number of

Incumbents

Base Salary

(50th Percentile)

Survey A 205 3,284 $84,268

Survey B 62 492 $88,041

Survey C 4 11 $69,790


What Causes Collisions?

Survey participants

• Differences in the participant base• Number• Type• Size

• Is there an industry focus?

• Are your competitors in the survey?


Job Descriptions

• Survey A: Creates, designs and develops the company’s new products and/or

services. Translates concepts and technologies into product design. Innovation

and creative problem solving are required. May act in a lead role for a product

development team.

• Survey B: Plans and develops new products. This senior role leads a team of

product developers through concept creation, technical development, testing, and

rollout of the product to market. Experience required is typically 8 years post-

college.

• Survey C: Manages the lifecycle of a product through development, rollout,

evaluation/maintenance, and retirement. May be assigned a single product or

multiple products. Typically reports to a Product Development/Management

Director.



Job descriptions

• Level of detail

• Tasks included

• Complexity

• Level of experience

• Reporting relationships

• 70 - 80% content match



Survey cuts

• Where is your labor pool?

• Which scope is most important for this job?

• Revenue• Industry• Headcount• Geography• Pay mix / quota (for sales jobs)



Leveling

• How many levels?

• What are the level cutters?

• Knowledge

• Complexity

• Experience

• Education

• Reporting relationships



Survey Reliability

• Year-over-year data stability• Survey age• Size of incumbent database

Input Insights

• Which companies matched that job?• Average / median revenue of matching companies



Survey Factors

• Participants / relevance• Age / history• Reliability

Job Factors

• Job descriptions• Data cuts • Leveling • Companies matching

Remember:

Comparing data from multiple survey sources is an ART, not a SCIENCE!


Let’s Look At Some Survey Data – Internet

POSITION TITLE AVERAGE 2007

BASE SALARY

Engineer $85,000

Research Scientist $97,500

Technician $41,300

Hot Off the Press…Excellent Engineer Announces…


Script 2 – Takeaways

Survey Data Reporting

• Where data originated

• How data is collected

• Self-reported

• Provided by compensation professionals

• Involvement of third-party provider

• Confidentiality measures



Determining A Reliable Survey Source

• Robust benchmark job descriptions

• Detailed leveling guide

• Job responsibilities

• Knowledge

• Problem complexity

• Impact on business

• Education and experience

• Job matching, preferably face-to-face

• Proven methodology



Determining A Reliable Survey Source

• Proven methodology

• Quality controls in data collection and analysis

• Data inspection

• Process for handling outliers and data anomalies

• Following safe harbor guidelines

• Dealing with data dominance

• Ensuring no one firm drives the results

• Survey stability over time

• Historical record

• Trending

• Confidence in the data


Midpoint

Level 1 95,000Level 2 130,000Level 3 184,000Level 4 263,000Level 5 375,000Level 6 540,000

Software DevelopmentIndividual Contributors

Company XYZ Base Pay RangesPeriod Jan 1 200X - Dec 31, 200X

Fixed

Number of Number of Compensation

Companies Employees 50th Percentile

Level 1 12 50 102,321

Level 2 14 70 144,592

Level 3 14 80 203,422

Level 4 13 73 289,307

Level 5 10 58 424,063

Level 6 6 30 599,228

ABC Surveys

Software Development Engineer -- Job Code ABC

Script 3 – Data


Understand elements included in pay figures and how

elements are reported.

Allowances

• Allowances (housing, transportation, meals, etc.) in addition to base

• Fixed amount or percent of base pay

Total Annual Pay

• Monthly pay increments • Commonly referred to as guaranteed or 13th / 14th month bonus



Understand the “make-up” of the overall incumbents

included in the survey results.

• Participating Companies

• Survey results can vary significantly based on the companies that are included in the survey results.

• Companies with small populations may not offer full benefit packages / stock options.

• Geography

• Like the U.S., significant differences exist within countries.



Let’s Look At Some Survey Data - Executive

Market Total Cash Comp for Executive Job

0

100

200

300

400

500

600

0 500 1000 1500

Revenue

Pre

dic

ted

To

tal C

as

h

Co

mp

266K


Take Away

• Examine the nature of the position you’re reviewing and

determine how to compare it.

• Compensation is about more than looking at a page and

finding a number.

• The art and science is often as simple as making sure

you’re looking at the right page…

• And don’t get too bruised if sometimes, somebody goes

over your head.


Sales Compensation Benchmark – Key Questions

• Did we select the right data to use in our

compensation planning?

• Where does the market analysis “collide” with our

plan design?

• Things to look for and compare to your firm

• Caps• Market data payout curves• Market difficulty in reaching quota • Assign compensation credit towards commissions


Sales Compensation Benchmark – Market Analysis

Compensation Report #Inc 2,501Current Year Avg 10%ile 25%ile 50%ile 75%ile 90%ile TechAgeBase Salary 100.0$ 60.0$ 75.0$ 100.0$ 130.0$ 155.0$ 100.0$ % Receiving Cash Incentives 100% 100% 100% 100% 100% 100% 100%2006 Actual Incentive 100.0$ 38.0$ 80.0$ 100.0$ 125.0$ 168.0$ 65.0$ Actual Total Cash Compensation 200.0$ 98.0$ 155.0$ 200.0$ 255.0$ 323.0$ 165.0$ Target Total Cash Compensation 200.0$ 110.0$ 170.0$ 200.0$ 260.0$ 300.0$ 200.0$ Base as a % of Target Cash 50% 55% 44% 50% 50% 52% 50%Quota in Millions 1.5$ 0.8$ 1.2$ 1.5$ 1.8$ 2.2$ 2.0$

Quota Achievement Level Prior Year 100% of Quota Expected to be:% Quota Total Earnings TechAge Performance 25% of Quota 125.0$ 100.0$ Less than expected 5%50% of Quota 160.0$ 130.0$ At expected 75%75% of Quota 185.0$ 160.0$ Above expected 20%100% of Quota 200.0$ 200.0$ 125% of Quota 275.0$ 325.0$ 150% of Quota 300.0$ 350.0$

Pay Policy Does your plan have a threshold Yes 75%

No 25%Does your plan have a cap Yes 75% if Yes, at what level of quota 157.4%

No 25%When is commission credit given: At Contract Signing 5%

At Booking 70%At Billing 15%

Our Industry Report - Sales Executive


Sales Compensation Benchmark – “Collision Page”

• What observations can we make

• Competitive compensation and aligned to market at Quota• Only 20% of sales employees exceeded quota• Degree of difficulty in reaching quota • Is the risk of missing quota sufficiently dealt with in the plan or

the earnings?

- We do not have a threshold {Positive} - We do not have a cap {Positive}- Our earnings lag market below quota {Negative}- We credit commissions on revenue {Negative}- Our quotas are higher than market {?}


Sales Compensation Benchmark – “Questions”

• What new questions emerge

• Do we actually lag the market? Is this a relevant question?Is Biff telling me the truth?

• Our pay relationship compared to market?

• Plan design problem compared to market?

• The right risk versus return when compared to market?


Sales Compensation Benchmark – “Questions”

• Recommendations

• Consider targeting total cash compensation closer to the 75th Percentile Our risk of missing quota “collides” with the market risk; While we may not lag at target, we lag in actual earnings.

• Consider paying on bookings

Market analysis shows common practice

Paying on bookings improves cash flow where difficult stretch quotas

• Look at top performers

Retention risk in difficult stretches during the year

• Stay within our CEO’s pay philosophy of asking for stretch performance


Sales Compensation Benchmarking

Sales Compensation Benchmarking is an art,

not a science.

It’s often not about the numbers, but about asking

the right questions and forming the right solutions.


Summary

• Lots of organizations use multiple surveys.

• All organizations have multiple sources of

information.

• Synthesizing survey and other information

requires an understanding of

• Where the information came from• How the information was developed• Reliability of the information

Documents

©2007 Pearl Meyer & Partners When Surveys Collide May 8, 2007