Executive and management reward survey · 2017-04-27 · The past year has been quiet on the reward front, but there are key reward challenges for 2016 •There is pressure to find

Executive and management reward survey Reward in 2016

www.pwc.co.uk

December 2015

PwC

PwC executive and management reward survey 2015 – Details

December 2015Executive and management reward survey

Slide 2

Group tier definitions

Tier Definition

1 Group Chief Executive Officer (CEO).

2 Main board (executive directors).

3 Executive committee (ExCo) – The most senior executive level below the main board, typically comprised of core function heads and CEOs of major divisions.

4 The next layer of senior management below the ExCo. Sub-function heads and heads of smaller core functions are usually at this tier. May also include deputy-heads of core functions.

5 Heads of departments, smaller sub-functions and roles responsible for business areas that sit within a function or sub-function.

6 Senior professionals/management, forming the next reporting level/grade below Tier 5.

FTSE 100

58 companies

FTSE 250

72 companies

Private & Other

91 companies

Over 15,000incumbents

7 Group executive

Tiers/levels

5 Division executive

Tiers/levels

PwC

The main messages for 2015The past year has been quiet on the reward front, but there are key reward challenges for 2016

• There is pressure to find ways through reward to find and create adaptable talent and future skills

• Organisations seeking, through reward and performance to shift productivity and change behaviours to gain competitive advantage.

• Continued focus on driving greater value for money in a cost-constrained environment

• Organisations seeking to justify reward spend –And reviewing reward programmes at different levels

• Board-level reward practices cascading to lower management tiers

• Salary increases stable between 2-3%

• 2% salary increases forecast for 2016 pay reviews

• Two-thirds of companies expect next year’s salary budget to be the same as this year

• Pay ‘hotspots’ emerging with more focussed differentiation in key functions and for key talent

• Increased focus on governance around pay –and responding to regulatory change

• Greater incentive target transparency sought –particularly at senior levels

• Questions about whether current incentive models are fit for purpose and delivering value for money

• Bonus opportunities unchanged at most tiers

• Bonus deferral increased at two to three levels below main board

• Performance share plans remain the most common type of long-term incentive, but with more measures

• The trend to operate only one long-term incentive gaining strength

• The four most popular benefits offered by companies reflect the varying lifecycles of individuals at different stages of their career: pensions; private medical cover; buy or sell annual leave; employee share schemes

• There is a potential mismatch between the benefits that companies are willing to flex and the benefits employeesmost value

• Pensions flexibility will become more important over the next few years as taxation begins to bite lower down the management hierarchy

• New models emerging around pension to ensure employees can save for the future – and improved education

Slide 3


Overall remuneration Salary Incentives Pension and benefits

PwC

Reward priorities for the next 12 months?Performance management and equal pay will be key priorities over the coming year

0%

10%

20%

30%

40%

50%

60%

70%

Performancemanagement

Remunerationgovernance eg

policies andprocedures

Equal pay Compensationtechnology and

systems

Introduction offlexible benefits

Reduction in LTAfrom April 2016

Sales incentives

are focused onperformance management61%

are focusedon equal pay

46%

Slide 4


PwC

Looking forward to 2016We see the following areas as priorities for 2016

Business imperative Reward response

Add value to the business – increased productivity and behavioural change

Responding to regulatory change

Simplification

Maximising reward value

• Reviewing performance management and reward outcomes

• New recognition programmes

• Redesign of incentive structures

• Addressing root causes of pay gaps

• Managing reward spend across business units

• Alternative pensions vehicles

• Ensuring incentive plans are relevant and well understood

• Improved communications

• Providing choice and flexibility in the delivery of benefits

• Considering the employee value proposition

Slide 5


PwC

How do you plan to react to the following reward issues in 2016?

0% 20% 40% 60% 80% 100%

Changing the proportion and/or type of contingent and flexibleworkers in our business

Emerging trends in performance management

Adapting your reward offering to meet the needs of an increasinglydiverse workforce

A need to find and create adaptable talent and develop skillsneeded for the future

Digital transformation of business

Regulatory change in your sector

Taking action Considering action Need to think

Slide 6


PwC

Salary

1December 2015Executive and management reward survey

Slide 7

PwC

Salary budgetsSalary budgets are anticipated to be flat

0%

10%

20%

30%

40%

50%

60%

70%

Significantlylower

Slightlylower

About thesame

Slightlyhigher

Significantlyhigher

How does next year’s salary budget compare with your previous budget?

64%

plan to keep 2016salary budgetsbroadly in linewith 2015 figures

Actual 3%

Actual 2.4%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

2014 forecast(from 2013)



Exp

ecte

d b

ase s

ala

ry %

in

cre

ase i

nfo

rth

co

min

g y

ear

Expected base salary increasein next year

Slide 8


PwC

Actual base salary percentage increaseLower salary increases at all levels in 2015

Differentiation in salary increases outside of the 2-3% range in some industries and key functions

Employers may face pay ‘hotspots’ in particular industries or for particular skills over the coming months

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

2012 2013 2014 2015

Base s

ala

ry %

in

cre

ase

Tier 1 Tier 2 Tier 3 Tier 4 Tier 5

Slide 9


PwC

Talent shortages driving salary ‘hot spots’

0%

1%

2%

3%

4%

5%

6%

Custo

me

r

Te

ch

nic

al

HR

Leg

al &

secre

tari

at

Op

era

tio

ns

Fin

an

ce IT

Com

mu

nic

ation

s

Str

ate

gy

Sa

les &

ma

rke

tin

g

Ma

nu

factu

rin

g &

ope

ratio

ns

Salary increases by job function

0%

1%

2%

3%

4%

5%

6%T

ech

no

logy

Ba

sic

mate

rials

Co

nsu

me

r go

od

s

Fin

an

cia

ls

Te

leco

mm

unic

atio

ns

Con

su

me

r se

rvic

es

Indu

str

ials

Utilit

ies

Oil

& G

as

Salary increases by industry

Slide 10


While 2-3% dominates, there are certain areas – Namely Customer and Technical areas which are commanding increased budgets and may be considered pay ‘hotspots’ in 2016

Across industries, the impact of commodities prices is impacting the Resources sector, while planned budgets in the Technology sector is well above the market

PwC

Incentives and shareholding requirements


Slide 11

PwC

Annual bonus awardsBonus outcomes showed only small variations across mostjob levels

0%

20%

40%

60%

80%

100%

120%

140%

Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 Tier 6

Bonus awards as percentage of salary

2013 2014 2015

0%

20%

40%

60%

80%

100%

120%

140%


Actual annual bonus as % of maximum

2013 2014 2015

Slide 12


Bonus payments are stable as a percentage of salary, but there are small variations by job level. CEO bonuses are slightly up, while awards are slightly down at the lowest management tier

Bonus payments are also stable when measured as a percentage of potential opportunity. CEO bonuses reached 72% of the maximum in 2015 and Tier 6 awards were worth 60%

PwC

Annual bonus scheme structuresTarget and maximum bonus opportunities flat at most levels

90% 90% 75% 75% 65% 60% 40% 42% 30% 30% 25% 25%

180% 180%

150% 150%

120% 125%

80%75%

50%55%

50%55%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015


Target Maximum

% salary

Slide 13


Bonus scheme target and maximum thresholds are largely unchanged at senior levels, but there was a small upturn at the lowest management tiers

PwC

Bonus deferralIncreased use of bonus deferral, particularly at lower tiers

0%

10%

20%

30%

40%

50%

60%

70%

80%

2013 2014 2015

% o

f ro

les s

ub

ject

to c

om

pu

lso

ry d

efe

rral


Data not available

Slide 14


Once the preserve of senior executives, bonus deferral has become more common at lowermanagement levels

Bonus deferral is usually compulsory with normally around half of the award set aside for three years. In most cases, all the deferred bonus is paid out at a single point in time, cliff vesting, as opposed to phased vesting periods

PwC

LTIP approachesUse of PSP as only LTIP is the most common approach at all tiers

0%

10%

20%

30%

40%

50%

60%

70%

No LTI DMA only PSP only Options only Other LTIonly

DMA andPSP

DMA andoptions

PSP andoptions

PSP andOther LTI

DMA/ PSP/Options/Other LTI

% r

ole

s


Slide 15


Long-term incentive practice is dominated by performance share plans (PSPs), although other types of scheme continue to be employed

Participation falls away below the tier below the Executive population – and there is increased use of alternative designs

PwC

PSP policy award levelsPSP policy award levels edging up at most levels

0%

50%

100%

150%

200%

250%

2011 2012 2013 2014 2015

PS

P P

olicy a

ward

lev

el (%

of

sala

ry)


Slide 16


There are signs that companies are beginning to increase PSP policy award levels. The upturn is noticeable across all management tiers

PwC

PSP targetsPSP targets are changing

Slide 17


TSR remains the dominant PSP target, but increasingly used in tandem with other types of measure.

Nearly a quarter of PSPs are now based solely on performance measures outside the status quo of TSR and EPS.

Over 50% of FTSE 100 companies now have three performance measures or more.

0%

5%

10%

15%

20%

25%

30%

35%

TSR EPS TSR & EPS TSR & Other EPS & Other TSR, EPS &Other

Other

% plans

PwC

Shareholding requirementsIncreased use of share ownership guidelines at lower tiers and standardisation of requirement at board level

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

2013 2014 2015

Sh

are

ho

ldin

g r

eq

uir

em

en

t (%

of

sala

ry)

Size of shareholding requirement


71%

90% 90%

95%

67%

88%90%

90%

49%

59%

68%

85%

17%

28%30%

45%

1%4%

7%

17%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014 2015

Ro

les w

ith

sh

are

ho

ldin

g r

eq

uir

em

en

t (%

of

role

s)

% of roles with a shareholding requirement


Slide 18


PwC

Pensions and benefits


Slide 19

PwC

Benefits for a diverse workplaceMismatch between the benefits that companies are willing to flex and the benefits employees most value

0% 20% 40%

Life assurance – Self

Employee share schemes

Buy or sell annual leave

Private medical cover – Self or family

Defined contribution/benefitpension

Five most popular benefits

0% 20% 40% 60% 80%

Cycle to work

Travel insurance

Dental insurance

Healthcare cash plan

Buy or sell annual leave

Most flexible benefits offeredas part of a flexible package

0% 5% 10% 15% 20%

Gym membership

Childcare vouchers

Payroll giving

Healthcare cash plan

Cycle to work

Five least popular benefits

0% 20% 40%

Income protection

Life assurance – Self

Season ticket loan

Technology (e.g. computers/ tablets / phones)

Employee share schemes

Least flexible benefits

Slide 20


PwC

Pension scheme eligibilityAn increasing number of individuals at lower tiers now receiving salary supplements. Trend likely to pick up pace as the pension tax changes start to impact in 2016

0%

10%

20%

30%

40%

50%

60%

70%

Group Tier 1 Group Tier 2 Group Tier 3 Group Tier 4 Group Tier 5 Group Tier 6

Pension scheme eligibility % of executives

Defined contribution Salary supplement Defined benefit

Slide 21


PwC

For further information contact…update

PwC’s Pay Performance and Risk team supports clients with the strategic and operational aspects of pay using robust data to support decision-making.

We work with organisations to help them benchmark, develop and implement remuneration frameworks that cascade down through the organisation in a way that is relevant for the participant regardless of their level, and is effective in linking individual performance and corporate strategy.

We have extensive experience advising clients on better aligning reward with business strategy to drive key behaviours and improve performance. We have supported numerous clients in the implementation of innovative remuneration arrangements including management of key stakeholders. We can provide detailed advice on performance metrics drawing on our sector expertise within PwC and dedicated financial modelling experts.

Marcus Peaker

Pay Performance and RiskPartner

T: +44 (0) 20 7804 0249M: +44(0 ) 7808 404044E: [email protected]

Steve Tatton

Executive Reward Team Senior Manager

T: +44 (0) 20 7804 5688M: +44(0) 7702 697624E: [email protected]

Alastair Woods

Pay Performance and RiskDirector

T: +44 (0) 20 7804 8102M: +44 (0) 7834 250359E: [email protected]

Slide 22


PwC

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the

information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the

accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members,

employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to

act, in reliance on the information contained in this publication or for any decision based on it.

© 2015 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to the UK member firm, and may sometimes refer to the PwC

network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

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Executive and management reward survey · 2017-04-27 · The past year has been quiet on the reward front, but there are key reward challenges for 2016 •There is pressure to find