How to use variable and other incentive How to use variable and other incentive pay for the purpose of enhanced pay for the purpose of enhanced employee retention in a fiercely employee retention in a fiercely

competitive labor marketcompetitive labor market

20052005

Elena KozlovskayaElena KozlovskayaAVON Russia ManufacturingAVON Russia ManufacturingCompensation&BenefitsCompensation&Benefits

TodayToday

Total Reward StrategyTotal Reward Strategy

Goals:Goals:

attracting motivation

retention

Key Key Principles:Principles:

competitive strength controllability

transparency

Total Reward Strategy:Total Reward Strategy: 4 Key 4 Key ComponentsComponents

Compensation:• Base Salary• Incentives• PDP-Bonuses• Recognition Awards

Benefits:• Medical/Health• Lunch vouchers• Company transportation allowance • Discount on Company’s goods• Additional vacation days• Company car• Mobile phone

Workspace environment:•Respect •Integrity•Fairness•Teamwork•Accountability•Communication•Risk-taking

Training and Development: Performance Development Process - PDP• Technical training• Leadership training• Management skills• Feedback and coaching• Responsibility for projects

Compensation PhilosophyCompensation Philosophy

To attract, motivate and retain associates, a company must provide a total compensation package that is highly competitive and related to individual and business performance

Total compensation for an associate is determined by Total compensation for an associate is determined by four factors:four factors:

Internal value of an individual position External competitiveness Individual performance measured by PDP Business performance

Compensation PackageCompensation Package

Base SalaryBase Salary - Pay for Competence IncentivesIncentives - Performance-based variable pay

plans that provide cash bonuses and stock options

– Management Incentive Plan for Directors - MIP– Management Stock Option Plan - MSOP– Year end bonus for all associates - LIP

AwardsAwards - Cash compensation to individuals or teams for specific achievements that are outside the scope of normal

responsibilities or significantly exceed them

– PDP-Bonuses– Other Awards

What Is PDP?What Is PDP?

Progress ReviewPerformance Review

Coaching & Mentoring

(Ongoing)

Performance & Development

Planning

Stage 1 - Performance and Development PlanningStage 1 - Performance and Development Planning Setting goal and competency performance objectives Creating the development plan Conducting Career Development discussion Conducting the performance planning discussion

Stage 2 – Progress Review Stage 2 – Progress Review Conducting the progress review meeting Providing ongoing coaching and feedback Giving development support

Stage 3 - Performance ReviewStage 3 - Performance Review Assessment of performance Completion of the PDP appraisal form Conducting the performance review discussion

LTIP & MSOPLTIP & MSOP

What is the Purpose of LTIP & MSOP?What is the Purpose of LTIP & MSOP? Recognize and reward for performance Encourage each recipient to “Think and Act” like an

owner To lock in interest of recipient with interest of

shareholders - create value for the company and shareholders

Enable recipient to build up an equity/ownership stake in the company

LTIP & MSOPLTIP & MSOP

What is a Stock Option?What is a Stock Option?

An opportunity to purchase a share of stock at a fixed price for a specified period of time. Eligibility and participation is for all Directors and above MSOP grants are limited to 30% of eligible participants

– Granted, based on General Management proposals, to high performers, high potentials, and managers with critical skills

– Participation in one year does not imply participation for the future years

How MIP WorksHow MIP Works

Promotes globalization– Balances Global and local performance

Measures sales as well as earnings Focuses on key performance indicators Attracts, retains, and rewards world-class talent

– Competitive targets set to local markets

How MIP WorksHow MIP WorksAward

OpportunityMeasures

Performance Assessment

Payout

MIP Target StructureMIP Target Structure– Target bonuses expressed as a percent of base salary– Countries assigned to a structure based on local

market data– Targets for new hires and promotions determined by

external market data as well as internal equity

Eligibility

MIP EligibilityMIP EligibilityBased on local market practice

How MIP Works - ExampleHow MIP Works - Example

Determine Country Financial

Performance

50% of target award based

on country net sales and operating

profit performance using a grid

with maximum payout of

200% of target

Determine Corporate Financial

Performance

20% of target award based on Global net

sales and EPS

performance using a grid

with maximum payout of

200% of target

MIPMIPAwardAward

Step 2

Step 3

Establish Country

Scorecard Performance

30% of target award based on

country scorecard measuring KPI’s,

unforeseen events, etc.

with maximum payout of 200%

of target

Step 1

MIP Target: MIP Target: 8,5% of annual salary8,5% of annual salaryComponents:Components:European Operating Profit/ European Net Sales 50%Global Element – EPS/ Net Sales 20%European Cash Flow from operations 10%European Gross Margin 10%European Order Fill Rate 10%

8,5%8,5% of annual salary - plan fulfillment of annual salary - plan fulfillmentup to 17%up to 17% - outstanding results - outstanding results

How MIP Works - ExampleHow MIP Works - Example

PDP PDP 1 1 →→ Total MIP Award = Calculated amount Х Total MIP Award = Calculated amount Х 1,151,15

PDP-Results Impact:PDP-Results Impact:

Payment:Payment:

Base Salary Base Salary – – pay for pay for

competencecompetence

Awards (incl.PDP-Awards (incl.PDP-Bonuses)- Bonuses)- pay for pay for individual performanceindividual performance

Incentives – Incentives – pay for business pay for business

performance performance reflecting individual reflecting individual

performanceperformance

Compensation PackageCompensation Package

THANK YOU!THANK YOU!