For the Public Good. The Management Disincentive. Top Earners in 2013

Transcription

1 Relative Pay For the Public Good Innovations in Competitive NotForProfit Compensation January 23, 2015 Brad Kelly, Partner The Management Disincentive Private Sector How Can We Narrow this Gap? Management Seniority Public Sector 2 Top Earners in 2013 Top 10 TSX Earners: Average Total Compensation: $23.67 Million Up 25.2% from 2012 Global Governance Advisors & The Globe and Mail: A breakdown of Canada s top executive earnings, June 2, 2014 Top 10 Ontario Public Sector Earners: Average Total Compensation: $866 Thousand Down 6.2% from 2012 Global Governance Advisors Tabulations from the 2014 Ontario Sunshine List What discourages these executives? What motivates these executives? 3 1

2 The General Public Lacks Context 4 Misguided Paradigms Still Exist NotForProfits Private Organizations Under Worked Too Bureaucratic Job Security Over Worked Freedom Job Insecurity 5 Treatment is Different Why the double standard? Private Sector You need to spend money to make money! NotforProfit Sector Do more with less money! 6 2

3 Belief System Must Change Dan Pallotta: Charity Case Society should not pay people to help others Should never spend on advertising Should never take risks It takes time to build things out You can t risk capital to generate more profit How can we motivate people within notforprofits? 7 Pressure Plays a Role At Risk Pay Should Help Cut Spending Media Voters Public Legislature Government Cabinet Ministry Executives Department HR Dept Staff 8 What Do People Need? Abraham Maslow s Hierarchy of Needs, 1943 How Do You Show Support? 9 3

4 Process is Important Engagement is Key Design Payout Strategy & Business Objectives Define Targets Perfect Administration Incentive Design BuyIn Board/Government Oversight Risk Assessment Board Approves Design Performance Evaluation Stress Test Evaluation 10 Positive Incentive (At Risk Pay) Plans Effective Plans: Are clear on expectations and process Promote buyin Based on influence Assess attainability Are simple Rely on strong communication Are renewable Are affordable 11 Good Plans are Strategic Put some thought into strong performance objectives A strategic approach goes a long way Include people Gain buyin Increase accountability Limit number of objectives Break down large/ overwhelming tasks Group goals can be powerful 12 4

5 Organizational Value Unit Value Good Plans are Strong Messages Think about how objectives should be weighted How will weightings change perceptions? Importance Other objectives Personal perceptions Be transparent Show related dollar amounts May need to experiment 13 Current Examples Change has started Public Pensions are leading the way Governments are adopting at risk pay plans Fraternals are getting creative Charities are establishing performance hurdles 14 Phantom Equity Plans Provide alignment with longerterm goals Unit value is based on quantifiable measures Grants can have performance modifiers Deferrals provide tax breaks Fluctuates like real stock Organizational Value Unit Value 15 5

6 Millions $ Millions $ Thousands (#000) Thousands (#000) Thousands ($000) Thousands ($000) Money The Funding Dilemma Incentives can be self funded Can use a percentage of savings / revenue Savings/Revenue Net Benefit Performance Incentive 16 Modeling is Powerful (Example) Low Unit Value High Unit Value Phase 2: Accumulted Value of Granted DUs General Projection Phase 2: Accumulted Value of Granted DUs ThreeYear Performance Unvested DU Value 1,200 1,000 Unvested DU Value Phase 2: Percentage of Allowable Dilution Amount General Projection Phase 2: Percentage of Allowable Dilution Amount ThreeYear Performance % 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Allowable Dilution % Remaining Allowable Units Total Unexercised Units Dilution % % 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Allowable Dilution % Remaining Allowable Units Total Unexercised Units Dilution % 17 Modeling Sets Minds at Ease (Example) Establishing new incentive levels can cause worry Scenario 1 Scenario Max Incentive Net Premiums 4.00 Max Incentive Net Premiums % Growth 50% Growth 75% Growth Net Premium Sales Growth 25% Growth 50% Growth 75% Growth Net Premium Sales Growth Minimal changes to differential provided assurance 18 6

7 Public Messaging is Important Strategic messages may be required Determine the value of the performance Communicate the scope of the responsibility Identify public/ stakeholder benefits Value Sharing Ratio OneTime Payout Ongoing Public Benefit 19 Don t Forget the HOW Think about how you want targets achieved How should they act? Explore associated risks Additional goals can help Assess associated behaviours Include ethics in the incentive design 20 Good Plans Go a Long Way Money is good but it s not everything Show support Acknowledge value Gain trust & buyin Motivate appropriately Get your message straight Abraham Maslow s Hierarchy of Needs,

8 For Further Information For More Information Brad Kelly Partner Phone: (416) LinkedIn: ca.linkedin.com/in/bradkelly1/ Miami New York Toronto Calgary 8