Case Studies: Compensation Consulting
For over 14 years, Vivient has been a leader in compensation consulting, advising startups to Fortune 500’s about how to design compensation plans which motivate their teams to perform at exceptional levels. Learn about typical client engagements and how we add value and impact performance for leaders across multiple sectors:
Avery Dennison Corporation
SITUATION: Avery Dennison, a Fortune 500 company with sales of $6 billion, manufactures and distributes labeling and packaging materials in over 50 countries. The company employs more than 26,000 people, yet its annual compensation process was manual, spreadsheet-driven, and inefficient. The total rewards team envisioned an automated system that would streamline compensation decisions and approvals for its employees worldwide.
VIVIENT ACTIONS: Avery Dennison retained Vivient Consulting to be the project manager and work closely with the internal Avery Dennison team from system design through implementation. The first system implementation started with automating the merit and bonus recommendations process in the U.S. using a customized Lotus Notes database. The success of this project led the team to expand the scope to include employees worldwide. For this next phase, Vivient worked closely with Avery Dennison to evaluate and select an outside software vendor and stayed on to project manage the implementation and subsequent roll-out. For several years after implementation, we continued working with the team to customize and continuously improve the compensation system to meet the changing needs of the various compensation programs and employee populations.
RESULTS: Today, Avery Dennison has an automated, centralized, and standardized system for processing merit, bonus, and equity grant recommendations for employees across the globe. This process enables business leaders to access and make compensation decisions quickly and efficiently, leading to better pay and business-related decisions. In recognition of the success and importance of this project, the internal total rewards team along with Vivient Consulting received Avery Dennison’s Leadership Excellence Award, the company’s highest form of recognition for outstanding achievement.
The Los Angeles Philharmonic Association
The LA Philharmonic Association, one of the world’s outstanding orchestras, has been a client of Vivient Consulting for many years. Our work includes reviewing compensation levels for their entire organization to ensure reasonableness vis-à-vis non-profit practices, as well as competitiveness to ensure that their culture of excellence endures. Our work resulted in pay programs that attract and retain the best and brightest talent needed to run this well-respected organization. We are pleased to help the LA Philharmonic fulfill its mission of enhancing the symphonic music experience for a broad and growing audience.
Strategic Hotels & Resorts
SITUATION: During the recession, the hotel industry was hit hard. Strategic Hotels & Resorts, a publicly traded hospitality company that owns luxury hotel properties in the U.S., Mexico and Europe, was no exception. In mid-2009, the Company’s stock traded slightly above $1, an all-time low. Although the Company was facing a difficult economic environment, the Board and management team felt that the stock market did not appropriately value the Company’s underlying real estate and human capital assets. As a result, the founder & CEO, along with a strong management team, launched an aggressive turnaround plan to improve asset management, restructure the balance sheet, and refinance debt. The Company needed an innovative incentive plan to support this turnaround strategy.
VIVIENT ACTIONS: For several years, Strategic Hotel & Resorts had retained Vivient Consulting to address multiple compensation issues, including executive and Board of Director compensation assessment, incentive plan design, severance and change of control provisions, and proxy disclosures.
At the time of the turnaround, the Company asked Vivient to lead a coordinated effort between senior management and the Board to develop a creative and motivational incentive plan. The objective of the plan was to focus key executives on significantly increasing the share price and market capitalization within three years.
Through an open and collaborative process, Vivient worked with the various constituents to discuss findings and obtain input on proposed plan designs. The process was challenging at times due to conflicting points of view, strong personalities, and constraints such as insufficient shares available for grant. Vivient balanced the interests and constraints to reach a consensus plan design, called the Value Creation Plan (VCP). The VCP provided a cash incentive pool to key executives, calculated based on a percentage of Company market capitalization, if the threshold stock price of $4 or above was achieved by the end of the three year performance period.
RESULTS: Motivated by this innovative incentive plan, the CEO and senior management team transformed the Company by executing a number of critical value-creating transactions. Investors recognized the effectiveness of the turnaround plan. During the final year of the VCP, the Company’s stock traded as high as $6.93, outperforming its peers and creating total shareholder return of 429%. With the VCP, the CEO and senior management team shared in the value created for shareholders. It was truly a win-win situation.
Financial Services: Banking
SITUATION: The new Chief Executive Officer wanted to execute a turn-around strategy of a closely held commercial bank. His mandate was to profitably grow the bank with a mid-term goal of allowing the original shareholders to monetize their investment through a sale of the bank. The Board’s Compensation Committee retained Vivient Consulting to design annual incentive plans and an equity program that would focus and reward executives and sales staff on achievement against key performance indicators. A pay-for-performance compensation plan was needed to help the CEO evaluate his talent and ensure that his team would be paid appropriately for their role and performance. This would be a significant departure from the bank’s past practice of discretionary bonuses.
VIVIENT ACTIONS: Vivient interviewed members of the Compensation Committee and executive team to understand the specific performance goals and compensation expectations. This proved pivotal as Vivient identified different expectations of compensation pay levels and pay mix given the various career stages of the executives and past compensation practices. In addition, different opinions emerged regarding quantitative vs. qualitative performance measures. By focusing on our benchmark compensation analysis and the bank’s strategy and performance goals, we developed a compensation philosophy and incentive programs that supported the bank’s goals and aligned with shareholders’ interests. We incorporated a “cafeteria-style” element where executives could trade one pay type for another to address their individual financial needs. In addition, we included a specific and limited method to include discretion in the incentive programs, allowing for a qualitative assessment of financial results.
RESULTS: The Compensation Committee approved the executive compensation philosophy and incentive plans, followed by CEO approval of the sales incentive plans. With strong leadership from the CEO and compensation plans to support his vision and strategy, the Bank achieved its performance targets and was acquired at a premium by a leading regional bank a few years later.
Publicly-Traded Restaurant Company
SITUATION: Facing shareholder pressure, a publicly traded restaurant company wanted to radically change it business model to become a franchised company rather than owning and operating company stores. To execute this strategic change, it charged an internal deal team to solicit prospects, and negotiate and close the store refranchise transactions. The company sought Vivient’s help to create a deal-based incentive plan that would reward the team to sell the stores profitably within a defined time period.
VIVIENT ACTIONS: Vivient worked with the VP of Human Resources, and the CFO and his finance team to understand the structure, economics and timing of the store refranchise transactions, the deal process, and individual and collective efforts of the deal team vis-à-vis other company employees involved in the refranchising effort. We determined the size, performance criteria and timing of the bonuses to reward deal team members for achieving immediate, short-term and long-term goals. We also factored in a discretionary component to enable the CEO to adjust bonuses based on a qualitative assessment of the deal team’s performance. After extensively modeling various performance scenarios, we developed a deal incentive plan that allowed the deal team to share in the value created in refranchising its stores.
RESULTS: This deal incentive plan jump-started the effort that led to a strategic redirection of the company. Soon after implementation, the Company successfully and profitably sold its company stores year over year. It ultimately achieved its goal of being a franchised company within its desired time frame.
PIMCO, one of the largest and most successful global asset management firms, asked Vivient Consulting to create communication materials in connection with the launch of one of its incentive compensation programs. In addition to writing employee-friendly materials that explained the proprietary program, we also developed an interactive excel-based calculator that explained elective features of the plan and allowed the recipient to model potential award payouts under various performance scenarios. PIMCO’s focus on rewarding its top talent is one reason for its continued success and we are pleased to have assisted them with this effort.
IAPMO – International Association of Plumbing and Mechanical Officials
SITUATION: With its expertise on how to deliver water, the earth’s most precious resource, IAPMO is a membership-based service organization that has protected the public’s health and safety for more than eighty-five years. The organization provides code development assistance, education, product evaluation and certification for comprehensive plumbing and mechanical systems around the world. The organization retained Vivient Consulting to ascertain whether its compensation programs were satisfying its mission to recruit, retain, and empower a diverse group of employees to maintain their leadership in the industry.
VIVIENT ACTIONS: Vivient Consulting and IAPMO have maintained a long-standing relationship that has lasted close to ten years. At the beginning, we helped establish an overall compensation philosophy and salary structure to guide the pay decisions for the various employee populations. Every few years since then, we benchmark the organization’s total cash compensation and benefits for all employees. Vivient employs a multi-faceted analytical approach using a blend of for-profit and non-profit market data as IAPMO operates both types of operations. Getting an up-to-date assessment of the market is increasingly important as the organization continues its rapid growth and the jobs change in scope and scale. Further, Vivient advises the IAPMO senior management on other compensation issues that may arise.
RESULTS: With Vivient’s help, the organization has the correct compensation structure in place to support its growth. It has been able to attract and retain key employees, making sure that the organization has the best and brightest talent to carry forward its mission.