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A 2005

How to use variable and other incentive pay for the purpose of enhanced employee retention in a fiercely competitive labor market. Elena Kozlovskaya AVON Russia Manufacturing Compensation&Benefits. A 2005. A Today. Goals: attracting motivation retention.

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A 2005

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  1. How to use variable and other incentive pay for the purpose of enhanced employee retention in a fiercely competitive labor market Elena Kozlovskaya AVON Russia Manufacturing Compensation&Benefits A2005

  2. AToday

  3. Goals: attracting motivation retention Key Principles: competitive strengthcontrollability transparency A Total Reward Strategy

  4. ATotal Reward Strategy:4 Key Components • Workspace environment: • Respect • Integrity • Fairness • Teamwork • Accountability • Communication • Risk-taking • 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 • Training and Development: Performance Development Process - PDP • Technical training • Leadership training • Management skills • Feedback and coaching • Responsibility for projects

  5. Compensation 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 four factors: • Internal value of an individual position • External competitiveness • Individual performance measured by PDP • Business performance

  6. Compensation Package • Base Salary - Pay for Competence • Incentives- 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 • Awards- 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

  7. Performance & Development Planning Coaching & Mentoring (Ongoing) Progress Review Performance Review What Is PDP? • Stage 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 • Conducting the progress review meeting • Providing ongoing coaching and feedback • Giving development support Stage 3 - Performance Review • Assessment of performance • Completion of the PDP appraisal form • Conducting the performance review discussion

  8. 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

  9. LTIP & MSOP 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

  10. How 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

  11. How MIP Works Payout Performance Assessment Measures Eligibility Award Opportunity • MIP Eligibility • Based on local market practice • MIP 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

  12. How MIP Works - Example Step 2 Step 3 Step 1 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 MIP Award 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 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   

  13. How MIP Works - Example MIP Target: 8,5% of annual salary Components: European Operating Profit/ European Net Sales 50% Global Element – EPS/ Net Sales 20% European Cash Flow from operations10% European Gross Margin10% European Order Fill Rate10% Payment: 8,5% of annual salary - plan fulfillment up to 17% - outstanding results PDP-Results Impact: PDP 1 → Total MIP Award = Calculated amount Х 1,15

  14. Compensation Package Base Salary – pay for competence Incentives – pay for business performance reflecting individual performance Awards (incl.PDP-Bonuses)- pay for individual performance

  15. THANK YOU!

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