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Compensation and Benefits

Compensation and Benefits. Trends and Business Planning Tad McIntosh, President and Founder , HumCap. New Graduate Compensation. Average college graduate receives roughly $50k per year (business degrees) Chemical engineer- 65k Computer Science - $62 k

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Compensation and Benefits

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  1. Compensation and Benefits Trends and Business Planning Tad McIntosh, President and Founder , HumCap

  2. New Graduate Compensation • Average college graduate receives roughly $50k per year (business degrees) • Chemical engineer- 65k • Computer Science - $62 k • Group Benefits are similar for new grads but less expensive for the company to provide based on the health risk

  3. Example Dallas Tech CompanyPariveda Comp and Benefits • Competitive salary • Base-lined annually to market conditions • 401(k) with a 4% match to employee contributions • Fully paid health premiums for all employees • Available Health Savings Account (HSA) • Profit sharing that compensates each person at each level based on performance of entire company • Delivered to team members in non-executive ranks before being distributed to senior team members

  4. Example 2 Tech CompanyAccenture Comp and Benefits • In addition to base salary, some Accenture employees are eligible for variable pay, OT pay, and other performance awards • Also, Accenture equity gained through share option grants and discounted share purchases • 401(k) 6% match from Accenture with 100% vesting after two years of service • Medical, dental, disability, life, legal, accidental death insurances • Flexible spending accounts and transportation program to use pre-tax dollars to pay health care and transportation expenses

  5. Trends in Compensation • Freezing pay was common for companies in 2009-2010 • Only 7% of companies claim they will freeze pay for 2011 • Technical companies will average around 3% salary increase • Majority of companies aiming to strengthen their pay for performance programs • Differentiating increases between low and high performers continues to be in focus • On average, for 2010, high performers received 4%, average received 2.5%, and low received 1.1% increase.

  6. Trends in Compensation • Use of variable pay has become more widespread • Provides the opportunity to reduce fixed costs • Allows considerable differentiation of award opportunities based on performance • Can motivate participants to focus attention and efforts on critical organizational initiatives to improve productivity • Multi-year variable pay • A valued retention tool when low salary increases and smaller annual incentive payout

  7. Trends in Health Benefits • Average annual premiums for 2010 were $5,049 for single, and $13,770 for family • 5% and 3% higher than the previous year, respectively- Large company averages • 99% of large firms (>200) offer health benefits in the future • 68% of small firms (<200) are likely to offer health benefits in the future • Towers Watson Survey

  8. Trends in Benefits • Major medical coverage will likely change more in future than in the past • 42% of employers believe that diminished benefit packages will be a likely outcome from health care legislation • Creates opportunity for companies to • Offer a more comprehensive benefits package • Make Choices on where to spend benefit dollars • Help Small companies compete with big ones • Be more of an anchor for companies that don’t change

  9. Health Cost Trend Data • Health care cost increases have reached a plateau — but are still three times the rate of inflation Average cost trends without changes to plan design and/or employee contributions would have been 8% in 2010 and are expected to be slightly higher (8.5%) in 2011.

  10. Affordability gap widens Cumulative health care costs have grown more than four times faster than workers’ earnings over the last decade, leading health benefits to become a much larger portion of employees’ total rewards. Active Workers’ Health Insurance Premiums Workers’ Earnings

  11. Employer survey • Employers are less confident they will offer health care benefits a decade from now • Confidence is below levels reported in 2003, when health care cost trends were upwards of 13% Yet confidence is higher over the shorter horizon: 71% are “very confident” about offering health care benefits five years from now.

  12. Start-up Planning • Survive the first 12-24 months in Business • Business means earning revenue not science projects or free web apps • Main goal in Business is Return on Investment for shareholders • HR and Benefits are necessary to grow but not to start a company

  13. Early Stage Start-up Ideas • Free pizza for work • Stock options / Equity for work • Keep costs as low as possible • Don’t pay what you don’t have • Plan on your money needing to last 3 times as long as reasonable business plan • Call on friends and family for help- if they don’t help, they either don’t like you or don’t believe what you are doing will work

  14. Early Revenue / Seed Funding • Some salaries can and will need to start • Be creative to get going • Money is not the only motivator • Salary is a benefit of employment not ownership • Perks can begin to kick in • Benefits can be added but are demotivating to take away

  15. A-Round • Funding is not always needed to have a real company • Real salaries should start at A round or revenues to substantiate commercial viability • PTO is normal but usually not taken • Some benefits should start • 401(k)- very important long term • Life • LTD- • Health

  16. Health Benefits Warning • Don’t get pulled into competing with the big company benefits • Be Creative on how you implement • Do NOT overbuy too soon!

  17. Benefits for Small Companies • Work environment is why many people leave big companies • Be a great place to work • Survey what people want • Set a budget and stick to it • Determine what is REALLY important to you and the employees • Free pizza

  18. Salaries • Base • Look at surveys • Look at what experience is necessary versus wanted • Can you fractionalize your need? • Can you outsource some things ? • Bonus numbers • Profit sharing

  19. Stock Options / Equity • Most Funded companies use as incentive • Equity is very expensive • Look long term value possibility • Be careful on what you do • Most options end up as worthless • Think Facebook story • Don’t promise what you can’t legally give • Consult the Lawyer that incorporated you

  20. Retirement • Everyone needs • Most start too late • Great benefit that is not too expensive

  21. Life & Salary Continuation • Very expensive bought individually • Much cheaper for companies to buy • LTD is a great benefit • You must communicate the value • You can offer this as employer paid • You can offer employee paid versions

  22. Voluntary Benefits • Helps fill out the benefit offering • Helps people customize the plan they need • Helps with pre tax / section 125 treatment • Very popular with small companies • Watch out for people being sold

  23. Summary • Think Long term • Think how can we start where we are and get better every year • Watch over buying at funding • Be smart by using “ Been there- done That” advisors • Hire good outside advisors at all levels • Lawyer- CPA – CFO- HR – • Fractionalize if you can

  24. HumCap can Help • Email questions or needs to me if I can help • Tad@HumCapinc.com • Tad McIntosh, HumCap Good Luck in your career and New Ventures!

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