State Board of Administration of Florida (SBA) Compensation Consulting Services AUGUST 16, 2012 Table of Contents • Why Mercer? 2 • Mercer project team 3 • Background and objectives 4 • Project plan 5 • Estimated timing 10 Appendices I. Project Team Biographies 11 II. About Mercer 17 MERCER August 16, 2012 Why Mercer? Mercer recognizes that SBA has a choice of vendors and should pick the best company to help ensure the continued success of the business. It is our belief that Mercer is the logical partner for SBA for the following reasons: 1) Experience - Mercer has done similar projects for the following entities which helps give us the background and understanding of the various forces and issues: Georgia Division of Investment Services New York State Common Retirement Fund New York University CALPers Ohio Public Employees Retirement System Georgia Office of The Treasurer Colorado Public Employees’ Retirement Cornell University Alcatel-Lucent Association University of California 2) Investment Management Group & Compensation Consulting Group: Mercer’s multi-disciplinary team combines the best thinking from a compensation design perspective with leading edge investment management expertise 3) Mercer will invest multiple senior consultants on this project to ensure the best thinking for SBA and to provide availability and access to SBA MERCER August 16, 2012 2 Mercer Team Project Role Mercer Team Project Responsibilities Relationship Manager and Josh Wilson • Responsible for ensuring client satisfaction with Mercer team and Strategic Advisor deliverables, project billing/budget and contractual arrangements • Provide guidance, strategic advice, assist with interviews and design Project Lead Jan Olson • Provide overall project direction and guidance • Lead key interview and working sessions • Lead Incentive development • Accountable for all deliverables Project Manager Jon Mason • Lead market pricing and pay structure development • Serve as project manager, coordinating all project activities for SBA and Mercer project team members Technical Advisor Nanci Hibschman • Provide perspective from other similarly situated organizations (CALPers) and assist with market benchmarking and incentive plan design Thyrso Pizzoferrato • Provide investment management input particularly as it relates to target setting, establishing performance criteria and understanding benchmarks Additional Resources Associates • Conduct analyses and Analysts • Document results • Maintain project plan Mercer’s engagement team biographies are located in Appendix I. MERCER August 16, 2012 3 Background and objectives Background • The SBA’s existing compensation program has been in place for a number of years – Pay grades and ranges were last updated in 2006 • A 2009 review by an external consultant found: – Salaries and pay ranges were not competitive – Pay compression and internal equity issues relative to newly hired staff • Periodic consultant studies have identified issues regarding competiveness of investment staff compensation • Some recruitment and retention funding has been provided in annual operating budgets and deployed by the SBA to begin to address the most serious competitive issues • A modest incentive program for certain investment staff has been in place for much of the last decade, but payouts under the program have not been budgeted for several years • Given the importance of recruiting and retaining highly skilled, high performing staff, a more comprehensive review is required Objectives • Review and recommend a sustainable classification and compensation structure for all positions at the SBA – Assure it meets the organization’s objectives of aligning interests and prudently addressing human capital risk issues MERCER August 16, 2012 4 Scope of services includes four primary areas PreliminaryPreliminary responsibility:responsibility: MercerMercer SharedShared TasksTasks (Mercer(Mercer && SBA)SBA) 11 Planning and 22 Competitive 33 Compensation 44 Communication Strategy Development Pay Analysis Framework Development of Results Conduct kick-off /planning meeting Define appropriate comparator groups Develop proposed salary ranges and Develop final report Discuss and define SBA stakeholder Identify benchmark jobs and determine incentive targets – Competitive pay practices roles and participation job matching strategies Slot benchmark jobs to grades – Competitive pay methodology Collect and review business and Collect job documentation Compare employee compensation levels – Proposed incentive plan compensation program information Match SBA jobs to comparable survey to salary ranges and target total cash mechanics, design features, and Plan and conduct focus groups and descriptions opportunity rationale IAC and executive interviews Confirm survey matches with the SBA Review results with the SBA project team Conduct meeting with Mercer and Develop statement of compensation project team Develop process for slotting non- SBA project teams to review report program objectives for IAC approval Collect competitive market data benchmark jobs Prepare presentation materials Compare employee compensation Assign jobs to grades in collaboration Participate in meetings with key levels to market data with the SBA Project Team constituencies as requested Review results with the SBA Discuss incentive plan practices and identify key issues that may impact incentive plan design Outline design considerations and develop high-level outline of key design elements Agree on overall design framework Establish funding requirements Test and refine specific performance measures, weights and linkages Finalize participation, award guidelines, time period, performance measures, governance, and costs MERCER August 16, 2012 5 1 2 3 4 Preliminary Project Plan – Phase 1 Illustration of compensation objective statement inputs Illustrative A total compensation philosophy includes explicit, comprehensive principles that guide pay design and management Degree of differentiation needed in the compensation strategy to Segmentation 1 support unique requirements for different workforce segments Purpose of each compensation vehicle 2 Role of each element (e.g., base salary, incentives, benefits) 3 Comparator group(s) Competitive talent market 4 Competitive positioning Target positioning, mix 5 Performance orientation Differentiation, time horizon, point of measurement, metrics 6 Internal equity Importance of the internal relative value of work Degree of cost control required to ensure affordability and 7 Affordability sustainability 8 Governance Decision-making structure, management responsibility 9 Communication Approach and vehicles for information sharing 10 Administration Approach and point of management including regulatory compliance Mercer 4 MERCER August 16, 2012 6 1 2 3 4 Preliminary Project Plan – Phase 2 Illustration of employee compensation comparison with market Illustrative Data ABC Co. 11% Base Salary Deviation from Market Median by Job Family 9% 7% 4.5% 5% 3.0% 3% 1% - 1% % Deviation% from Median - 3% -3.5% - 5% -5.3% -5.7% - 7% -6.4% - 9% -7.6% Job Family Job Family Job Family Job Family Job Family Job Family Overall #1 #2 #3 #4 #5 #6 Base Salary and Total Cash Deviation from Market Median by Level Base to TCC to # of # of Organization Level Mkt 50th Mkt 50th Emps Jobs Ratio Ratio Senior Management 5 5 95% 85% Director 8 8 98% 91% Management 6 6 91% 86% Professional 20 9 93% 87% Hourly 36 6 86% 85% Overall 75 34 94% 88% MERCER August 16, 2012 7 1 2 3 4 Preliminary Project Plan – Phase 3 Illustration of salary structure design methodology Illustrative Example - Design Issues Preliminary Structure with Benchmark Jobs BaseBase paypay policypolicy lineline Pay Range HRIS HR Generalist OD/Performance/Training NumberNumber ofof jobjob gradesgrades MidpointMidpoint progressionprogression Career Market Compa- Career Market Compa- Career Market Compa- Min Mid Max Grade Level Rate Ratio Level Rate Ratio Level Rate Ratio RangeRange minimumminimum 14,400 18,000 21,600 1 15,840 19,800 23,760 2 Range maximum Range maximum 17,424 21,780 26,136 3 Other Considerations 19,166 23,958 28,750 4 RangeRange spreadspread 21,083 26,354 31,625 5 RangeRange overlapoverlap AlignmentAlignment withwith marketmarket 23,191 28,989 34,787 6 25,510 31,888 38,266 7 Number of structures Number of structures SkillSkill responsibilityresponsibility distinctionsdistinctions 28,062 35,077 42,092 8 3 $ 36,000 103% 30,868 38,585 46,302 9 Geographic differentials Supervisor/subordinate relationships Geographic differentials Supervisor/subordinate relationships 33,954 42,443 50,932 10 4 $ 43,000 101% 4 $ 42,000 99% Etc.Etc. Job/payJob/pay progressionprogression 37,350 46,687 56,025 11 5 $ 44,000 94% 41,085 51,356 61,627 12 AdministrativeAdministrative considerationsconsiderations 45,193 56,492 67,790 13 5 $ 55,000 97% 49,713 62,141 74,569 14 54,684 68,355 82,026 15 6 $ 68,000 99% 6 $ 68,000 99% 60,152 75,190 90,229 16 66,168 82,710 99,251 17 9 $ 80,000 97% 9 $ 80,000 97% $350,000 72,784 90,980 109,177 18 9 $ 90,000 99% Pay Structure 80,063 100,079 120,094 19 10 $ 100,000 100% 4th Quartile 88,069 110,086 132,104 20 10 $ 106,000 96% 96,876 121,095 145,314 21 $300,000 3rd Quartile 106,564 133,204 159,845 22 2nd Quartile 1st Quartile $250,000 Market 60th %ile Cost Impact Modeling Proposed Structure $200,000 Amount to Amount Job Mkt Base 50th Annual Base Amount to Amount to Market 50th Over # < # > # of Code Job Title Percentile Employee Name Salary Minimum Midpoint Maximum