Compensation and Benefits Trends and Business Planning Tad

Compensation and Benefits Trends and Business Planning Tad Mc. Intosh, President and Founder , Hum. Cap

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

Example Dallas Tech Company Pariveda 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

Example 2 Tech Company Accenture 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

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.

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

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

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

Health Cost Trend Data Health care cost increases have reached a plateau — but are still three times the rate of Average cost trends inflation 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.

Affordability gap widens Active Workers’ Health Insurance Premiums 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. Workers’ Earnings

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.

Start-up Planning Survive the first 12 -24 months in 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

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

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

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 LTDHealth

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!

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

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

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

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

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

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

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

Hum. Cap can Help Email questions or needs to me if I can help ◦ Tad@Hum. Capinc. com ◦ Tad Mc. Intosh, Hum. Cap Good Luck in your career and New Ventures!