Technology Sector Sales Force Turnover

By: Robert Miller, Partner

Published: July 2015. Radford EMEA

Voluntary turnover data is of huge value to many companies. Aside from its power to justify and understanding the reasons behind workforce movements, it can also be used to build an understanding of the overall hiring environment. The sales force, in particular, is characterized by a more liquid state with turnover figures that are often more volatile than the overall population.

A quarter-by-quarter analysis of voluntary turnover in the sales population can be used as a proxy for understand the confidence of sales people in the job market. The chart below shows, for a group of countries, how voluntary turnover has shifted since 2010:

new1Source: Radford Global Technology Database 2015

It is interesting to note that the UK has a habit of broadly tracking the US in terms of voluntary turnover, and in almost all quarters, both countries are showing a slight upward trend since the end of 2010. Conversely France and Germany, historically, are quite close in their numbers and both show lower turnover rates with a slight upturn over the past few quarters.

Russia, in stark contrast to the developed markets, shows a high degree of volatility with voluntary turnover dropping as low as 4% at the end of 2011 before spiking close to 14% at the beginning of 2012. That said, looking at quarter-by-quarter data reflects market movements, certainly, but also reflects seasonality in hiring patterns.

An alternative approach is to remove these effects by examining annual average voluntary turnover:

new 2Source: Radford Global Technology Database 2015

Arguably this presents a more robust view of the market. In this we can clearly see the upward trend of US voluntary turnover. We can also see that, aside from the slight dip in 2012 and 2013, the UK is at a 5 year high.

With an increase in voluntary turnover comes the need to stabilise the workforce. As is often the case, in high turnover situations, it is the top talent that is the first casualty. The usual drivers of engagement certainly apply (target setting, governance and upside) and our Sales Plan Audit helps companies diagnose the common ills leading to this position. As a general rule, however, there are some easy wins: sales contests, spiffs, leader boards as well as other initiatives such as president’s club memberships can have a surprisingly strong impact.

To learn more about Radford’s executive compensation, broad-based compensation and compensation governance consulting services, please visit: radford.com/home/consulting/

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Je N’en Connais Pas la FinTech

James Seechurn

The emergence and subsequent growth of the FinTech sector has brought unique new challenges for both the FS and Tech sectors when it comes to sourcing and retaining new talent.

The traditional battle between the two sectors has been heated, sometimes even acrimonious, with the banks offering generous reward packages to lure talent away from tech companies, and the tech sector promising the innovative and relaxed working environments so sought after by those with developer backgrounds. FS often (but not always) struggles to provide for the needs of top talent with the sector perceived as too suited and formal to allow for the needs of creative minds.

In truth, it is the business model, and not the reward package that is the root cause of the banks’ challenges in recruiting tech talent. Historically the technology arms of financial service institutions are predominantly ‘information providers’. Digital platforms, whether they be web-based…

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Nordic Biotech Executive Remuneration

By: Robert Miller, Partner
Published: April 2015

Introduction1

The value creation potential in the biopharma sector is the key driver in the hi-risk: hi return business model. The force behind this is R&D, the journey from new molecular entities, testing and clinical trials. The phases are well documented through the discrete events, notably clinical trials and often strategic alliances with big pharma that strongly influence value.

The Nordic region has had, relative to broader Europe, a strong round of venture capital financing as well as several IPOs. Some examples are shown below.

 

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Before an IPO, options are the preferred equity vehicle. RSUs are typically incorporated into the equity mix following a company milestone; that milestone is often an IPO. This is shown below.

 

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In terms of how value is shared for executives and employees, distinct differences between US and European companies are noted. While the chart below indicates that this value is typically delivered through share option plans in both the US and Europe, the differences are more stark in the proportion of equity reserved for executive and employee participation.

The chart below illustrates the differences in US and European practices. This reflects different investor sentiment and market norms around the percentage of the companies granted to employees. Nordic practices, as a subset of this data, tend to be more conservative again.

 

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Nordic Plan Practices

Option plans remain prevalent in the Nordics, consistent with broader European practice. A sample of companies and their plans are shown below.

 

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There is some pressure from different investors to adopt performance-based equity, i.e. plans that require the achievement of defined criteria, such as TSR in order for awards to vest. The right mix of plans needs to take account of your company’s growth profile, product pipeline and dilution limits.

Also, pre-commercial companies will not necessarily have visibility over long-term performance: as such three year cliff vesting periods may be harder to incorporate into the normal running of the company. In this respect, while performance share/units may be ‘shareholder friendly’, they need to be adopted in a way that makes sense for the company: this may bring organization’s into conflict with governance bodies, and will require careful negotiation.

Comparative Remuneration Levels

The Nordic pay model is typically characterized by less aggressive short and, especially, long-term incentive levels. This is in direct contrast to US practices where a larger proportion of the package is performance-based.

The chart below provides an indicative comparison for Nordic and US biopharmas with a market value of c $450M. The data is expressed in DKK for convenience.

 

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The disparity between US and Nordic pay practices is a challenge for those companies either listing on the NASDAQ, or hiring senior talent in the US. It is important for companies to choose peer groups with care. Where a European and US peer group is adopted as a company builds or refines its executive reward strategy, different approaches can be taken in terms of how these peer groups interact. For example, some companies adopt a hybrid model while others place a ‘primary’ emphasis on one peer group and use the other for reference purposes.

To learn more about Radford’s executive compensation, broad-based compensation and compensation governance consulting services, please visit: radford.com/home/consulting/

 

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Sharing value creation in biopharmas: European and US practices

By: Robert Miller, Partner
Published: April 2015

Introduction1

The value creation potential in the biopharma sector is the key driver in the hi-risk: hi return business model. The force behind this is R&D, the journey from new molecular entities, testing and clinical trials. The phases are well documented through the discrete events, notably clinical trials and often strategic alliances with big pharma that strongly influence value.

In terms of how value is shared for executives and employees, distinct differences between US and European companies are noted. While the chart below indicates that this value is typically delivered thorugh share option plans in both the US and Europe, the differences are more stark in the proportion of equity reserved for executive and employee participation.

 

2

 

 

 

 

 

 

Before an IPO, options are the preferred equity vehicle. RSUs are typically incorporated into the equity mix following a company milestone; that milestone is often an IPO.

 

3

 

 

 

 

 

 

 

 

The above findings are helpful for private and recently listed companies. More established companies will tend to focus on the annual burn rate (the annual dilution due to equity awards). Data for European and US companies is shown below.

 

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Again we see marked differences in US and European practice, reflecting different investor sentiment and market norms around the percentage of the companies granted to employees.

Equity strategy is an important (but not the only consideration) in a biotech’s reward strategy. A key component of this is the choice of plan type. In a sample of 30 small to mid-size biopharmas across Europe, 79% use only one vehicle whereas 21% use two or three. The chart below outlines practice in respect of plan types.

 

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While equity practices in Europe remain option oriented for smaller biopharmas, it is important to remain aware of European governance considerations applying in different countries. This includes performance metric requirements in Germany, equal pay requirements for Danish Boards, and the ambiguity around awarding equity to Outside Directors (Supervisory Board or Non-Executive Directors).

To learn more about Radford’s executive compensation, broad-based compensation and compensation governance consulting services, please visit: radford.com/home/consulting/

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Is Your Sales Incentive Plan in Tip-Top Shape? It Might be Time for a Check Up

By James Seechurn, Senior Consultant
Team: Radford EMEA
Published: February 2015

Introduction

All business leaders face pressure to manage sales incentive plan costs while still delivering profitable growth. It’s an annual challenge, yet few companies have an effective roadmap for assessing the health of their sales compensation plans. To assist our clients with this task, we’ve developed a new framework called the Sales Incentive Plan Health Check. Radford’s unique approach for technology and life sciences companies allows us to provide insight into a number of critical design issues, including overall plan cost, compensation benchmarking, sales plan practices and sales plan effectiveness. The following chart illustrates the key plan design issues covered by our new health check program:

Sales Incentive Plan Health Check

To dig a bit deeper, the following sections outline the types of symptoms we look for, along with the diagnostic tools we use, to help clients uncover hidden sales incentive plan design concerns.

Click here to read the full article:

https://www.radford.com/home/insights/articles/2015/is_your_sales_incentive_plan_in_tip_top_shape.asp

 

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Tracking Employee Promotion Practices across China, India, the United Kingdom and the United States

Career paths are constantly on the minds of employees and employers alike. As a result, human resource departments are increasingly innovative in how they approach career progression. For example, dual career ladders separating management roles from individual contributor roles are now explored far more often and openly than in the past. Ensuring that employees fulfill career paths largely depends on promoting them to the appropriate levels and titles at the right time. Promotions make employees feel valued, keep people engaged, and reward staff for hard work through financial and other benefits.

 

Promotion and Salary Trends

One way we measure how often, and perhaps how effectively, companies create and move employees through career paths is by examining promotion rates. Using data from Radford’s quarterly trends survey of technology sector companies, the following chart illustrates changes in promotion rates in key markets between Q3 2010 and Q2 2014. Perhaps not surprisingly, we see the biggest change in the United States (US), where promotion rates have jumped by three full percentage points over the past four years. In the US, steady GDP growth and declining unemployment rates mean companies are increasingly focused on retention. This is especially true in hot sectors like technology.

Average Percentage of the Employee Population Receiving a Promotion at Technology Companies

However, India is another market where companies are promoting employees at a higher rate than four years ago, and this is happening despite a slowdown in GDP growth. In the case of India, this trend is likely explained by a strong promotions culture— employees who produce results are promoted far more quickly and easily in India relative to most other countries. And as the chart above illustrates, India lead the pack in promotion rates in 2010 and 2014.

Meanwhile, the United Kingdom (UK) stands out as an outlier of sorts. The UK is the only country where promotion rates declined noticeably from 2010 to 2014, and the absolute promotion rate in the UK (5.8%) is well below other key markets. To compound the issue, not only are promotions scarcer in the UK today than four years ago, but average salary increases tied to promotions are also less generous than in the past. The average percentage increase in base salary related to a promotion in the UK fell from 7.8% in Q3 2010 to 7.1% in Q2 2014.

However, looking at our next chart below, employees in the UK can take some solace in the fact that average increases in base salary/fixed compensation tied to promotions are also down in the US and India over the same period; China is the only country where we observe a slight uptick in average salary increases tied to promotions.

Taking all of the data below into account, we think it is important to note that the overall variation in average salary increase practices is very small between Q3 2010 and Q2 2014, suggesting a fairly stable approach on the part of companies over the past four years. It would seem to be the case that companies managed merit budgets over this period by carefully managing promotion rates vs. wildly adjusting the rewards associated with promotions.

Average Percentage Increase in Base Salary/Fixed Compensation Tied to Promotions at Technology Companies

 

Conclusion

In most key markets, the UK excluded, recent data from Radford shows that companies are once again investing more aggressively in their employees through promotions and associated pay raises. Whether motivated by culture or increased competition for talent, retention and career paths are clearly on the minds of employers. To us it is clear that companies understand the importance of rewarding employees’ efforts, and are doing so more frequently than in previous years. Given that promotions and salary increases impact nearly every facet of an organization — from ensuring employees are motivated to maximizing and managing your overall compensation spend — we expect these trends to continue.

By Robert Miller, Partner and Katherine Aldred, Consultant

To learn more about Radford’s consulting, benchmarking and workforce analytics capabilities in Europe and the Middle East, please visit: www.radford.com/emea.

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Life Sciences Companies Are Increasingly Divided Over the Use of Salary Structures

In the world of salary structures, some strange developments are afoot. Over the past four years, Radford has observed a decline in their use among life sciences companies in almost every major market. And at the same time, companies maintaining salary structures are reviewing them with more regularity. Put together, these factors tell us that companies are increasingly divided (and polarized) when it comes to implementing formal salary structures. While many firms have dropped the practice altogether, others are doubling down and investing more regularly to improve existing salary structure systems.

Between 2010 and 2014, the use of salary ranges to define minimum, midpoint and maximum pay levels has fallen, according to an analysis of data from the Radford Global Life Sciences Survey. Interestingly, the United Kingdom (UK) is the only market where we see an increase in the use of salary structures — albeit a modest uptick of only one percentage point.

Prevalence of Life Sceinces Companies With Formal Salary Structures in Place

In our opinion, it’s not surprising that the life sciences sector is moving away from salary structures; flexibility and open mindedness are hardwired into the DNA of life sciences companies and a formal approach to setting pay ranges can appear too rigid for some firms. If managed incorrectly, salary structures can limit a manager’s options for rewarding top performers or recruiting key talent within prescribed salary ranges. And, as is so common within the reward function, if a reward policy does not marry up with the business’ needs it will, more often than not, fall by the wayside.

On the other hand, companies that continue to see merit in keeping salary structures find that, similar to managing annual salary increase cycles, structures themselves require maintenance and flexibility. As such, data from the Radford Global Life Sciences Survey also shows how companies with salary structures are increasingly very proactive in making regular adjustments to their salary bands.

Prevalence of Life Sceinces Companies Making Annual Adjustments to Salary Structures

While updating salary bands every year may seem cumbersome from an administrative perspective, annual maintenance provides many benefits: principally, maintaining relevance to your organization’s employee population and companies within the local and international markets with whom you compete. This includes accounting for annual wage inflation, changing talent pools and macroeconomic changes that can impact the perceived value of one’s paycheck. Companies that fail to update their salary bands regularly will find that they become less applicable to their organization and might end up dropping the structure for the wrong reasons.

 

Conclusion

While there is a worldwide dip in the use of salary structures among life sciences companies, salary structures aren’t disappearing completely anytime soon. Just over half of companies globally, still a majority, maintain salary structures. Furthermore, as companies update their salary structures more frequently, we expect that companies choosing to stick with the process will find it even more beneficial to their organization. Regular updates should keep compensation levels consistent, competitive and cost-effective — fulfilling all of the initial goals of building a salary structure in the first place.

By Robert Miller, Partner and James Clarke, Consultant

To learn more about Radford’s consulting, compensation benchmarking and workforce analytics capabilities in the EMEA region, please write to emea@radford.com.

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