Compensation and

Benefits

Page 1
 Compensation Philosophy

• Compensation and Benefits that will assist

Company in:
– attracting key performers
– developing and retaining an energetic and results-
oriented workforce
– rewarding and recognizing employees based on
performance

Page 2
 Compensation Elements

• Base pay that we can maintain through both

good and bad times
• Variable pay that will fluctuate based on
corporate profitability
• Long term retention and reward programs
• Competitive benefits

Page 3
Targeted Position to Market

Total Comp Elements Good Times Bad Times

Base Pay = =
Variable Comp + -
Long-term Vehicles + -
Benefits = =

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 T-Comp Graphic
HIGH Company
T-COMP

MARKET
Total Compensation

T-COMP

LOW
NEGATIVE HIGH
Corporate Profitability
Page 5
 Base Pay

• Designed to be market-competitive against a

select group of companies
– companies similar in size and revenue
– companies we compete with for employee talent
– respected companies within the [insert] industry

Page 6
 How do we determine the
“market”?
• External comparisons to local, regional, or
national companies based on FLSA* status
– Local: typically used for nonexempt jobs where
majority of hiring takes place locally (i.e.,
administrative positions, maintenance workers,
operators, etc.)
– Regional: typically used for nonexempt jobs of a
more technical nature (wafer fabrication technicians,
mask designers, senior-level software technicians,
etc.)
– National: typically used for exempt jobs

* FLSA (Fair Labor Standards Act) Page 7

 How do we determine the
“market”?

• Look at benchmark * positions where work

performed is of a similar nature, requiring
similar levels of education, experience, skills
and abilities
• Review our base pay and total cash position
relative to the appropriate market
• Market may differ site-to-site based on
company comparison

* Benchmark positions are those in use by a majority of companies

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 What is “market-
competitive”?
• Our base salaries will be positioned around the
market average paid rate
– position in range differences based on several factors
• education and experience
• overall performance
• performance relative to peers
– internal equity: similar pay for similar education,
experience, skills and abilities, and performance
– over time, the better performers will tend to be
positioned higher in the range

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 How is “market-
competitiveness” determined?

• Surveys
– published third-party surveys
– phone surveys
– custom surveys
• Key criteria
– valid job matches
– consistency of data
– reputable companies
– select company participation

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What’s looked at in surveys?

• Specific job information

– type of work being done
– level of work
– scope of responsibility
– degree of managerial supervision
• Job family information
– number of jobs in a family
– level of each job; how each is differentiated
– what the market will pay for each job at each level (pay
range)

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 What are Pay Ranges?

• A Pay Range is a series of Pay Grades

– A Pay Grade identifies the spread between the lowest
and highest salaries paid for a given position or “job”
(i.e. Senior Software Engineer)
– A Pay Range identifies a series of grades for several
jobs within a “job family” (i.e., Software Engineers)
– A Pay Range Structure is a compilation of several Pay
Ranges for different jobs within the company
– The Pay Range Structure should be similar site-to-site
but may be higher or lower depending on geographic
differences

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 Pay Range Structure
Example

GRADE MIN MAX

12

11

10

“GRADE” is the label given for each pay level.

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 Pay Range Structure
Example

GRADE MIN MAX

12

11 Sr. Staff SW Engineer

10 Staff SW Engineer

9 Senior SW Engineer

8 Software Engineer
7 e.g. Associate SW Engineer

“PAY RANGE” is the label given for multiple

jobs/grades within a job family.
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 Pay Range Structure
Example
GRADE MIN MAX

11

10 Sr. Staff Financial Analyst

9 Staff Financial Analyst

8 Senior Financial Analyst

7 Financial Analyst 2
6 e.g. Financial Analyst 1

“PAY RANGE” is the label given for multiple

jobs/grades within a job family.
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 Putting it all together:
Pay for Performance + Impact on Range
Minimum Q1
Learning Range
• Appropriate for employees who
are not yet proficient in all of
their job responsibilities
• Most job competencies are not
demonstrated on a consistent
basis
• Typically requires direction to
complete job responsibilities
• Generally for new hires/newly
promoted employees
Targeted mkt position
Appropriate for
employees
who are fully
proficient in their job
Midpoint
Proficiency Range
• Appropriate for employees who
are consistently recognized
as effective contributors
• Most job competencies are
demonstrated on a regular
basis
• Requires minimal direction
• Employee anticipates work
priorities
Q3 Maximum
Exceptional Range
• Appropriate for employees who
are recognized as leaders or top
contributors at their level
• Employee frequently models all
job competencies
• Requires little/no direction to
complete job responsibilities
• Consistently performs higher than
current job expectations but lower
than expectations at next level
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 Variable Compensation

• Definition
– a portion of cash compensation that varies based on
performance
• company performance
• performance of select market (optional)
• Company specific
– payable quarterly if company performance objectives
met
– may include partial payouts
– prorated based on hire date

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 Variable Compensation
Graphic
Cash Compensation

BETTER

WORSE

BETTER
WORSE

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 Variable Compensation:
Commission Programs (Sales only)

• Commission targets based on revenue

quotas established for the sales professional
based on geographic market potential and
revenue forecast
• Designed to incent the sales people to help
meet Company’s revenue targets
• Commission is a significant portion of the
sales professional’s total compensation
package (generally 40% - 50%)
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 Long Term Rewards:
Stock Options
• Definition: The opportunity to purchase Company stock at a pre-
determined price

• Eligibility: All employees

• Timing: May be recommended

• Option price: Closing price on Stock Exchange day

prior to BOD Committee meeting
Upon Hire
During review process

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 Long Term Rewards:
Stock Options

Vesting Period: New Hire grant - 25% one

year from grant date; 1/48
of original grant each
month thereafter;
completely vested after 4
years

Review grant - generally

vests at 1/12 per month
beginning 1 year from
grant date; completely
vested at end of 4th year

Option Life: 10 years

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 Long Term Rewards:
Stock Participation Plan

Definition: The opportunity to purchase

Company stock at a discounted
price

Eligibility: All employees with exception of

those holding 5% or more of
Company stock

Plan Periods: Twice yearly [modify as needed]

May 1st - Oct 31st
Nov 1st - Apr 30th

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 Long Term Rewards:
Stock Participation Plan

Purchase Price: 85% of the lower of the

closing price on NASDAQ using
the 1st and last days of the
purchase period

Maximum % Up to 15% in whole

Contribution: percentage increments

Maximum $ Cannot exceed $25,000 in

Contribution: any calendar year

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 Long Term Rewards:
401(k) Plan

Definition: Opportunity to use pre-tax dollars

to save for the future

Eligibility: All US employees age 21 or older

Enrollment Periods: Quarterly

Maximum % 15% in whole percentage

Contribution: increments

Maximum dollar $10,500 (adjusted annually)

Contribution:
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 Long Term Rewards:
401(k) Plan

An employee-funded plan that:

• takes advantage of certain special tax incentives

aimed at encouraging employees to save for the

future and other long-term needs

• maximizes potential investment gains depending

on the employee’s risk tolerance and the
performance of the investment over time

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 Why save for the future?

• Traditional sources of post-retirement income

are shrinking
• Longer retirements take more savings
• Secure retirement depends on employee
contributions
• You realize tax savings NOW!

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 Saving for the future helps you
NOW

Saving on your own: Saving through the 401(k) Plan:

If you make $30,000

If you make $30,000 and put $100/month
and pay taxes @ 28% - $ 8,400 into your 401(k) - $ 1,200
and save $100/month - $ 1,200 your taxable income
would be $28,800
you would pay taxes
Your “take home” pay $20,400 on this amount @28% - $ 8,064

Your “take home” pay $20,736

Your “take home” pay would increase by $336 in the first year
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alone!!
 Long Term Rewards:
401(k) Plan

Lower Investment
Risk
Current Investment Options (example)

Fidelity Retirement Money Market

Fidelity Investment Grade Bond
Fidelity Balanced Fund
Fidelity Magellan
Fidelity Contrafund
Higher Investment
Risk

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401(k) Contribution Example:
Benefits of Compounding over time

Year Contribution 6.0% Interest 8.0% Interest 10.0% Interest

1 $ 2,500 $ 2,650 $ 2,700 $ 2,750

2 $ 5,000 $ 5,459 $ 5,616 $ 5,775
3 $ 7,500 $ 8,437 $ 8,765 $ 9,103
4 $ 10,000 $ 11,593 $ 12,167 $ 12,763
5 $ 12,500 $ 14,938 $ 15,840 $ 16,789

10 $ 25,000 $ 34,929 $ 39,114 $ 43,828

15 $ 37,500 $ 61,681 $ 73,311 $ 87,374

20 $ 50,000 $ 97,482 $123,557 $157,506

25 $ 62,500 $145,391 $197,386 $270,454

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 Benefits

• Medical/Dental
• Vision
• Employee Assistance Program (EAP)
• Flexible Spending Account Programs (DCAP
and HCAP)
• Mandatory Benefits
• Paid Time Off
• Additional Company-provided Benefits

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 Purpose of Benefits

• Market competitive practice

• Financial protection
• Help maintain personal/professional
“balance”
• Tax advantages

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 Medical Costs Continue to
Rise

• Aging population
• Technological advancements
• “Those who can, subsidize those who can’t”
• Malpractice insurance

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 Company Medical Costs

• [Company specific] Portion of t-comp related

to medical
• [Company specific] Annual cost increase
since Company started
• [Company specific] Medical as a % of base
pay

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 Medical/Dental Benefits
Goals
• Ensure access to high-quality medical, dental, and
vision care
• Provide catastrophic coverage to protect employees
from the high cost of major health care services
• Provide a program that encourages medically sound
and economically efficient decisions
• Control and maintain costs which are at or below
our competitors
• Maintain competitive employee costs

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Depending on how
detailed a presentation
you want, you may
include specifics on your
benefits programs

35
 Vision

• When using a [Name] provider the plan pays

100%, after a $$$ co-payment
– Exam every xx months
– Lenses and Frames every xx months
– Contact Lenses $$$ allowance

• [Name] providers can be found at their web site:

www.[name].com
Select a provider and make your appointment

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 Employee Assistance
Program (EAP)
• Do you know where to find…
– help with personal problems?
– child care services?
– answers to legal questions?
– advice about money matters?
– services for an older relative?

[EAP Name] can help you with most personal

issues, including: stress, depression, alcohol or
drug abuse, anxiety, grief & loss, relationships…

– free, confidential counseling and referral service for

you and your family by calling 1-800-xxx-xxxx Page 37
Flexible Spending Account
Programs

• These programs offer you the chance to use

pre-tax dollars for out-of-pocket expenses
that many of you pay anyway - co-payments,
orthodontia, child care

➨ Pre-tax Premium Plan

➨ Dependent Care Assistance Program (DCAP)
➨ Health Care Assistance Program (HCAP)

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 Flexible Spending
Accounts
• Premium
– use pre-tax dollars to pay for your health plan
contribution
• DCAP
– You may allocate up to $5,000 on a pre-tax basis
for dependent/elder care expenses
• HCAP
– You may allocate up to $$$$ on a pre-tax basis to
cover any unreimbursed health care expenses
not 100% covered or eligible for payment through
your group health care plans (or your spouse's
plans), including medical, dental and vision
expenses Page 39
 Flexible Spending
Accounts
• Here’s how your flexible spending account works:
– you elect an annual amount
– your election is divided by the number of pay periods in
the Plan year (xx, or less depending on your enrollment
date)
– your before tax contribution is deducted from each
paycheck, and deposited into your FSA account
– you submit a claim and receive reimbursement for your
expenses - on your next paycheck

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 Flexible Spending
Accounts

• Budget carefully!
• “Use It Or Lose It” Rule
– the Internal Revenue Code governing these plans
requires you to use all the money you contribute to
your accounts during the plan year
– any money not used will be forfeited
– see the plan brochure for full details

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 Mandatory Benefits

• Social Security
• Federal Unemployment Tax
• State Unemployment Insurance
• Workers’ Compensation

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 Insurance Elements
Summary

• Company provided
– Life Insurance
– Accidental Death & Dismemberment (AD&D)
– Business Travel Accident (BTA)
– Long Term Disability (LTD)
– Sick Pay for nonexempts
• Optional Employee Election
– Supplemental Employee Life Insurance
– Dependent Life Insurance

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 Time Off Away from Work

• Paid Time Off

– Vacation
– Personal Business
– Time off due to sickness
• Holidays [insert #, including any optional]
• Bereavement
• Jury Duty

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 Other Company-provided
Benefits (examples)

• Tuition Reimbursement
• Credit Union membership
• Professional Development
• Annual membership paid for one (1) professional
association
• Discounted computer purchase program
• Flexible work arrangements
• High-speed internet connection for home
• Free beverages and/or snacks
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Using an average
company salary, you may
want to include a
summary slide with the
cost of each company-
provided benefit as a
percentage of salary

46
 Recap of
Objectives/Summary
✔ Understand Company’s Total Compensation
philosophy
✔ Understand how we measure ourselves
relative to the market and the internal
workplace
✔ Be able to explain and market the philosophy
to your employees

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