PCI Conference Presentation -The Current Landscape.ppt

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1、PCI Conference Presentation -The Current Landscape2The Current Landscape3Key Stress Factors Economic Uncertainty Job Security Current Administration Change in Standard of Living Fluctuating Stock Prices4Change in Mindset Short-range thinking expected The need to “keep a steady course” “Hunker Down”

2、mentality What will best practices be? Bailout and effect on executive compensation Difficulty in predicting market values of pay Composition of total compensation package Increasing importance of annual incentives Expect irrational, ambiguous and impractical regulations5Areas of Concern Employees K

3、eeping their jobs Maintaining 401(k) value Managing with less pay in current market Understanding how their company is doing Human Resources Retention and workforce reductions Working with smaller budgets Communicating value of benefits Keeping employees informed Working as a strategic partner with

4、Sr. Mgmt.62008 Annual Salary Budget Planning Survey Q1 2009 Update National survey of 350+ companies Industries: Healthcare = 15.6% Financial/Insurance = 15.0% Soc. Service/Foundation = 12.4% Manufacturing/Production = 11.1% Business Services, High-Tech, Retail, Utilities Revenues: 26% $1 billion 26

5、% $100 - $999 million 27% $10 - $99 million 21% $10 million7Whats Happening Now? 2008 Projections 3.8% Merit Increase Salary Reduction-2% Salary Freeze-4% Layoffs in 2009-6.5% 2009 Actual 3.2% Merit Increase Salary Reduction-4.2% Salary Freeze-37.2% Layoffs in 2009-35.1%8Other Responses to Cost Pres

6、sures*October 2008 to February 2009Restrictions on company travel 34% to 69%Reduction of training programs 10% to 35%Increase communication regarding pay 18% to 28%Increase communication regarding benefits 35% to 31%Reduce employer match to 401(k)/403(b) 2% to 12%Watson Wyatt survey, March 20099The

7、P&C Insurance Industry in Crisis10P/C Industry Combined Ratio2001-2008Sources: A.M. Best, ISO, III1 1 5 . 81 0 7 . 51 0 0 . 19 8 . 41 0 0 . 89 2 . 69 5 . 71 0 1 . 29 09 51 0 01 0 51 1 01 1 51 2 02 0 0 12 0 0 22 0 0 32 0 0 42 0 0 52 0 0 62 0 0 72 0 0 8As recently as 2001, insurers paid out nearly $1.

8、16 for every $1 in earned premiums2005 ratio benefited from heavy use of reinsurance2006 was best combined ratio since 1949 (87.6)2007 had relatively low CAT losses2008 affected by cyclical pricing deterioration11Number of Years with Underwriting Profits by Decade*Source: Insurance Information Insti

9、tute*Based on stock companies only671 0845003024681 01 21 9 2 0 s1 9 3 0 s1 9 4 0 s1 9 5 0 s1 9 6 0 s1 9 7 0 s1 9 8 0 s1 9 9 0 s2 0 0 0 sCumulative underwriting deficit from 1975 through 2007 is $422 billion.A record underwriting profit of $31.7 billion was earned in 2006.Underwriting profits were c

10、ommon before the 1980s (40 of the 60 years before 1980 had combined ratios below 100. Not a single underwriting profit was recorded in the 25 years from 1979 through 2003.1212 Most Costly Disasters in US HistorySource: Insurance Information Institute$4.0$5.0$6.0$7.0$7.8$8.2$10.7$10.9$10.9$22.0$22.9$

11、43.6$0.0$5.0$10.0$15.0$20.0$25.0$30.0$35.0$40.0$45.0$50.0Jeanne 2004Frances 2005Rita 2005Hugo 1989Ivan 2004Charley 2004Ike 2008Wilma 2005Northridge 20049/11 2001Andrew 1992Katrina 2005Billions9 of the 12 most expensive disasters in US history have occurred since 2004.13Why P/C Insurers are NOT Like

12、BanksSuperior risk management Insurers approach to risk focuses on underwriting discipline avoid adverse selection Banks sought volume at all costsLow leverage Insurers do not rely on borrowed money to underwrite or pay claimsConservative investment philosophy Typically high-quality portfolio = less

13、 volatileStrong relationship between underwriting and risk Insurers maintain “skin in the game” Banks packaged, securitized and sold off the riskTighter regulation and greater transparency Insurers face more stringent rules than banks/hedge fundsSource: Insurance Information Institute14Managing Comp

14、ensation in Crisis15Compensation Philosophy Key factors of a good Philosophy: Define the competitive marketplace Level of competitiveness Mix of compensation elements Degree company uses pay for performance Professional growth Rationale for advancement Variability of pay Philosophy is a living docum

15、ent16Basic Objectives of Compensation Was Attract, Retain, Motivate Now Focus pay for desired performance Attract ability to hire qualified candidates Retain enhance desire to stay Motivate “carrot & stick”17Basic Objectives of Compensation Importance of objectives varies for employee groups Compens

16、ation actions should reflect priority of objectivesExecutivesSalesManagers/StaffFocusFocusRetainMotivateMotivateFocusAttractRetainMotivateRetainAttractAttract18Total Compensation PackageBase SalaryShort-term IncentivesLong-term IncentivesEmployee benefitsSupplemental executive benefits/perquisites19

17、Base SalaryBefore Automatic periodic increases 162(m) $1 million cap often exceeded Market-driven payNow Salary freezes and cuts Reconsideration of excessive base pay Market-driven pay tied to philosophy20Short-Term IncentivesBefore Regular bonuses expected Discretionary bonuses Vague and changing g

18、oalsNow Bonuses suspended or reduced Incentive awards tied to performance Clearly identified goals/objectives21Long-Term IncentivesBefore For execs, largest portion of TDC Time-based vesting Slow shift from options (FAS123R) to other vehicles Shorter vesting periodsNow Reduced portion of TDC Perform

19、ance-based vesting Increased use of RS/RSUs or Cash-based vehicles Premium-priced Longer holding period Clawback provisions22Compensation OutlookManagers & Staff Think hard about salary changes Cutting salary is very dangerous Look at specific groups of employees Rethink incentive compensation Use c

20、ompensation dollars judiciously Avoid the “peanut butter” solution What goals will drive the business forward Consider non-cash rewards Communicate effectively Re-evaluate performance evaluation tools23Compensation OutlookExecutive Officers Lower base salary to be 162(m) compliant Forego bonus if pe

21、rformance is not there LTI tied more closely to specific goals Holding requirements Clawback provisions Dual trigger Change In Control provisions Perquisites cut dramatically Measurable Pay for Performance!24Where Do We Go From Here? Clarify your Compensation Philosophy Benchmark against the Industry Balance compensation elements to fit your needs Align goals with desired performance Track results and tweak if necessary Communicate and coach up and down