HEALTH WEALTH CAREER April 28, 2016 STRICTLY PRIVATE & CONFIDENTIAL The information included in this report is strictly confidential and is proprietary to Mercer. Any unauthorized use and/or distribution of this material are strictly prohibited unless explicitly agreed to in advance and in writing by Mercer (Canada) Limited. PERFORMANCE MANAGEMENT TRENDS & IMPLICATIONS Ian Cullwick

© MERCER AGENDA ContentsPage Introduction 1 Context 2 External Market Research 7 Performance Measurement 14 Emerging Trends 17 Conclusions 22

© MERCER CONTEXT

© MERCER CONTEXT MULTIPLE PERSPECTIVES AND COMPLEXITY In reality, a very complex topic…and everyone has an opinion and believes they are an expert!

© MERCER CONTEXT

© MERCER CONTEXT TODAY’S REALITY A number of strategic trends are driving requirements and complexity. Focus and choice however, are driving the key priorities

© MERCER CONTEXT SCOPE OF POSSIBILITY Possible Applications 1Accountabilities 2Goals and Objectives 3Measurement 4Pay for Performance 5Learning & Development 6Career Planning 7Quality Management INDIVIDUAL TEAM ORGANIZATION

© MERCER EXTERNAL MARKET RESEARCH

© MERCER EXTERNAL MARKET RESEARCH FIVE KEY OBSERVATIONS

© MERCER EXTERNAL MARKET RESEARCH MATCHING PAY AND PERFORMANCE In Canada, about 1 out of 3 say their organization does an adequate job of matching pay to performance Disconnect exists between pay and performance Employers providing less support in careers and not retaining the best, say employees Scores in most categories trend lower since 2011 Upbeat assessments on diversity, dignity, and respect

© MERCER Inside Employees’ Minds Canada, 2011 and Private sector employees for trending purposes 2011Today EXTERNAL MARKET RESEARCH PAY AND PERFORMANCE

© MERCER EXTERNAL MARKET RESEARCH PERFORMANCE MANAGEMENT Inside Employees’ Minds Canada, 2011 and Private sector employees for trending purposes 2011Today

© MERCER Prevalence of performances measures used and their weighting, based on either a corporate, department, team or individual focus. For example, an EBIT/EBITDA measure is used for 38% of plans, and of this 38%, an average weighting of 73% is used. Prevalence of Corporate Measures EXTERNAL MARKET RESEARCH PERFORMANCE MEASURES & WEIGHTINGS Weighting of Corporate Measures Source: 2014/2015 Canadian Short-Term Incentive Plan Design Survey Corporate Performance MeasuresPrevalence % 1 EBIT/ EBITDA38% Net Income/ Profit after Tax36% Cash Flow32% Annual Sales or Revenues23% Operating Income21% Productivity15% Customer Satisfaction13% Cost Control11% Internal Financial11% Service/ Quality9% Earnings per Share6% Return on Investment4% Corporate Performance MeasuresMedian Weighting Average Weighting EBIT/ EBITDA100%73% Net Income/ Profit after Tax40%57% Cash Flow20%22% Annual Sales or Revenues17.5%19% Operating Income50%59% Productivity20%29% Customer Satisfaction12.5%13% Cost Control-- Internal Financial-- Service/ Quality-- Earnings per Share-- Return on Investment-- 1. Multiple responses allowed; Prevalence column totals more than 100%

© MERCER EXTERNAL MARKET RESEARCH PERFORMANCE MEASURES & WEIGHTINGS Weighting of Individual Measures Source: 2014/2015 Canadian Short-Term Incentive Plan Design Survey Individual Performance Measures Median Weighting Average Weighting Results60%62% Performance Rating100%74% Product/ Pipeline Milestones100%71% Behaviours36.7%42% Internal Financial-- The median and average values are calculated using the weightings provided only for plans with that measure; “Customer Satisfaction” and “Safety” tend to be the most prevalent Non-Financial measures used in STI plans in organizations within Canada. Non-Financial MeasuresPrevalence % Customer Satisfaction56% Safety46% Employee Engagement32% Service/ Transaction Quality30% Employee Satisfaction25% Process Quality21% On-Time Performance/ Delivery19% Workforce Productivity18% Managerial Effectiveness16% Unit Volume16% Market Share16% Client/ Account Retention14% Product Quality12% Environment11% Project Performance4% Other26% Source: Conference Board of Canada ‘Making Short-Term Incentives Work for Your Organization’, October 2010

© MERCER © MERCER PERFORMANCE MEASUREMENT THE FOUNDATION

© MERCER Organization Purpose, Strategy, and Governance Infrastructure and Support HR, Finance, IT, Measurement, Policies, etc. Business model measurement can be applied to a specific job, a work unit and the enterprise itself. While input and process measurements are generally done well, output and outcome measurements remain challenging for most organizations. PERFORMANCE MEASUREMENT THE BUSINESS MODEL

© MERCER PERFORMANCE MEASUREMENT DIMENSIONS… AND COMPLEXITY Contemporary Dimensions 1Technology 2Data Analytics 3Methodologies (e.g. MBO, BSC, etc.) 4Segment-Specific 5Behaviors/Competencies 6Rating Scales 7Processes and Roles 8Internal Governance INDIVIDUAL TEAM ORGANIZATION

© MERCER © MERCER EMERGING TRENDS

© MERCER EMERGING TRENDS DESIGN CONSIDERATIONS Best practices generally include: –Key business priorities; –Simple, limited number of measures; –Measures are balanced (growth / profit, financial / operating / strategic, complements long- term plan); –Strong line of sight, while also recognizing links between business functions and business units; –Competencies are infrequently used to assess individual performance, as it interferes with the use of competencies from a pure development perspective; –Most organizations use a single performance rating for two purposes – merit increases and the individual component of STIP; –For legislative compliance, eligibility is determined at the grade level, not by job; –Target setting reflects both internal and external considerations, and –Adherence to good governance principles and plan simplicity.

© MERCER EMERGING TRENDS ALIGNMENT Alignment of compensation, total rewards, human capital, and business strategies Business strategy Human Capital strategy Total Rewards strategy Compensation strategy Bonus plan design Business Strategy Human Resources Strategy Total Rewards Strategy Planning and Measurement Performance Management Strategy

© MERCER EMERGING TRENDS MARKET COMMON & BEST PRACTICES – STI & PMP POLICY & PROGRAMS Additive Multiplicative Hybrid Illustrative Example

© MERCER An accurate objective setting process is key to motivation and alignment with company success: EMERGING TRENDS MARKET COMMON & BEST PRACTICES – GOVERNANCE AND MANAGEMENT (THRESHOLD, TARGET & MAXIMUM PERFORMANCE)

© MERCER © MERCER CONCLUSIONS

© MERCER CONCLUSIONS PERSPECTIVES ON SUCCESS

© MERCER CONCLUSIONS PERSPECTIVES ON SUCCESS And while everyone may have an opinion, not everyone is an expert! The importance of a Performance Management Philosophy Clarity of segment-specific applications Methods, processes and roles Broader HR integration “Be careful about the decisions you make… the implications can be huge!”

© MERCER