Dede O’Donnell Director, Total Rewards (new SAIC) June 17, 2013 Merit Budgets: Trends & Practices

SAIC.com © SAIC. All rights reserved. SAIC PROPRIETARY Differentiating Top Performers Highest performer isn’t always the highest paid – Small(er) merit budgets don’t pack the same punch – Federal contracting also creates challenges (e.g. sequestration, LPTA, etc.) Coordination with performance management and talent management initiatives – Managers need to make the tough call; zero out non-performers & average performers high in the range – Company must decide on forced distribution Focused actions: – Provide merit guideline matrix – Consider “fast tracking” – Target bonus participation – Deliver meaningful non-monetary recognition

SAIC.com © SAIC. All rights reserved. SAIC PROPRIETARY Lump Sum Merit – That is the Question Currently not a feature for SAIC salary administration – Total Rewards team not supportive because of challenges presented Non-adoption by DCAA FAR, GAAP and CAS compliance – may not be able to charge it to the customer as salary; different color of money Probable depletion of the annual bonus pool because of approved DCAA disclosure Future planning includes pursuing lump sum merits – Viewed positively by both management and employees – Continues to grow in popularity especially with efforts to manage escalation – Provides managers with ability to recognize performance and control costs

SAIC.com © SAIC. All rights reserved. SAIC PROPRIETARY The Merit Target? Target for Executive Leadership is TCC and TDC Target for majority of employees is market pay Analysis focuses on several factors: – Local labor market – Peer group – Equity to market and peers – Prior year’s salary growth – Performance

SAIC.com © SAIC. All rights reserved. SAIC PROPRIETARY Pay for Performance? Philosophy remains but difficult to implement – Hard to “sell” employees with such a narrow band/range Challenges – Can management truly distinguish between meeting and exceeding expectations? – Does the employee perceive recognition in “average” increases? – Have the days of “bell curve” compensation passed because of tighter budgets? – How does the federal contracting environment and actions impact messaging? – Is there comparability among the employees when there are easy graders and hard graders?

SAIC.com © SAIC. All rights reserved. SAIC PROPRIETARY Creative Compensation and Total Rewards Leadership interest in: – Lump sum merits – Variable pay and/or profit sharing – Defined recognition program(s) Research will start on initiatives – Fishbowl – Utah-based software developer using commission plan universally – Elimination of standard performance reviews or separating salary planning and performance management Work-Life balance programs – Flexible work schedules – Telework – Concierge services – Fitness and subsidized gym membership Employee survey Targeted recognition – High Five and iAppreciate – Service awards

SAIC.com © SAIC. All rights reserved. SAIC PROPRIETARY The Importance of Communications Need to explain the pay philosophy in wording that employees understand and accept – Messaging is important Provide information to employees “early and often” – It’s important to communicate “total rewards” not simply compensation – Annual compensation statement Demonstrate link to business and criticality to program success – Strong allegiance to our customer’s mission, especially warfighter focus – Example: SAIC’s MRAP C2 program

SAIC.com © SAIC. All rights reserved. SAIC PROPRIETARY Impacts on Merit Budgets Economy – Merit budgets tend to be reactionary and tied to inflation, etc. Competition – The Government “pie” isn’t getting any bigger – Protect – Expand - Grow Customer, contracts and regulations – Funding constraints – Price-to-Win and LPTA – Service Contract Act

SAIC.com © SAIC. All rights reserved. SAIC PROPRIETARY Preparing the Merit Budget Align with the economy; review general market data – Local and national data For all industries For all contractors (not only competitors) For Tech Services – Use multiple sources Incorporate information from the Contracts and Line organizations Connect with Finance – Forward pricing and escalation rates Obtain executive leadership buy-in – Ensure they understand the market and parameters Measure the results