1. © 2010 Towers Watson. All rights reserved. Market Pricing vs Job Evaluation Presented by Theresa Lynch To Prince William SHRM April 4, 2012

2. © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 1 Table of Contents Introduction Market Pricing Overview Job Evaluation The Intersection of Market Pricing and Job Evaluation

3. Market Pricing Overview towerswatson.com 2 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

4. towerswatson.com 3 The critical role of market pricing Compensation plays a critical role in organizations’ ongoing — and increasingly challenging — efforts to attract, retain and motivate a talented workforce It is an important component of an organization’s Reward, Talent and Engagement strategy Compensation design and management play a vital role in aligning employee behavior with business objectives Human capital costs represent a significant part of most organizations’ cost bases; they need to spend their limited resources as effectively as possible Market pricing provides the vital external market perspective and data needed to develop cost-effective, market-relevant compensation designs and manage pay effectively Market pricing supports a range of pay program designs (base pay, short-term incentives and long-term incentives) Market pricing is the process of determining the "market rates" for a representative sample of jobs in a specific talent market, based on data for jobs with similar functions and comparable scope of responsibility.

5. © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 4 Market pricing overview Market pricing provides information to support decisions about “how much” and “how to” pay The goal is to keep from: Underpaying, and losing talent to competitors or being unable to attract the talent it needs Overpaying, and wasting organizational resources or impeding desirable turnover Market pricing is a descriptive, not a prescriptive activity. Market data are not “the answer” — there’s often more to the story It’s an imperfect way to make sense of incomplete data The secret is the ability to spot the imperfections and either eliminate them or work around them A combination of “art” and “science”

6. © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 5 Why do we market price? Market pricing helps us understand the influence of supply and demand on the cost of labor Where is the market shifting, how quickly, and by how much? How competitive is our pay? Are our attraction and retention issues a result of pay or something else? Talent Readily Available Reduced Labor Cost $ Increased Cost Limited Available Talent $$$$

7. © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 6 Why do we market price? It provides us with data for informed decision making: How should we allocate resources? How do we value an acquisition target? Is the way we deliver pay consistent with the mix other companies deliver? How does the market reward employee development? Are we keeping up? How well are we delivering against our compensation philosophy? Can we afford to bridge gaps between where we are now and our target competitive position? What do market practices suggest for ongoing compensation management? It’s essential to developing market-based reward programs Based on detailed understanding of business and HR objectives Anchored in a company’s HR strategy and compensation philosophy

8. © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 7 Market pricing: One of the many supporting elements of all pay decisions Communicate with Employee Final Pay Decision Performance Information Informal/Formal Individual/Team/Business Unit/Organization Incumbent’s Current Pay Levels Compensation Information External Surveys and other analyses Recruiting feedback Trends and prospective changes Internal equity

9. © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 8 The limitations of market pricing Numbers imply a precision that is not necessarily accurate Only as valid as the salary survey data being referenced Data not always available in sufficient detail — especially for narrowly defined talent markets or small/developing countries Published compensation surveys do not have every position, and often do not include “hot skills” roles Cannot provide insights into value of non-benchmark jobs May cloud the organization’s judgment about taking internal equity into account Cannot be the only input for making individual pay decisions Cannot replace business rationale and sound decision making

10. © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 9 Addressing non-benchmark positions Each organization is unique, and the jobs in those organizations are often also unique In some organizations, as work becomes defined more broadly and where job tasks may be combined in non-traditional ways, you may not be able to find a “perfect” match for a job in any of your available salary surveys Not all jobs will be able to be matched to survey data because they are: Specific to an organization Jobs for which survey data is not collected and/or reported Do not force non-benchmark jobs to be benchmarks Non-benchmark roles present an additional opportunity to discuss how to manage pay

11. © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com Job Evaluation towerswatson.com 10 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

12. towerswatson.com Job Leveling overview Job leveling is… A systematic process of determining the relative value of jobs in an organization A system for analysing and comparing different jobs according to the overall responsibilities and scope of each job It is not concerned with the volume of work, or with the person doing it, or with current pay Purpose Establish a framework for: — Defining jobs and hierarchy — Providing a foundation for reward and talent management decisions including base pay, incentives, career management, workforce planning, learning and development — Creating a flexible, adaptable means of communicating career paths and facilitating talent mobility Goal A consistent, internally relevant and market-supported approach that can be understood by everyone involved 11

13. © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com Examples of Job Leveling Solutions Reflect different methods of analyzing jobs Job Mapping: Comparing a job against pre- defined leveling criteria, and assigning the job to a career level based on a holistic view of how the job is expected to contribute (Career Map) Job Evaluation: Analyzing a job against a number of factors where each factor is measured separately and the resulting evaluation is based on a calculation of the weighted factor scores (GGS) 12

14. © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com Job Leveling Solutions Aligning tools to support the rewards and career framework The best job leveling approach will vary based on: Business and cultural needs and The reward and talent management programs the leveling outcomes are intended to support Key questions for consideration: What is the primary objective of the job leveling process? — Create or confirm job family architecture? — Support compensation design? — Link to performance management or additional talent management programs? — Desired degree of transparency of leveling outcomes What process is envisioned for leveling jobs; who will be involved? What is the organizational context of the business? 13

15. © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com Towers Watson’s Reward and Career Framework Supporting the Employee Life Cycle Workforce Analytics & Planning Staffing & Selection Development and Career Management Performance Management Compensation & Benefits Succession Management Competency Model Inputs Business Context Reward and Talent Strategy Job ContentEmployee DataMarket Data Job Family Architecture The infrastructure for organizing jobs (job codes, job titles, functions, disciplines) Job Leveling A systematic process of determining the relative value of jobs in an organization Reward and Career Architecture DRAFT 14

16. © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com The Intersection of Market Pricing and Job Evaluation towerswatson.com 15 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

17. towerswatson.com 16 The critical role of salary structures Salary structures help organizations manage compensation by aligning pay with the competitive marketplace, recognizing the relative internal value of different jobs, and maintaining the cost-effectiveness of pay programs They provide a framework for rewarding performance, making consistent pay decisions, and linking career paths and pay opportunities, and can provide a framework for total rewards design and delivery Salary structures are sets of pay ranges that define the minimum and maximum pay rates for jobs. They provide guidance to managers in administering pay, recruiting and retaining employees, and fostering employee growth and development

18. © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 17 Salary Structure Design: Historical Perspective on Market Practice Narrow grade structures are the most traditional, reflecting a historical emphasis on employees as inputs and costs, as opposed to strategic assets (personnel vs. human capital) Broad-band structures became popular in the early 1990’s Existing grade hierarchies no longer reflected flatter organizations that resulted from down-sizing activities Work became more broadly defined – careers were perceived to grow laterally through experience and cross-functional experience Broad-bands were seen as a tool to ensure talent mobility across functions Increasing demand for labor brought a greater focus on pure market pricing and deemphasized the need for talent mobility, requiring: Administrative rigor – stringent market analysis and credible market info Ongoing manager training to effectively use the ranges, pure market data and reference points Today the focus is increasingly on achieving balance to support: Internal consistency, employee development and external competitiveness Differentiated pay for performance, manager flexibility and overall cost management tools As a result, many organizations have adopted wide grade structures to better balance changing organizational structures, evolving views of human resources, and the continued need to manage costs

19. © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 18 Employee Value Proposition A Reward and Career Architecture serves as a foundation for critical talent and reward programs and applications Workforce Analytics and Planning Staffing and Selection Development & Career Management Performance Management Compensation & Benefits Succession Management Reward and Career Architecture

20. © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com Integrated Reward and Career Framework: Using Leveling Results to Develop a Global Salary Structure $125,000 – $225,000 $100,000 – $200,000 $85,000 – $175,000 $60,000 – $115,000 $40,000 – $85,000 $25,000 – $50,000 $125,000 – $225,000 $100,000 – $200,000 $85,000 – $175,000 $60,000 – $115,000 $40,000 – $85,000 $25,000 – $50,000 $180k $155k $120k $95k $35k $60k £95,000 – £150,000 £85,000 – £125,000 £60,000 – £100,000 £40,000 – £80,000 £22,000 – £52,000 £18,000 – £32,000 £95,000 – £150,000 £85,000 – £125,000 £60,000 – £100,000 £40,000 – £80,000 £22,000 – £52,000 £18,000 – £32,000 £125k £102k £85k £65k £15k £35k Common Leveling Framework Individual Contributor Manager Local Market Data 19

21. © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 20 Integrated Reward and Career Framework Sample Pay Delivery Model LowHigh 10% 15%20% 25%30%40% 30%35%40%50% Salary Grade STI Target LTI Target Spot Award Eligible Annual Incentive Eligible Long-term Incentive Eligible Global Job Level

22. © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com Linking Competencies to the Reward and Career Framework: A robust structure to enable other talent programs and applications Uses career bands (e.g., professional, manager) and career levels (e.g. entry, intermediate) to organize and align roles across the organization Includes criteria to clearly describe each career level Clarifies the knowledge, skills and abilities required for successful performance Supports link to performance management, career development, succession planning CompetenciesGlobal Career Framework + Global Career Framework + Competencies 21

23. © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com Questions? towerswatson.com 22 © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.