Videos and Webinars

Compensation, Retirement and Benefits Trends Report Webinar

Jan 29, 2020


In today’s economy, employee benefits are a crucial factor in the recruitment and retention of talented and valuable workers. What’s driving change in this area, and how will that impact your business in 2019?

This is the focus of this webinar on our Compensation, Retirement and Benefits Trends Report, an annual report from Newport that reveals key trends across a full range of compensation, retirement, health and welfare benefit programs.

Click here to download the slides from this presentation.

Click here to download the executive summary of the Compensation, Retirement and Benefits Trends Report.

Transcript of webinar:

Michael Haun: Good afternoon everyone, and welcome to today's webinar on Newport's Compensation, Retirement and Benefits Trends Report. We're glad to have you join us today. Before we get started, I'd like to go over a few items so that you know how to participate in today's event. You should see this control panel on your computer desktop. It's going to be in the upper right hand corner of your screen. When you joined today's webinar, you chose to join either by phone or computer audio. If for any reason you want to change your selection, you can do so by accessing the audio functions in the control panel. You can also submit questions to today's presenters at any time by typing your questions into the question pane of the control panel.

Michael Haun: We'll answer as many questions as possible at the end of today's presentation. So, I also have some great handouts for you and you can find those and download those from the handouts pane that's also in the control panel. Now, I'd like to go ahead and introduce you to today's speakers. Rena Somersan is a Managing Principal here at Newport Group. Rena leads our compensation consulting team. She and her team focus on workforce and executive compensation, performance management initiatives, leadership development, talent motivation and retention.

Michael Haun: Rena has more than 20 years of consulting and industry experience and she's helped companies execute their strategic human resources strategies and compensation initiatives. Our second speaker is Kevin Bachler and he's going to be presenting the information from the CRB report that's pertains to retirement plans. Kevin, the Vice President here at Newport, and he works with our intermediary partners on key strategic initiatives and the deferred compensation and executive benefits marketplace. Kevin has more than 30 years of experience in the industry and he's the author of numerous articles about non-qualified deferred compensation and other employment benefits. Now, I'd like to introduce you to Rena Somersan. Rena, take it away.

Rena Somersan: Thank you Michael. Good afternoon everyone. Before we begin, I'd like to launch a quick poll here, and as we do this poll, it's really about what's taking up the most of your mental bandwidth. What's keeping you up at night? I want you to go ahead and select, is it health and welfare plan costs? Is it all that wage-related cost of compensation over time, and all those other costs, or is it your retirement plan costs? So, we are very excited here and while you're voting and getting your poll answers in here, we're just very excited to share the results of our latest endeavor to provide the marketplace with important thought leadership that can help both our plan sponsors and all of our clients make educated decisions around these programs.

Rena Somersan: We want to bring you this comprehensive look and kind of talk through our agenda today that'll tell you about the survey demographics. We'll dive into comp practices, I'll take you through that. We'll talk about retirement plans, we'll finish up on health and welfare and with some questions. So, with that, let's wrap up the poll and let's see what you all said. What's taking up that mental bandwidth? All right, whoa it's close. Health and welfare plan costs are taking up kind of the most of your concern, 44% very interesting, followed by wage related costs and then retirement. Thank you so much taking that poll.

Rena Somersan: Cool, well here we go again we talked a little bit about what we're going to do on our agenda, so let's just go ahead and dive right in. I want to give you a little bit of background and talk about the demographics. This survey is a nice one because it's got everything all in one. And what we're doing here is in the third quarter of 2019 we asked over 35 questions here. 467 organizations participated throughout the country and that's going to reveal these key trends and insights for you. You're going to see a lot of data today. Look for the “N,” that's the total number of respondents on any one question and I'll also show you the differences between some of the medians and some of the averages which tells an interesting story.

Rena Somersan: Now, demographic-wise our participants are in a lot of different locations. We have a good representation across the whole U.S., doesn't add up to a hundred because multiple locations per multiple regions for different employers, but we got a lot of Midwest and Southern as well. Real good representation actually across the whole US. Also, from a democratic standpoint, we can see the size of participating companies here, it's about 60/40. 60 percent of the population of our survey here is I guess under 100 million and then we have in terms of employee size under 250 employees, the rest of them are bigger companies. So, good representation across the board in terms of size with nice chunks of the larger organizations around 15 percent.

Rena Somersan:  Then industry-wise our last demographic that I'll mention shows that we have probably the biggest participation from manufacturing that's that tall bar there in the middle, followed by not-for-profit and healthcare, and then finance and banking and professional services are shortly following after that. So, nice representation. Lots of industries represented actually and while I'm on this slide, I'll just make note that we have breakouts by industry, by size. I'll highlight various ones of these as we go through our slides, but know that if you're interested you can also download the full comprehensive report with all breakouts possible.

Rena Somersan: All right, as your compensation practice lead here at the organization I will take us on the journey through trends and compensation practices. We have with compensation I think the big trend here, it's about flexibility. You are recruiting and retaining and trying to motivate in a hot market. So, what are we going to do? Well, we believe, and I know if you know me, you hear me talk a lot about getting your total compensation philosophy set. We asked the question, what is your organization's total compensation philosophy? And we want you and your executive teams to be really thinking about this, advisors to be asking this. Really, it's like building a house without a blueprint if you try to pay and set your benefits programs and set your retirement plans without thinking about this, so what is this slide telling us?

Rena Somersan: There's four buckets and I'm going to start from the bottom. The base salary, this is the biggest part of your package in terms of cost, right? You really are spending a lot of money on this, so where do you position yourself this and this market? What you're seeing here, 14%, 76%, seven and four positioning above market is that blue color. 14% will position their base salaries above the market intelligence they're getting. The bigger chunk position themselves right at market. Close to 80% of organizations decide that, you know what? My base salary should be pretty much competitive with market, I'm good there. Go up a level now, look at that incentive compensation line. 25% of organizations position their incentive to be above market. Now, obviously you pay above market for above expected performance. Really great performance. If you're at expected performance, you kind of pay at market for your incentive comp, but look at the purple on the right side there. 21% have no philosophy around incentive comp.

Rena Somersan: I think that's an opportunity for organizations to really delve into what should they be doing to drive and motivate to get higher performance at the organization. Come up a level yet, health and welfare benefits, 39% of organizations and look up at above that retirement benefits, 36% where's the opportunity here? Well, you can place organizations. This is telling us that organizations are placing more emphasis on the differentiation of their health and welfare benefit packages, their retirement packages to get top talent, not just positioning at market. They're trying to be unique and cutting edge and getting at that above market position if you will. So, comp philosophy, how do you stack up against your competition and here's how the survey population decided they wanted to position themselves.

Rena Somersan: Next we'll talk about the big number. This is the trend that many organizations are looking for and the use for budgeting. And we all know that if I say, "What is your budget for salary increases?" Almost everybody says the right hand side number. Executives, salaried and hourly, everybody does the median of 3%. Okay, the median is great, it's the middle number of the dataset 408 participants in this question. But if you look to the left side, what were the averages? I think this tells an interesting story. In 2019, three point one six, three point six, three point seven, different employee groups total base salary increases that are on average above three percent all the way getting close to the four percent mark. Now, projected for 2020 over three, okay. And I can also tell you that the Western region is projecting higher salary increases than all the other regions combined.

Rena Somersan: All those came out high. And then if we look on this next slide here, if I look at base salary increases by industry, the top line tells you the average, the second line tells you the median. And then there's three groups again, executives, salaried and hourly. Run your eye across the different industries. So, my eye goes straight to the third column over not for profit education and government. The averages there are in the twos, they haven't even hit the threes, note the median is three fine, but then look at construction. Construction is booming, right? So, you look at what those average increases are, five and seven percent trying to keep up with that hourly wage and trying to attract people to a competitive industry. You see what folks are having to do here. So, it's an interesting juxtaposition to look at. The medium pretty solid, everybody's doing three percent the averages tell a little bit different story.

Rena Somersan: Salary structure. Now, salary structures are a way that you can kind of really control your total compensation spend. And we asked, "Do you have salary structures?" About half of our population have them. Obviously, well from our survey you can see that the larger companies are more likely to have salary structures than the smaller companies. Those structures they can really... They're just powerful management tools that it's cost controlled and it helps you to hire, you know where you're going to hire from in the marketplace and so on.

Rena Somersan: It's important to move those salary structures. So, we ask the population, "How much are you moving them?" And again, we have similar stories where the medians and the averages diverge. The median is two percent, remember the median for increases was three percent so if you move the structure too, but you give a total of three percent increases, people are making some headway in their salary ranges. But in actuality in the averages, when we look at the story told there, organizations are moving their salary structures that had more than just that two percent. Again, trying to be a little bit more cutting edge, trying to hire a third higher than they would have. So, that's what they're doing with salary structures.

Rena Somersan: We asked about the differences in increases given to high performers, satisfactory performers and low performers in this question, tell us what those base salary increases were for those different groups? And what you can see is that the difference between a high performers average increase at four point six five versus satisfactory at two point eight and low performers at one point three nine, those are on average. What were you doing? Right, so we know that the trick is with tight budgets, how do you really allocate budget to those high performers? Well, being able to differentiate your increases is an important piece of that. On the median side, it's about a three percent span, right? Four percent, three percent and then one percent for low performers. So, doing what you can, chunking out your budgets, trying to make sure you're differentiating for maximum engagement.

Rena Somersan: Big trend we see there. And many of my clients are wondering about the trend to blow up the way they do performance management. So, we asked our participants if they have a formal employee performance management program that kind of gives you those performance ratings or a score or so on that's shared with the employee. We found that not formally assessing performance at the very bottom rung there, 22% are not doing that and then it's 32% the top line have a formal performance rating with a mathematical calculation and the remaining proximately a fourth are just a sort of maybe they're assessing performance but they're not getting a mathematically calculated or assigning a rating per se. So, things are changing, it's kind of tricky because this trend is a little bit in contrast to the trend where you need to differentiate your increases.

Rena Somersan: But, organizations are getting away from a very formal measurement per se. So, I have a lot of my clients saying, "Well then, how do I do it?" And there are ways, it's just you have to be a little bit more creative. Okay, and then when we also asked, "What kind of guidance your organizations provides to managers when they're making those salary increase recommendations?" So, speaking of those increases, you can see we're pretty evenly divided the three, a quarter, a quarter, a quarter. A lot of people are saying that they're getting employee performance data to whatever extent they've got it. They're using some sort of an increased matrix where they're looking at both performance and the position in the range or they're giving managers sort of flexibility to remain within a budget but distribute their budgets the way they see fit. Again, differentiating if possible. The across the board was least was not as popular, equal percentage across positions or something else. That was the lowest, right? Eight percent.

Rena Somersan: Let's switch gears here to that incentive compensation, short term incentive. We see that some industries better at utilizing that powerful tool of motivation and some are not as good at it, not for profit and education. They don't do that as much. So, we see that and then we ask, "Approximately how much are these incentives?" That's the next slide here. And short term incentive pay opportunity is around 22% for executives on average. If we look at the left on the bottom there 22%, hourly productions at four point five percent. So, you can see it's a graduation and I can tell you that one of the trends that we do see when we are talking short term incentive is the trend to push those incentives much like this graph from the executive down to management down to supervisory and then getting it professionals and hourlies, really trying to do something so that you're using incentive pay as a component in the package.

Rena Somersan: A final component that I'll talk about is in that executive compensation most likely that long-term incentive. Now, long-term incentive vehicles also vary greatly by industry and also by employees most often given to kind of the top of the house. Most frequently used programs if you have a program of 40% of our population, so they did and they're most often using something like a restricted stock or a performance unit or some other kind of cash based plan to distribute long term incentives. And so, I want to do one last poll before I launch this over here, and this is really when were your organization's cash compensation programs last reviewed for market competitiveness? Would you say it was fairly recently?

Rena Somersan: You feel good about your benchmarking, you got a philosophy, you gathered data and you pay accordingly to your philosophy? That's a fairly recently bucket. If you think you're within the last three to five years? I got a lot of organizations that kind of do this on a rotating basis, you'd click that second button. And if you're in a wing it and you pay what you need to pay or you just have discretionary bonuses to make up the market, click that third radio down. All right, and let's see what you've said with this quick poll.

Rena Somersan: Can wrap it up and get the results here. Very recently, look at that 58%. This is very much in line with other survey sources I've seen. Organizations are about half to 60% in our survey here so that you're doing benchmarking fairly on a good cadence here at least annually. Okay, thank you for that poll. Now, I want... We spent some time really talking about all that current compensation and all that current cash stuff, so let's shift our focus now to the money we choose where we hope to have in our future and talk about retirement. I'm going to pass this over to you, Kevin.

Kevin Bachler: Thank you.  A couple of opening comments on this section before I start going through some of the materials. Just kind of an overview of some of the things we're going to see. The first is that when we look at the questions this year and the results, we've added a few questions, changed a few results around a little bit in terms of how we present. So, that I think we got a little more clarity. But in general what we find is that things have come across as being fairly stable from last year to this year. There are some changes, some nuances, but the overall results, we're seeing a fair amount of stability in terms of the survey questions themselves. Yeah, I can be on the side of 25 it doesn't matter.

Kevin Bachler: But we start by considering some of the retirement plans that we're going to look at, now go to 25. And one thing that we did notice is that, and that I noticed is looking at the type of plans that are being offered and what we were asking in the survey versus some of the things that we've had come up recently is that we're getting some more ad hoc types of requests that are outside of what we would normally see in a survey. And perhaps we're going to have to find some way to incorporate this more for next year. But there's an increased focus. We seem to be seeing an increased focus on compensation and benefit integration as though companies are looking for better way to be effective in what they're providing and still be very cost efficient. They're also looking for a little bit more creativity.

Kevin Bachler: So, in the past several years I've had limited situations where Rena, who's in the compensation field and I in the retirement field work together on projects. And yet in the past year and a half, that's increased significantly and it's largely driven by this need for making sure that we're looking at everything and that everything's working together in a way that's effective for our employees. Looking at the types of plans that are offered, again, we see a lot of stability in our defined contribution either with or without an employee contribution is still clearly the leader today. Defined benefit plans continued to decrease. Last year they were at a 13% level, which was less than the year before. Now, they're down to 10, and the last four areas are pretty much unchanged from last year. They're all in the same ballpark. One thing that I am curious about if we'll see is if ESOPs might evolve over the next few years as we see baby boomers retire, trying to get money out of their companies that they've grown and developed and whether millennials will have an interest in ESOP type of programs.

Kevin Bachler: So, that's something that I think may come up in the next years and we'll see if it happens or not. As we move to slide 26, we look at the idea of matching contributions and just in general what we have found is that matching contributions are one of the biggest factors in terms of plan participation being a qualified plan or a non-qualified plan. Generally, what we see is that for qualified plans, it's very heavy in terms of companies providing a match. Even at the smaller company level, over two thirds are providing a match. Whereas if you get up to the larger company level, it starts getting close to a 100%, 96%, 85%, a very large match participation there. But what we also noticed is on the non-qualified side, as the plans get larger, the matches also become more important. So, if you are a company that is competing for talent with larger companies on the knot for executive talent, and you need to pull somebody in, think about some type of a match on the non-qualified side to assist with that.

Kevin Bachler: One of the things that is important to remember is that as we look at all this, is that this is always a balancing act between how you can manage your costs, how you can attract and retain. So, when we look at these types of matches, what we would often consider particularly for the non-qualified side, it's having ad hoc provision in your plan where you can do something on a one off basis. It doesn't have to be for everybody all the time and that could give you a little bit more flexibility. There's a second question on this page at the bottom part, again, this is very much in line with last year in terms of what does the overall contribution look like compared to last year? 81% are saying it's not going to change. 13% are saying it's going to be increasing.

Kevin Bachler: Last year those numbers were like 79 and 15 so you can see that they're very much in the same range. And again, that's just the very stable response to the question. As we go on to slide 27 yeah, a little bit further information on matching contributions. One of the things that I want to notice here, point out here is that if we ignore for a moment the top bar where there's no amount contributed and the bottom bar where there's over six percent contributor, what you really have is pretty close to a bell shaped curve in the middle. And when you look at matching contributions, one of the important things is that it's always a balance between cost and effectiveness. And there are some companies that simply cannot afford a match. That's the top bar. And there's some companies that are willing to provide a match and do everything that they can because they can afford and that's the bottom bar.

Kevin Bachler: And if we ignore the extremes and look at the middle, what we see is this is a histogram of effectiveness, if you will. And most companies find that between three and four percent of compensation is the key range, two to three percent range, a few at the four to five percent range, but basically that middle range seems to be around three and four percent. Moving on to slide 28, there's some key features in qualified retirement plans that there are similar features in non-qualified plans but they work a little bit differently for various reasons. But one key feature is automatic enrollment. And here we still see this great divide between companies that do this and companies that don't do it and aren't considering it. So, it's pretty much 42% on either side.

Kevin Bachler: What we do notice is that this is still a strong driver of participation and that people still aren't saving enough for retirement in general, so that while taking a more paternalistic approach may not be attractive to many of us, it might be an important and necessary thing to do. So, we would suggest that everybody at least continue to consider this and watch what's happening to your employee population and whether or not this may be helpful for them overall. On the non-qualified side, you'll see that there are some ideas for getting people started and once they get started it's not as big of an issue as it is on the qualified side. Moving on to slide 29. What's the typical contribution rate, if they have auto enrollment? It's three percent by quite a margin, so that's probably not a surprise. Again, balancing off cost and effectiveness.

Kevin Bachler: Slide 30, where we've got automatic escalation, another way to increase participation. We noticed first of all that the percentages between automatic escalation and automatic enrollment are largely similar. They aren't significantly different from each other. And again, if we look at the middle here, 18% are considering it at some point in the future, some as early as next year. But more for some point in the future. Again, all of these are in line with previous years and the differences in percentages are so small that they're more likely to do to just survey noise rather than any real difference or trend. Slide 31, if you escalate how much do you escalate by? And by far the most common number is one percent I mean that's not even close. So, there's not even... Unless you really want to do something to force it up for some particular reason, it looks like that as easily, the number they are concerned first.

Kevin Bachler: Okay moving on to 32, Outside Advisor Involvement. Again, these numbers are fairly stable from this year to last year or last year to this year, I should say. And one thing that we find is, if we look at last year, more than five years, it's 55% but last year one to five years was 28% so, when you see differences like that, the first thought is that, the relationship is just aged years of some people have fallen out of the between one and five and grown into the more than five. The number that don't use an advisor is seven percent exactly the same as last year. So again, this is just a very, very stable number. Moving on to 33, Fiduciary Guidance. The thing that really caught my eye when I looked at this slide is the fact that 11% have taken no steps.

Kevin Bachler: And there's a couple of slides as we go through some of the next slides that seem to indicate that companies are either having a hard time getting their arms around information or having a hard time making a decision or something along that line. And if there are specific reasons for some of these things, we'd certainly like to hear it from the companies taking our survey, drop us a note. What do you find challenging about why you haven't taken a step in this area? And this is one of those questions where you really should be making decision about one of the other three approaches and the fact that there's still 11% out there that haven't taken any steps, I find a little disconcerting.

Kevin Bachler: So, moving on to slide 34, thank you. 3(16) Administrative Fiduciary. A few things here again, numbers are pretty much unchanged from last year, but I'm really taken aback by the 39% that don't know really what they want to do or if this would be of interest to them. And, it shouldn't really be that kind of a situation. It should need to be a situation where, "Hey, we understand what needs to be done. We're comfortable with doing it, we don't need to consider it for the future and we're in the know category and we understand what's happening." Or it should be a situation where, "Yeah we don't really want the responsibility. We want to outsource this. Here are the factors that are keeping us from doing that and, or here's the timeline for doing that," and you should be somewhere in the yes category. And the fact that there's still almost 40% that don't seem to have their arms around this, I just view as problematic.

Kevin Bachler: So, I would really encourage everyone to take action on this during the next year. Moving on to slide 35. One too many. There we go. In terms of evaluating services, level and quality is the most important factor that's roughly the same as last year. Costs of investments as second most important, and cost of service is third, pretty much lines up with last year although overall there seems to be a slightly increased focus on quality. Maybe minor increased focus on costs, but quality seems to be a little bit more important than in prior years. Moving on to the next slide. Okay, we're now moving into Non-qualified Deferred Compensation Plans and I have a couple of intro things to say in this slide before I talk about the slide itself.

Kevin Bachler:  The first is that, on a roughly kind of biennial and a half basis of biennial, the triennial basis, we do a significant non-qualified survey. It's usually not necessary to do it annually just because the answers tend to change more slowly than annually. So, we've done it every two to three years. That will be going out in roughly the next week, somewhere within the next week. And we're changing it from last year so that it includes a broader range of questions. We're doing this in part because other surveys in the marketplace have focused more and more exclusively on voluntary salary reduction or bonus reduction type of deferred compensation and there are a lot of other forms out there, so involved as well. There are other executive benefits out there that are important and so we broadened our range of questions to touch on that and to also touch upon both larger and smaller employers, a little bit more taxable and tax exempt employers a little bit more.

Kevin Bachler: So, we would really encourage you to take some time and answer that survey. The emails will be going out within a week and if you don't get one, feel free to email Rena. Her email addresses is at the back of this presentation and you can get it there and she'll pass it along to our team. In terms of having these plans, what we see here is that about 33% have these plans. What you will find in this survey and every other survey out there is, it is easily the case that the larger the company the more prevalent these plans are so that as you get up to the fortune 500-ish range it's over 90% have these plans. So, on the one hand, prevalence is 33% as it points out, but it really depends a lot on what share of the market you're in, what your size is overall.

Kevin Bachler: Basically, if you're billion dollars in revenue or up, probably 70% or higher of companies have these plans and you should be seriously thinking about one. If you are competing for executive talent with companies in that type of space, you should also think about having some sort of plan, and those are the types of places that you can look on this. Now, there are some more cost effective ways to do that and we will talk about that in a slide or two. Going onto the next slide, slide 37. These are the executives upper levels of management that typically participate in these plans not surprisingly, president and CEO, we did see a little bit of an inch up, probably a little bit more than just survey noise among vice presidents and director level from last year, so there may be some expansion of these to slightly lower level. That may be seen as a cost effective way to provide an additional benefit since the compensation is deferred and not paid up until some point in the future.

Kevin Bachler: Moving on to slide 38. Okay, again voluntary deferred compensation is by far the most prevalent and that's why a lot of the surveys have really tended to focus on this now, but there's still a lot of play for some of the other areas of supplemental executive retirement plans is now 16%, down from 27%. That's not a surprise we've seen that continue to go down. However, in the tax exempt space, they're a little bit more prevalent and that's one of the reasons why we're moving our survey around a little bit adjusting our survey so that we can get some of this information on some areas that maybe aren't served as well. One thing that we would point out is that if you are a smaller company and you need to hire somebody in kind of a one off situation, we wouldn't suggest that you make every plan different, you might end up with five different one off situations someday.

Kevin Bachler: But this can be a very cost effective way to do something for a single employee. And that's because you aren't doing everything online. You aren't putting up a plan for 10, 15, 20 employees where they're reallocating assets and things are changing daily and all that stuff. So, you don't need all that background overhead. Here you're reporting something to them once a year and because of that, it can be a lot more cost effective to do it if you need something on a one time basis. So, that's something that we would encourage companies to think about while SERPs are going away overall, there are certainly situations where they still make a lot of sense. In terms of mandatory deferred compensation, that is definitely up. That's an area where we're seeing more of that.

Kevin Bachler: And that's probably partially in response to the decrease in SERPs. So, what companies are saying is that hey, "If we've got a SERP and a voluntary deferral plan, rather than continuing to pay for the cost of the SERP, let's get rid of that and we'll put some amount into the deferred compensation plan as a company contribution or as some other amount and that has to be deferred." That could also be a signing bonus, that's great for companies that say, "Hey, we want to bring somebody on board and we want to guarantee they're going to be here for a while. So, we don't want to just give them money that they can spend shortly and walk away. We'll put the signing bonus in the deferral plan and maybe he does invest for some period of time."

Kevin Bachler: So, things like that can be very helpful. So, mandatory deferred compensation overall we've seen a significant increase in. Key person life, key person disability and key person medical have all increased the life and disability a little bit more than the medical, but they've all increased and that's also not a surprise to us. We see that as the company's looking for cost effective ways especially smaller to mid-size companies looking for cost effective ways to help put a little bit of a golden handcuff on their executives. Can they easily replicate this benefit if they're going somewhere else? How can I get them to stay, entice them to stay with us a little bit more with a few less dollars out of pocket to do it?

Kevin Bachler: Slide 39. This is a fairly complex slide to read. So, when you take your time and go through it and really look at each piece what we'll see is that executive retention is being viewed as being a little bit less important than it was last year as a reason for having a non-qualified plan. And surprisingly, the more tax efficient compensation vehicle is also being viewed as being slightly less important. Now, maybe what's in everybody's mind is the fact that they're thinking in terms of business tax rates being lower or something. Individual tax rates are really the same and in fact since the ability to deduct state taxes has changed and significantly impacted some states. If anything, the more tax efficient compensation vehicle for an executive should be greater. This should be viewed as having gone up.

Kevin Bachler:  So, this was one of the items that really surprised me and I think that companies have probably misinterpreted what's happened under the tax code and these plans should be more important to your executives, not less important. So, that's an important thing that we want to point out. There is some minor growth in terms of increase in company stock ownership. We see that mainly in larger plans at this point, a lot of the smaller to mid-sized companies don't have true stock and don't want to go through the expense and difficulty of creating some type of performance unit. But we do see a slight uptick at this point.

Kevin Bachler:  Okay, slide 40. This is another slide that can be a little bit complex to read, but basically if you want to make this as simple as possible, everything that is blue, purple or the other blue, the less sky blue is somewhat satisfied. Now, it ranges from extreme down to somewhat, but there's a level of satisfaction. And then the smallest numbers, the two, the three percent, two percent, three percent going down close to the end is we're not satisfied. And then the bottom set of numbers far right numbers are not applicable. When we look at this in detail, what we see is that there's not a huge overall difference in satisfaction, but there is some difference in terms of quality of satisfaction. It looks like in general through all categories, firms feel a little bit less thrilled or a little bit less extremely satisfied than they were a year ago.

Kevin Bachler: One particular area for that is website experience. So, it looks like that's an area to focus on in general over the last several years. Communication type of factors, plant education materials, website experience, those type of factors have been high on everyone's mind. And to the extent that those are good and participants are well taken care of, that tends to take things off of others people's plates. And that's probably part of the rationale behind this. But it's interesting to notice that overall satisfaction is still good but maybe a little bit less happy than they were a year ago. Slide 41. Here we're looking at do companies fund informally these benefits, you can't fund them formally of course, because then you run into all the qualified plan rules. So, this is assets set aside typically in a rabbi trust and what's being done here.

Kevin Bachler:  And what we're finding is that the amount that's not being set aside is a little bit higher than it was last year, and that's not a surprise, particularly for the mid tier and smaller companies. And the reason for that would be that was the lower tax rates for those types of companies, they might be a little bit less inclined to set money aside in these types of plans and instead are trying to reinvest elsewhere see what they can do with it. But it's not a huge difference. Mutual funds are about 5% lower, life insurance is range of five, seven percent lower. But overall it's about 11% down from last year. There's a little bit of an increase in other, so we don't have a breakout there in terms of what that was. But if anybody's looking for additional information, we can delve into that and see what it could be.

Kevin Bachler: But in general, companies are still funding. In general, the two major factors are still mutual funds in life insurance. Last slide in this section. Page 42 is financial wellness programs. I guess we saved the most stable for last. These numbers are almost exactly the same as they were last year. And either companies have implemented them, they're still planning to, or they're just in the no category. So, roughly a third of companies are sitting in the no category. But we do still view this as an important way to help improve communication, help your employees do better overall in these plans and potentially ineffective way to make these plans more cost effective. So with that, I will move from financial wellness, turn it back over to Rena and let her go on to other types of health and welfare benefits. Rena.

Rena Somersan:  Thank you Kevin. So, when we think about the health and welfare types of benefits, we'll start with health insurance plan options. Pulled in here for you sort of a look at what the different industries, is there any difference in different industries as to what types of plans are being offered as health insurance and what we do find overall is that the preferred provider, the PPO plans and the HDHP, the high deductible plans are pretty much have the most prevalent followed by the HOMs and other types of health insurance plans. But within industry, I would say that HDHPs are kind of least offered in the not-for-profit education government segment there. That was the one trend I saw and that's consistent with the previous year, although overall HDHP keep creeping up as one of our trends there.

Rena Somersan: When we asked in addition what is the organization offering, we also asked what is being selected by the largest number of employees. And we find that similar to kind of the offering, the election goes sort of hand in hand. So, 49% are really electing to be in that PPO. The 36% in the HDHP has been rising to my earlier point. So, we are seeing those high deductible plans continue to remain popular and on the growth side. We know that from our first poll you all were most worried, I think about costs. And so, when we look at how much our cost's growing, we are seeing aside from the top and the very bottom extremes, right? Where premiums decreased or they were over 20%, 11% had no change, but big chunks of the organizations saw somewhere in the one to eight percent increase there in their health insurance plan costs.

Rena Somersan:  So, that's why those costs are... They're still growing 14% on eight to 12% increase. So, I think thinking about ways through encouraging employees to use health savings accounts prodding, figuring out ways to manage specialty pharmacy, which can be a huge cost in these plans. Working with employees to think more about I think health care as a consumer type product and get that awareness of how you can do wellness programs or shop around a little bit. It's tricky but it's getting better and better, and I think this is all because of costs. NoW, when we look at where the actual premium amounts are, we're seeing an overall a family premium is about 1700, employee plus one 1200, employee plus all children 1,138, employee only 585. I don't see huge differences by industry aside from some fluctuation.

Rena Somersan:   Again, our non-profit sector seems to be one of the most expensive sectors to be doing these premiums in. Now, when we think about that cost along, for a long time in our trends survey here that the plans to address healthcare costs, that's keeping you up at night you said in our very first poll question, and the idea of really cost shifting, raising that employee portion of the premium payment has been the top, I guess strategy for many years now. It's at 33% or so saying that they want to use that as a strategy. Now, 51% say they're not really so worried and not focused too much on actions to reduce or address rising healthcare costs, which tells us maybe there's some level of stability has come into the marketplace. People are sort of used to it, but raising deductibles, employee wellness programs, those continue to be the top strategies to address those costs.

Rena Somersan:  And then we ask about what other types of benefits are offered, and we do see that a majority have dental and life, but the longterm disability is short term disability. Those are also sort of up there and there's a lot of different benefits. I know Kevin, you mentioned the kind of the executive long, the disabilities and different kinds of benefits. Distinguishing your plans, we saw in the philosophy was a way to really set yourself apart. 51% are showing some kind of a wellness plan and we know that we've got longterm care is retiree medical. Those are not as frequently offered, but there are some cutting edge type benefits like the trend to think about student loan repayment and be able to, if someone can show that they're doing their student loan payments and they don't have enough to do the retirement contributions, some organizations are opting to actually do the retirement match anyways.

Rena Somersan:  So, that's sort of a new thing that's happening in this area. And I think in general we see that benefits offered by different types of plans, the larger you are as an organization, the more apt you are to have all of these plans, like a wellness plan. You look on average 51% of our population have them. But in the large organizations it's up in the top very, very high numbers there. 80, 90% have those types of plans. So, I think overall when we look at the big picture here, we've got a good set of trends. It's all about attraction and retention. And with our last couple of minutes here, I guess I'll ask Michael if we've got any questions that might've come in as we've gone through all of these interesting facts and aspects of the market?

Michael Haun:  Hi Rena. Yeah, we've gotten a lot of great questions to comment, and we've got a few minutes. So, let's jump right in and I'll go through as many as we can. The first one says, "Please comment on deferrals of stock based compensation such as RSU."

Kevin Bachler: I'll take that, Rena. We are seeing in our last few surveys, and also just ad hoc up to this point, definitely an increase in the deferral of stock based compensation particularly RSUs. And the reason for that is it just makes a lot of sense. If it's got stock ownership requirements, they meet them more quickly. So, it makes the plan overall just a lot more effective. Now, there are some questions that are coming up and this is a benefit that traditionally has not been the most prevalent, but it's certainly growing in prevalence.

Kevin Bachler:  So, a few years ago it was maybe five, six percent of companies were offering it. And then, three, four years ago it was maybe up to 20, 25% of companies were offering it. And I suspect in our next non-qualified survey that's going out next week, that, that number will continue to grow. But there are some interesting side questions that come up. So, for example, if somebody is deferring stock in a deferred compensation plan, then the problem of diversification for the employee eventually it comes up, whether it's late in their career, during retirement, et cetera. And there are some general issues that come up with allowing people to divert sort of versify and managing plan cost at the same time.

Kevin Bachler:  Those things can all be managed, but it does take a little bit of work, and a little bit of effort. But once it's in place, it's taken care of. So, I would encourage any company that has any form of stock compensation to talk to your provider about it in how can we do this more cost effectively for our employees and make sure that it continues to be cost effective for us. And at the same time takes care of the issues around diversification of their retirement income assets. So, those are just general comments and I look forward to the next survey coming out next week or the questions going on next week to see what it continues to do over the next couple of years.

Michael Haun:  Thanks Kevin. Next question is what's the impact, if any, of MEPS, multiple employer plans on non-qualified deferred compensation programs?

Kevin Bachler: There's a couple of potential answers to that, and I think it depends upon how companies are looking at the question. The first question, is if I get into a MEPs that's somehow going to impact any non-qualified plans I have and what kind of problems might that cause? And I think that the most basic answer there is that if you've got a non-qualified plan that is not tied to your qualified plan, then if they're running completely separately, then you're really not going to have any issues and you can just continue to run them completely separately and not have any problems. Now, [inaudible 00:56:52] qualified plans that effectively work is what's called a spill over plan.

Kevin Bachler: So, when people hit the max that they can contribute to one plan, it automatically spills over to the non-qualified plan. There may be some administrative or other types of complexities that could come up with those situations that maybe if you don't want to get into them, just find a way to separate the plans and there are ways to do that. If you'd like to keep that plan design then we'd just need to go down, I think a checklist to make sure that we've addressed any potential issues.

Kevin Bachler: The other thing that's not really happening yet, but it's out there on the horizon is getting some talk is whether or not there's a way to do multi-employer plans on the non-qualified side to help lower the cost for smaller employers and to do this more generally. And if we have companies that are interested in that, that's something that in the group that I'm in, we are currently researching topics like that and if companies are interested in that, we would certainly like to hear from them and see what their appetite is for, if they have any particular approaches that they'd like to see and so on.

Michael Haun: Thanks Kevin, and I think we've got time for one last question. And Rena, I think this one is for you. What types of compensation benchmarking resources does Newport have available?

Rena Somersan: Thanks Michael. Yeah, well we maintain a very robust salary survey library. So, we buy published surveys. We've got the best, most cutting edge up-to-date comp data on basically any job from your C-suite all the way to your front door receptionist or hourly workers in a manufacturing. We can basically get you good market competitive intelligence for any job. So, we're always here to help and excited and yeah, I'm happy to help.

Michael Haun: Rena, thank you. Thank you Kevin and thanks to all of you for joining us. Just some quick information, but if you can hang on just for a second. Again, on that control panel, there's some handouts that you can download. You can download today's slides. You can also download a copy of the executive summary of the CRB report that Rena and Kevin went through. When you exit the webinar, you'll also... We've got these three quick questions. If you can take a moment and answer those questions, that'll help us with our future webinars and bring in new content and webinars that are a benefit to you. We'll see you next quarter for our next webinar and we appreciate it. Appreciate you joining us today. Have a great afternoon.

 

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