cio breakfast roundtable 1012

CIO Breakfast Roundtable Compensation Trends Discussion

Ken Wechsler

Director; Southern California Market Leader

October 11, 2012

1

Topics for Today

> Key indicators

> Hiring and turnover trends

> Salary budgets

> Cash incentive plans

> Equity strategies and practices

> Questions and answers

Key Indicators

3

US Economic Forecasts

*Q2 2012 US Commerce Department, July 2012

**July 2012

Sources: United States Bureau Economic Analysis,

Congressional Budget Office and Bureau of Labor Statistics

> Overall economic growth remains sluggish: Q4 2011 growth rate 4.1%; Q1 2012 growth rate 2.0%; Q2 2012 growth rate only 1.5%

> The overall unemployment rate is dropping, but for those unemployed, they may stay unemployed longer

Category 2008 2009 2010 2011 2012

GDP Year-Over-Year -0.3% -3.5% 3.0% 1.7% 1.8%*

Unemployment % 5.8% 9.3% 9.6% 8.9% 8.3%**

4

Unemployment Rates

Source: United States Bureau of Labor Statistics

> Both California and San Diego County unemployment rates have been higher than the overall US rates for the last few years, yet they are clearly improving

12.0%

12.5%

11.7%

9.8% 9.7%

9.0%

10.3% 10.4%

10.4%

5.5%

6.5%

7.5%

8.5%

9.5%

10.5%

11.5%

12.5%

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2009 2010 2011 2012

California Overall United States San Diego

10.7%

9.3%

8.2%

Stock Price Recovery

5 Stock price performance relative to 7/31/2009

Source: Yahoo! Finance

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

DJI IXIC NBI

> The Dow Jones (DJI), NASDAQ (IXIC) and Biotech Indices (NBI) are close to 12-month highs

> Apple recently set a record for company value at $660B. Previous record was Microsoft at $621B in December 1999

Hiring and Turnover

7

Hiring Trends – Life Sciences and Technology

Method

Life Sciences Technology

San

Diego* Bay Area Overall

US

San

Diego* Bay Area Overall

US

Hiring Freeze

0% 1% 2% 3% 0% 2%

Very Selective Hiring

35% 35% 38% 36% 27% 30%

Normal Hiring

55% 43% 42% 46% 53% 51%

Aggressive Hiring

10% 21% 18% 15% 20% 17%

> San Diego companies are now in competitive talent wars, yet slightly less aggressive

*55% of life sciences and 49% of technology companies anticipate growing their

workforce over the next 12 months; conversely only 6% of life sciences

companies and 14% of technology firms expect their workforce to decrease in

size

Source: Radford Trends Report – Q2 2012

8

Turnover – April 2011- April 2012

10.1% 9.6% 9.5%

12.9%

11.3% 10.5%

4.4%

7.0% 6.9%

8.0%

5.9% 6.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

San Diego Bay Area Overall US San Diego Bay Area Overall US

Voluntary InvountaryLife Sciences Technology

17.2% 16.4% 16.6%

17.1%


14.5%

20.9%

> Voluntary turnover is rapidly increasing, especially for the San Diego market

9

Silicon Valley Sees Growth in Jobs

> Current unemployment stands at 8.3%

> 2012 Silicon Valley Index found job growth far outpaced the country as a whole

- Regionally added 42,000 or nearly 4% compared to nationwide increase of 1%

> Key industries adding jobs include cloud computing, mobile devices, mobile apps, internet companies and social media

> Silicon Valley non-technology workers still feeling the pain of the economic collapse

Source: Associated Press 6/8/2012

Salary Budgets

11

2012 Overall Salary Increase Budgets

Method

San Diego Bay Area Overall US

Life

Sciences Tech

Life

Sciences Tech

Life

Sciences Tech

75th Percentile 4.0% 3.9% 4.0% 4.0% 4.0% 4.0%

50th Percentile 3.6% 3.0% 4.0% 3.4% 3.5% 3.0%

25th Percentile 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Average 3.8% 3.3% 3.7% 3.4% 3.6% 3.4%

> Budgets in life sciences historically (and still in 2012) run slightly ahead of technology

*Undiluted


Cash Incentive Plans

Cash Incentives

13

Criteria Tech Life

Sciences

Companies Expecting to Pay Bonuses in 2012 96% 96%

% of Total Population Receiving Bonus

Payment (down around 10 percentage points) 64% 76%

Size of Payments Relative to Last Year Tech

Life

Sciences

Similar 67% 71%

Larger 18% 18%

Smaller 15% 11%

> Almost all participants are expecting to pay bonuses in 2012

Source: Radford Practices Reports 2012

14

Cash Incentives – Individual Payouts

Performance Rating % of Individual Target

Award Level

Top 10% 125% to 150%

Next 20% 110% to 125%

Middle 50% 75% to 100%

Bottom 10% No Awards Issued

Level

Life Sciences Technology

Company Individual Company Individual

CEO 85% 15% 80% 20%

Executives 70% 30% 75% 25%

Directors 55% 45% 60% 40%

All Other Employees 40% 60% 50% 50%

> Most companies emphasize both overall company and individual performance

based on the level within the organization when determining actual award

payouts

> Individual award segments should have enough differentiation to adequately

reward top performers

Source: Radford 2012 Overall Practices Report

Equity Strategies and Practices

16

Equity Vehicle Mix

> Technology companies have shifted to using more restricted stock in their annual equity programs, with general industry companies placing an even larger emphasis on restricted stock

Level

Market Equity Vehicle Mix – Ongoing Grants

Technology General Industry

Stock Options

Only

RSUs Only Both

Stock Options

Only

RSUs Only Both

Executive 20% 35% 45% 5% 60% 35%

Director 20% 50% 30% 5% 80% 15%

Manager 15% 80% 5% 5% 85% 10%

Senior IC 15% 80% 5% 1% 94% 5%

IC 4% 95% 1% 1% 94% 5%

Support 2% 97% 1% 1% 94% 5%

Source: Radford 2012 Global Long-Term Incentives Report

(Cal companies).

17

Grant Sizes

> Similar to base salaries, long-term incentive values are higher in the technology industry than in the general industry

Level

Ongoing Equity Grants - 50th Percentile


Value

As a % of Salary Value

As a % of Salary

Executive $585,000 175% $535,000 140%

Director $43,500 25% $27,000 18%

Manager $19,500 16% $10,000 10%

Senior IC $22,000 16% $12,500 10%

IC $9,000 10% $5,000 6%

Support $1,000 2.5% $3,000 5%

Source: Radford 2012 Global Long-Term Incentives Report

(Cal companies).

18

Equity Vesting

> The vesting schedules between technology and general industry are comparable with the majority having a 4-year vest

Level

Ongoing Vesting Schedule


Stock Options

> 5-year vest - 6%

> 4-year vest - 77%

> 3-year vest - 17%

> 5-year vest - 9%

> 4-year vest - 68%

> 3-year vest - 18%

Restricted Stock

> 5-year vest - 6%

> 4-year vest - 58%

> 3-year vest - 32%

> 5-year vest - 11%

> 4-year vest - 50%

> 3-year vest - 39%

Source: Radford 2012 Global Technology Practices Report

(Cal companies).

Equity Vehicle Prevalence – Technology

Source: 2012 Radford Global Long-Term Incentive Report

Position/Level

Percent of Employees Receiving Different Vehicles

Southern Calif. Bay Area

Options Only

RSUs Only Both

Options Only

RSUs Only Both

CEO 6% 44% 50% 17% 35% 48%

Senior Vice President 8% 50% 42% 16% 38% 46%

Vice President 9% 56% 35% 12% 42% 47%

Director 19% 77% 4% 13% 62% 25%

Manager 8% 88% 4% 8% 88% 4%

Senior Individual Contributor 1% 98% 1% 9% 89% 2%

Individual Contributor 2% 97% 1% 4% 95% 1%

> Companies located in Southern Calif. are utilizing RSUs more so than companies located in the Bay Area

> Additionally, as you move lower in the organization we see companies in both regions placing a higher emphasis on RSUs

19

Equity Vehicle Mix – Technology

Position/Level

Value Delivered via Each Vehicle (Average Mix)


Stock Options

Time RSUs

Perf. RSUs

Stock Options

Time RSUs

Perf. RSUs

CEO 34% 47% 19% 41% 42% 17%

Senior Vice President 31% 49% 20% 38% 45% 17%

Vice President 27% 59% 14% 34% 50% 16%

Director 23% 73% 4% 23% 67% 10%

Manager 11% 88% 1% 10% 82% 8%

Senior Individual Contributor

4% 96% 0% 10% 90% 0%

Individual Contributor 3% 97% 0% 5% 95% 0%

> Companies have been reluctant to move performance-based RSUs beyond the Vice President level in the organization

20 Source: 2012 Radford Global Long-Term Incentive Report

Annual Value Delivered – Technology

Position/Level

Annual Value Delivered ($000s) – 50th Percentile

Southern Calif. as a

Mult. of Bay Area


Value Value as a %

of Salary Value Value as a % of Salary

CEO $1,801.8 265% $2,726.8 463% 0.7x

Senior Vice President $479.0 132% $724.9 192% 0.7x

Vice President $443.7 154% $461.0 152% 1.0x

Director $56.4 35% $39.0 23% 1.4x

Manager $27.1 24% $17.0 14% 1.6x


$32.5 27% $13.5 12% 2.4x

Individual Contributor $20.6 21% $7.6 9% 2.7x

> Below the executive level, Southern Calif. companies are delivering more value to their employees on an annual basis than Bay Area companies

> The values as a percent of base salary in Southern Calif. are also higher than in the Bay Area


> Similar to the ongoing grants, Southern Calif. companies are providing more equity value to employees at the time of hire than Bay Area companies

> In Southern Calif., companies are generally providing new hire awards that are between 1.5x and 2.5x the ongoing awards while in the Bay Area the new hire grants are roughly between 2x and 3x the ongoing grants

New-Hire Value – Technology

Position/Level

New-Hire Value ($000s) - 50th Percentile

Southern Calif. as a

Mult. of Bay Area


Value

Multiple of Annual Value Value

Multiple of Annual Value

Director $77.7 1.4x $85.7 2.2x 0.9x

Manager $63.0 2.3x $39.3 2.3x 1.6x


$73.3 2.3x $36.7 2.7x 2.0x

Individual Contributor

$35.3 1.7x $24.8 3.2x 1.4x


23

Continued Emphasis on RSUs

> It has been a slow-and-steady transition but RSUs have replaced stock options as the vehicle of choice

Source: Radford’s Burn Rate/Overhang Proprietary Database

Historical RSU Allocation as a Percent of Total Pool

(using 3:1 option to RSU conversion ratio)

46%

53%

57%

62%

69%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2007 2008 2009 2010 2011 YTD

Chief Information Officer Compensation Program Trends

25

CIO Compensation Trends

> While overall cash compensation has remained flat, there has been a wholesale shift towards greater use of equity, equally spilt between stock options and restricted stock units (RSUs).

Component

Compensation Package Change

2010 2012

25th 50th 75th 25th 50th 75th

Base Salary $ 216.2 $ 250.0 $ 300.0 $ 210.1 $ 250.0 $ 310.0

Bonus Target 34.4% 40.0% 50.0% 30.0% 40.0% 55.0%

Total Cash $ 284.1 $ 354.3 $ 441.7 $ 274.1 $ 354.2 $ 473.5

Annual Equity Grant *

$ 97.9 $ 185.8 $ 373.0 $ 116.7 $ 245.3 $ 519.5

Total Direct Comp

$ 336.0 $ 456.4 $ 724.0 $ 332.8 $ 473.4 $ 860.9

Source: Radford 2010 & 12 Global Technology Survey

* Equity eligibility: 91.7% - 2010 and 83.8% 2012

26

CIO Compensation – By Organization Size

> Clearly the compensation package varies significantly by the size of the organization.

Component

Compensation Package

Annual Revenues

< $200M $200M-$1B > $1B

Base Salary $208.0 $ 245.0 $300.0

Target Bonus 30.0% 35.0% 50.0%

Target Total Cash $254.2 $ 325.3 $462.0

Annual Equity Grant *

$55.8 $ 130.6 $177.1

Total Direct Comp $259.9 $ 458.1 $641.1

Source: Radford 2012 Global Technology Survey

* Equity eligibility: 83.8% 2012

Questions? Thank You!

Ken Wechsler, [email protected], + 1.858.755.8675

mailto:[email protected]

cio breakfast roundtable 1012

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