National Foreign Trade Council

Global Compensation Committee Meeting

May 2, 2003, New York City

The committee met in New York City. Outlined below is a summary of the meeting. Participants included representatives from:

AIG

Alcoa

Bowker Consulting

Bristol-Myers Squibb

Citigroup

Dow Jones

ECA International

Ernst & Young

JP Morgan/Chase

KPMG

McDonald’s

Mercer HR Consulting

Morgan Stanley

ORC

Reader’s Digest

Shell International

UNDP

Watson Wyatt

Open-Forum Discussion

The meeting commenced with an open forum discussion on current issues and projects, including:

  • Compensation planning for 2003 in the U.S.
  • Dollar denominated award payments in Latin America
  • Inflation – connected general increases mid-year in Brazil
  • Discussion on global merit budget management

Web-Based Compensation: Issues and Tools

Sue Docimo, Associate Director – International Compensation, and Lisa Cribani, Vice President – Global Compensation and Benefits, of Reader’s Digest and Nick Oliva, Consultant, described the global nature of the company. The company operates in 40+ countries.

Lisa described their past and current approach to general compensation management. Today, all elements of compensation management (salary reviews, bonuses, and stock awards) are reviewed at the same time. To become more efficient and strategic, a cross-functional team was established to use technology to facilitate the review and decision processes.

One goal was to educate and empower line managers and to reduce planning time from several months to several weeks. The new process has led managers to be more discerning in compensation allocation and to improve overall financial management for the total organization.

Nick Oliva then demonstrated their system and explained how line managers utilize it (including data access security controls). He provided details on the three major stages: Preparation, Review, Post (analysis, reporting, and HRIS/Payroll recording). Reader’s Digest utilizes PeopleSoft HRMS. At Reader’s Digest, there is also a talent review and succession planning process.

Nick concluded the presentation with a recap of their best practices, include: real time panning, support of matrix relations, exception handling, and flexibility to change. For further information, contact Lisa Cribari ().

Staff in Developing and Transitional Countries

Sarma Calitis, Survey Operations Specialist of the United Nations Development Program’s global compensation consulting group, described the data they have compiled around the world.

UNDP has 136 offices servicing 170 countries with 5,300 employees (with 83% being based in the field). In total, the UN has about 54,000 employees (about one third are executive/management staff) with 44 in headquarters’ locations.

Some challenges in developing countries are poor tax and social insurance systems.

UNDP has developed an in-house shared services facility to serve the UN as a whole. Today the philosophy is to be competitive in each labor market and benchmark against for-profit employers.

Sarma then showed an example of their work covering 51 countries in Africa (574 employers were covered in the surveys). Their studies will be on a total compensation basis (including benefits and benefits-in-kind).

For further information, contact Sarma Calitis ().

Expensing Stock Awards: What are the International Accounting and Tax Implications?

Alan A. Nadel, Partner, of Ernst & Young started his presentation with an overview of the role in the U.S. of the Financial Accounting Standards Board (FASB). The International Accounting Standards Board (IASB) is similar to FASB. In 2005 IASB will be mandatory in the EU.

At some point FASB and IASB will converge in terms of standards will be in regard to stock compensation. IASB is likely to go to the “Fair Value” method.

In the U.S., previously there was no charge to earnings, which has driven stock-based compensation plans design. In recent years, charges to earnings have evolved under rules of AFB25. It is necessary to have a consistent methodology for determining a “fair value” at the date of the grant.

It appears that momentum is to move over to fair value accounting. This will also probably lead to more use of Restricted Stock Awards, smaller quantities of stock option grants, and the use of SARs.

For more information on the presentation, please contact Alan Nadel ().

The Human Capital Index (HCI): What Is It? What Is Its Value?

Michael Warech, New York Office Practice Leader – Organizational Effectiveness, of Watson Wyatt described the goals of the HCI (providing financial performance metrics, assess human capital investments, help determine ROI on human capital).

The HCI found that there is a direct connection between companies with strong HR practices and financial performance. Initial HCI research done in North America in 1999 covered 405 public companies. It identified 30 HR practices; key ones include:

  • Recruiting excellence
  • Clear rewards and accountability
  • Collegial/flexible workplace
  • Communication integrity
  • Prudent use of resources

The correlation analysis showed that companies with a higher HCI outperformed, as measured over a five year period, than those with lower HCI.

After the 1999 study results, Watson Wyatt developed a follow up study in 2001 (Added component to cover “focused HR Service Technologies and Value Creation”).

Studies were done in Europe in 2000 and 2002 and in Asia in 2002. The results were comparable in Europe

For more information about the Human Capital Index, contact Michael Warech at 212-257-5781 ().

The next meeting of the Global Compensation Committee will be in New York City on October 17, 2003. For further information contact Bill Sheridan at 212-399-7128 or .

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