TRS survey methodology definitions

D Documents and SettingsSally Ann McKeownDesktopWorkTRS ReportsBlue 3Version 3RpS 001 Word document doc 01 JUNE 2017 S U R V E Y M E T H O D O L O G Y A N D D E F I N I T I O N S VIETNAM TRS S.

SURVEY METHODOLOGY AND DEFINITIONS 01 JUNE 2017 VIETNAM TRS SURVEY METHODOLOGY AND DEFINITIONS STANDARDS 1.1 Data Confidentiality Standards Mercer uses a number of market data masking rules in this report and in Mercer WIN ® to guarantee client data confidentiality and to ensure the reported market data is as meaningful and useful as possible Summary of Market Data Masking Approaches A minimum number of incumbents, organizations and distinct organizations are required to present remuneration statistics If the minimums are not met, market data is suppressed (“masked”) to protect confidentiality 1.1 Incumbents represent the number of distinct employees (i.e observations) that are used to present mean, median and percentile remuneration statistics 1.2 Organization is defined as any entity or operating unit (e.g., divisions, subsidiaries, headquarters) providing unique incumbent remuneration data to the survey 1.3 A distinct organization is defined as either a standalone organization or a parent organization with multiple entities (i.e divisions and/or subsidiaries) Multiple entities may provide survey data and be part of the same distinct organization which is counted only once We gauge whether or not an organization “dominates” the analysis, i.e if an organization’s incumbents represent a disproportionate share of the sample We test for and report on two tiers of dominance 2.1 Tier organization dominance alert – at this level we alert the data user that a certain threshold of organization dominance has occurred and recommend that the user take this into account and/or also consider switching to organization weighted statistics 2.2 Tier organization dominance masking – at this level we mask (suppress) all statistics except mean and median Market Data Masking Criteria Minimum counts to display statistics Statistic Mean (Average) and Frequency Percents th 50 Percentile (Median) Number of Incumbents Number of Organizations Number of Distinct Organizations 3 4 th th 5 th th 10 5/10* 25 and 75 Percentile 10 and 90 Percentile * organizations if the statistics are incumbent weighted; 10 if they are organization weighted Note: Masked data is indicated in this report and Mercer WIN® with a double hyphen, i.e “ “ © 2017 Mercer LLC September Survey Methodology and Definitions of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS Organization dominance criteria thresholds Percent of Incumbents from One Organization Dominance Indicator (Symbol) Tier Alert Tier Data Masking 35% to 50% 50% + Single Asterisk “ * “ Double Asterisk “ ** “ ® Note: The dominance indicators are displayed to the left of the “num orgs” column in Mercer WIN Most PDF reports not display the indicators although the Tier masking is applied Peer Group Confidentiality Peer groups (client defined subsets of this survey’s participants) may be created in Mercer WIN ® To protect the confidentiality of survey participants, the following rules apply to creating and modifying peer groups Peer group minimums Criteria Minimum Number Number of Organizations 10 Number of Distinct Organizations Number of Organization Peer Groups to Vary by 1.2 Ageing Standards In Mercer WIN®, you may age all the remuneration elements in your view All remuneration elements will be aged using the client supplied ageing factor and dates 1.3 Treatment of Zeros Throughout the reports, zeros have not been used in the calculations unless otherwise specified 1.4 Treatment of Negative Values Throughout the reports, negative values have not been used in the calculations unless otherwise specified 1.5 Treatment of Expatriates (International Assignment) and Local Plus From 2017, in Asia surveys, Expatriates data for Executives will be collected along with Local and Local-plus The Management/Professional / Para-professional career streams will still continue with Local and Local-plus only Allowances and Perquisites usually associated with Expatriate package are also included in the questionnaire Please refer to the section Compensation items When expatriates are included in the survey, WIN users will be able to exclude these records through a refinement © 2017 Mercer LLC September Survey Methodology and Definitions of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS Notes: Local and Local Plus are incumbents who are employed on the basis of a contract that is entered into with the entity of the country for which survey data is being provided Expatriate incumbents are employed not on the basis of a contract that is entered into with the entity of the country for which survey data is being provided Local Plus incumbents are Employees who are paid according to the salary levels, salary structure, and salary administration guidelines of the host location plus are provided some 'expatriate-type' additional allowances or benefits such as housing, dependents’ education, enhanced transportation support, etc 1.6 Exchange Rates When there is a need to change currency in which data is provided, we use the average rate of the last trade rate between January and March 31 of the survey year When normalizing currencies in Mercer WIN®, there is a variety of time periods available for average exchange rates Mercer recommends using the month (January to June) average for most of our surveys which have Q2 data effective dates 1.7 Total Direct Compensation and Total Remuneration – Number of Incumbents The total number of recipients reported for these remuneration types may be less than other compensation aggregates because there may be organizations that only submitted cash compensation STATISTICS 2.1 Descriptive Statistics § 10th Percentile (10th %ile) – The data point that is higher than 10% of all other data in the sample when ranked from low to high § 25th Percentile (25th %ile) – The data point that is higher than 25% of all other data in the sample when ranked from low to high Also known as the first quartile § Median – The data point that is higher than 50% of all other data in the sample when ranked from low to high Also known as the 50th percentile § 75th Percentile (75th %ile) – The data point that is higher than 75% of all other data in the sample when ranked from low to high Also known as the third quartile § 90th Percentile (90th %ile) – The data point that is higher than 90% of all other data in the sample when ranked from low to high § Mean – The sum of all data reported divided by the number of observations in the sample Also known as average © 2017 Mercer LLC September Survey Methodology and Definitions of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS § Receiving Item (Count Obs/Orgs) – The number of employees/organizations receiving the compensation or benefit item Each item, such as base salary or incentive amount, is analyzed individually using the data reported for that item only If an organization did not provide a piece of data for a position, this organization’s information is not included in the calculation of the statistics Therefore the number receiving the item may differ by item § Frequency (% Obs/Orgs) – The percentage of the employees/organizations actually receiving the item based on the total number of employees/organizations in the position MARKET REGRESSION TREND LINES Mercer uses statistical regression analysis to create market trend lines that depict the relationship between remuneration and Position Class (PC) Regression market trend lines are published in this report and are also available in Mercer WIN® on the entire market and on combinations of job families, peer groups and other market refinements The Mercer regression market trend line methodology is described below Summary Mercer market regression lines are created from actual data results The actual data results are organization weighted The Mercer market regression line is the market median Mercer surveys use bands (i.e line segments) to optimally depict the different pay patterns that exist by job level The Mercer regression methodology is executed as follows: Market statistics (quartiles, mean and median) are calculated for each Position Class in the chosen market (organization weighted) An exponential regression on the actual market median is computed Quartile lines are computed: § At each PC, ratios between the quartile and median market value are calculated § An exponential equation is calculated using all the quartile-median ratios § The resulting ratio formula is applied to each regressed median value to arrive at the regressed quartile value Business Rules There are stringent data density checks to calculate market regression lines: There must be sufficient market data to produce medians (i.e a minimum of data points are required to produce a median) There can be no more than sequential PCs without data The minimum number of PCs with data to produce a line is Negative slopes are not permitted Results are reviewed to identify and correct relationships between remuneration type and line segments – i.e regression values for: § higher remuneration types (e.g., Total Compensation) exceed values for lower remuneration types (e.g., Total Guaranteed Compensation); § the 2nd band exceeds the values for the 1st band; § 75th Percentile > 50th Percentile (Median) > 25th Percentile © 2017 Mercer LLC September Survey Methodology and Definitions of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS Note that the Mercer Market Regression Lines are organization weighted median as described above However, Mercer WIN® provides the analytical flexibility to obtain incumbent weighted regressions and also to use regressed means as well Bands, Line Segments Mercer market regression trend lines consist of two or three “bands” or line segments to better capture the different pay patterns (i.e relationships between pay and job level as depicted by Position Class) that exist between different job levels There are exceptions (noted below) but generally bands are globally consistent contingent on the maximum PC with reported median results (table below) st nd Maximum PC With Median Reported Band 60 to 66 40 to 52 53 to end PC 67 to 74 40 to 54 55 to end PC 75 or Greater 40 to 56 57 to end PC Less than 60 or Less than 15 Total PCs in the Survey Band No Bands Note: Bands may begin at a PC higher than 40 For the purposes of maintaining year over year continuity, there are a number of countries that have retained the bands they used prior to implementing the global standard above These are listed below st Country Band Belgium, Netherlands nd rd Band Band 40 – 49 50 – 59 60+ Bulgaria 40 – 50 51+ Sweden 40 – 53 54 – 64 65+ Argentina, Brazil, Chile, Mexico 40 – 44 45 – 53 54+ All Other Latin America 40 – 44 45 – 52 53+ YEAR OVER YEAR MARKET PAY TRENDS Despite challenges to measuring market pay trends, Mercer is able to provide meaningful insights around market pay change for surveyed markets Overall Market Pay Trends Inflation Forecast – This macroeconomic variable has a high-level influence on salary budgets, especially in countries with high inflation Mercer’s analysis includes this variable to understand its relation to salary budgets The Economic and Development Trends section in the overview report provides details about inflation and other economic indicators Changes in Salary Increase Budgets – Salary increase budget estimates indicate the percentage amount that surveyed organizations plan to increase their compensation spending over a specified period (usually the current and upcoming years) They depict how the overall market is expected to change based on the projected change in annual salary spending by surveyed organizations The salary budget statistics are helpful for setting baseline expectations of how the overall surveyed market will change © 2017 Mercer LLC September Survey Methodology and Definitions of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS Changes in Regressed Market Trend Line – Mercer regression trend lines depict market pay at different job levels —- as measured by Mercer’s International Position Evaluation (IPE) Position Class — and employee groups (that is career streams) § All Organizations – This approach compares the current regressed market trend lines to those of the previous year to show how pay has changed from survey to survey § Same Organizations – This approach compares regressed market trend lines using only organizations participating in both years to eliminate the impact of any sample change In contrast to salary budget changes, the Same Organizations regressed market trend line depicts how the overall market actually changed § Same Incumbents – This approach compares the regressed market trend lines for Same Incumbents This approach is the optimal to determine overall market pay trends, because it eliminates the impact of sample change at the organization and incumbent level Changes in Benchmark Positions § All Organizations – This approach compares the overall market pay of a benchmark position to the previous year, using all organizations that provide data each year No attempt is made to control for sample change In effect, it is the change in median base salary observed from the two published surveys This approach also provides number and percentage change in organizations and employee/incumbent to assess the impact of sample change on base salary changes § Same Organizations – This approach compares the overall market pay of a benchmark position to the previous year, using only organizations that provide data for the benchmark position each year This approach is optimal to determine market pay trends for individual jobs, because it controls the composition of organizations and jobs each year and treats each organization’s impact on the market equally Median market pay change, using only Same Organizations with the same jobs, is presented for each benchmark position The number of Same Organizations and the employee/incumbent sample change indicate sample stability and potentially identify emerging, declining, or changing jobs within organizations – Range of Organization Percent Change – This approach provides a valuable complement to Same Organization It shows the same job market changes by illustrating the range of increases granted by organizations for a benchmark position § Same Incumbents – This approach compares the overall market pay of a benchmark position to the previous year using only same organizations and incumbents each year This approach is optimal to determine market pay trends for individual jobs because it controls the composition of organizations, jobs, and incumbents each year Median market pay change, using only the Same Organizations with the same jobs and incumbents is presented for each benchmark position © 2017 Mercer LLC September Survey Methodology and Definitions of 26 SURVEY METHODOLOGY AND DEFINITIONS 01 JUNE 2017 VIETNAM TRS Detailed Year over Year Results Detailed results illustrate the year over year change in regressed market trend line and benchmark position, using each of the Mercer pay trends approach Year Over Year Trends by Benchmark Position – As in the example below, sample and pay change information is provided for each of the Mercer pay trends approach Using this Information – This example is for the Head of Legal/General Counsel, typically a single incumbent position in each organization Conclusions drawn from the data on this position are: § § § The increase in organizations reporting this position contributes to the large increase in pay from the previous survey (10.6%) Pay levels changed 5.4% when measuring the market, using only organizations that reported the position both years Individual organizations pay changes ranged from 2% (P25) to 8% (P75) with a median of 6% In this survey, 14 organizations match this position, a 40% increase from the previous year’s survey © 2017 Mercer LLC September The increase in pay from the previous published survey results is 10.6% This percentage is substantially higher than the 5.4% market increase obtained by only using the same organizations to calculate the market change An examination of the individual organization pay changes reveals a range of increases of 2% (25th percentile) to 8% (75th percentile) with the typical organization increase being 6% (median) Survey Methodology and Definitions of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS Calculation Example – The following illustration depicts Mercer’s approaches for calculating the market pay trends in the above example Columns and represent the organizations supplying data in the current year (14 total) and previous year (10 total) and columns and represent their average pay for the position each year Column shows each individual organization’s change in pay Note that individual organization pay change calculations are only performed on the eight organizations supplying the data for the position in both years The table shows market totals (that is, the number of organizations and market pay levels and change) at the bottom of the columns Range of Organization Percent Change (Same Organizations) Pay for each of the individual organizations matching to the job in both survey years changed from a combination of factors (for example salary increase policies, promotions, new hires) These changes ranged from a decrease of 2% to an increase of 11%; the quartile and median individual organization change is illustrated by the arrows to the left All Organizations Market Change Fourteen organizations match the job in the current year up 40% from 10 last year This year’s published market average is 10.6% higher than the previous survey market Same Organizations Market Change Eight of the 14 organizations in the survey participated in the survey and matched the job in both survey years The average pay for the job in these organizations of $61 is 5.4% higher than it was the previous year AGGREGATE COMPENSATION VALUES These values may appear in either, or both, Mercer WIN® and PDF reports § Base Salary (12 month) – Includes only base salary (Monthly Base Salary x 12) § Base Salary – Includes only annualized base salary (Monthly Base Salary x Number of Months Paid) § Total Guaranteed Cash Compensation – Includes Base Salary plus the annualized value of guaranteed allowances § Total Cash Compensation (Actual) – Includes Total Guaranteed Cash Compensation plus the annualized value of any actual Short-term Incentive, Sales Incentive or Other Incentive awards paid out on performance over a period of 12 months or less The figures reported reflect the actual amounts of the awards received over the last 12 months § Total Cash Compensation (Target) – Includes Total Guaranteed Cash Compensation plus the annualized value of any target Short-term Incentive, Sales Incentive, or Other Incentive awards The figures reported reflect the target amounts applicable to the © 2017 Mercer LLC September Survey Methodology and Definitions of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS incumbent Only incumbents with valid incentive eligibility and target amounts will be included in this calculation § Total Cash Compensation (Actual) – Receivers – Includes Total Guaranteed Cash Compensation plus the annualized value of any actual Short-term Incentive, Sales Incentive, or Other Incentive awards calculated only when such awards were received The figures reported reflect the actual amounts of the last awards received § Total Cash Compensation (Target) – Receivers – Includes Total Guaranteed Cash Compensation plus the annualized value of any target Short-term Incentive, Sales Incentive, or Other Incentive awards calculated only when such awards were actually received The figures reported reflect the target amounts applicable to the incumbent § Total Direct Compensation (Actual) Black-Scholes – Includes Total Cash Compensation (Actual) plus the annualized value of any Long-term Incentive awards, valued using Black-Scholes methodology for appreciation-based awards § Total Direct Compensation (Target) Black-Scholes – Includes Total Cash Compensation (Target) plus the annualized value of any Long-term Incentive awards, valued using Black-Scholes methodology for appreciation-based awards § Total Direct Compensation (Actual) Accounting Cost – Includes Total Cash Compensation (Actual) plus the annualized value of any Long-term Incentive awards, valued using the organization’s internal accounting cost methodology § Total Direct Compensation (Target) Accounting Cost – Includes Total Cash Compensation (Target) plus the annualized value of any Long-term Incentive awards, valued using the organization’s internal accounting cost § Total Remuneration (Actual) – Includes Total Direct Compensation (Actual) BlackScholes plus the annualized value of the benefits: retirement plan, life and medical insurance, motor vehicle, etc § Total Remuneration (Target) – Includes Total Direct Compensation (Target) BlackScholes plus the annualized value of the benefits: retirement plan, life and medical insurance, motor vehicle, etc § Total Remuneration (Actual), less LTI – Includes Total Remuneration (Actual), but subtracts the value of any Long-term Incentive awards included in Total Direct Compensation (Actual) Black-Scholes § Total Remuneration (Target), less LTI – Includes Total Remuneration (Target), but subtracts the value of any Long-term Incentive awards included in Total Direct Compensation (Target) Black-Scholes © 2017 Mercer LLC September Survey Methodology and Definitions of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS COMPENSATION ITEMS These values may appear in either, or both, Mercer WIN® and PDF reports Base Salary Items § Monthly Base Salary – The gross monthly base salary as of the data effective date, excluding any allowances § Number of Months Paid – The number of times the incumbent receives monthly base salary in a full year including Fixed/Guaranteed Bonus (e.g 13 months = 13) § Additional Number of Months Paid – The number of months base salary that are paid beyond the annual 12 months § Additional Months Base Salary Amount – The amount of base salary that are paid beyond the annual 12 months Guaranteed Cash Items § Meal Allowance – The annual guaranteed cash allowance provided for subsidized meals or luncheon vouchers § Transportation Allowance – The annual guaranteed cash allowance given to incumbents who are not eligible for company car to subsidize transportation expenses to and from the workplace or other business-related travel requirements (e.g., to take up public transport, gasoline consumption, road tax, parking, etc.) § Housing Allowance – Annual guaranteed cash allowance given to subsidize housing or the annual cost of renting or providing the accommodation for the incumbent This includes rental and other associated costs such as management fees, government rates, etc Combined with Housing Rental Cost (Annually) § Position / Job–Based Allowance – The annual guaranteed cash allowance for holding a position e.g., acting allowance etc § Phone Allowance – The annual guaranteed cash allowance for phone expenses § Skill Allowance – The annual guaranteed cash allowance for compensating the incumbent's specialized skill § 8-hour Shift Allowance – The annual guaranteed cash allowance for working on an eighthour shift § 12-hour Shift Allowance – The annual guaranteed cash allowance for working on a twelvehour shift § Shift Allowance – The annual guaranteed cash allowance for working on a specialized shift schedule © 2017 Mercer LLC September Survey Methodology and Definitions 10 of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS Total Cash Items § Short-term Incentive Eligibility – Indicator that incumbent is eligible for a Short-term Incentive award § Sales Incentive Eligibility – Indicator that incumbent is eligible for a Sales Incentive award § Short-term Incentive (Actual) – All payments received over the 12-month period ending on the data effective date, which are associated with individual, team, and/or corporate performance § Sales Incentive (Actual) – All payments received over the 12-month period ending on the data effective date, which are associated with sales achievement § Short-term Incentive (Target) – The target amount of the Short-term Incentive award, associated with expected individual, team, and/or corporate performance over the next 12month period § Sales Incentive (Target) – The target amount of the Sales Incentive award, associated with sales achievement over the next 12-month period § Short-term Incentive (Target) as Percent of Base – The Target Short-term Incentive award, associated with expected individual, team, and/or corporate performance over the next 12-month period, expressed as a percentage of Base Salary § Sales Incentive (Target) as Percent of Base – The Target Sales Incentive award, associated with expected sales performance over the next 12-month period, expressed as a percentage of Base Salary § Other Short-term Incentive Eligibility – Indicator that incumbent is eligible for other bonus scheme § Other Short-term Incentive (Target) – The target amount of the Short-term Incentive award associated with other bonus schemes over the next 12-month period § Other Short-term Incentive (Actual) – All payments received over the 12-month period ending on the data effective date that is associated with other bonus schemes § Sales Commission - A percentage of share (or dollar amount rate) tied to revenue sales, unit sales or profit dollars (can be with or without sales threshold/target/cap) Eg 1% of sales under $1m; 1.5% of sales over $1m § Total Incentive (Actual) – The sum of all Short-term Incentive, Sales Incentive or Other Incentive plan actual award payouts Total Incentive is added to Total Guaranteed to arrive at Total Cash Compensation (Actual) § Total Incentive (Target) – The sum of all Short-term Incentive, Sales Incentive or Other Incentive plan target awards Total Incentive is added to Total Guaranteed to arrive at Total Cash Compensation (Target) © 2017 Mercer LLC September Survey Methodology and Definitions 12 of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS Total Direct Compensation Items § Long-term Incentive Eligibility – Indicator that incumbent is eligible for a Long-term Incentive award § Long-term Incentive (Black-Scholes) – The annualized value, using Black-Scholes methodology for the appreciation-based awards, of all LTI awards received over the 12-month period ending on the data effective date, which is associated with individual, team, and/or corporate performance over a period longer than one year Organization matches to Short-term Incentive deferrals are included in the grant data § Long-term Incentive (Accounting Cost) – The annualized value, using the organization’s internal accounting cost methodology, of all LTI awards received over the 12-month period ending on the data effective date, which is associated with individual, team, and/or corporate performance over a period longer than one year Organization matches to Short-term Incentive deferrals are included in the grant data § Long-term Incentive as Percent of Base (Black-Scholes) – The Long-term Incentive Amount (Black-Scholes) expressed as a percentage of Annual Base Salary § Long-term Incentive as Percent of Base (Accounting Cost) – The Long-term Incentive Amount (Accounting Cost) expressed as a percentage of Annual Base Salary Total Remuneration Items § Housing Benefits (For Executive Career stream) - The annual amount of the housing benefit which is provided in the form of a perquisite, e.g rental reimbursement, rental cost borne by the company, company-provided accommodation § Club Membership (For Executive Career stream) - The annual subscription fee plus 10% of entrance fee (if applicable) It includes various types of membership provided to employees including golf, fitness, business club and any other club memberships § Family Size (For Executive Career stream) - The size of the family covered under the housing benefit § Eligible for Children's Education Cost & Number of Children Covered (For Executive Career stream) - The actual number of children receiving this benefit Select “Yes” if the organization has this policy even though the employee(s) not have any children § Children Education Cost (For Executive Career stream) - The total amount of the children’s education provided in the form of perquisites, including annual school fee or tuition fee +10% x Debenture Cost (if applicable), plus any other items such as books and uniforms, and any travel benefit for ex post education Only up to age 18 (inclusive) § Leave Passage (For Executive Career stream) - The cash value or allowance supported by the company for R&R (rest & recreation) or non-business purpose in the form of perquisites Leave passage is also known as home leave for expatriates © 2017 Mercer LLC September Survey Methodology and Definitions 13 of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS § Type of Medical Plan covered (For Expatriate in the Executive Career stream) - The type of medical plan provided to the expatriates If the expatriates are enrolled to local medical plan but have a better protection than locals, please select “Local Plan with Premium” § Car benefits value (Motor vehicle) – The value provided to the incumbent, by the organization, for motor vehicles This value could take the form of a lease payment on a vehicle, an allowance to reimburse an employee, or a purchase of a vehicle (in this case, a valuation formula is applied based on information provided) § Flexible Benefits – The annual cost for providing flexible benefits to the incumbent § Car / Housing / Personal Loans /Hard-Soft furnishing Loans – The value of the loan entitlement provided to the incumbent § Health Benefit (Medical Plan) – The value provided by the company for clinical, dental and hospitalization coverage to the employee § Life and Accident Insurance – The value provided by the company for accident and life insurance coverage to the employee § Retirement (Pension / Gratuities) – The value of supplementary pensions which depends on the type of scheme (Defined Benefits, Cash Balance and/or Defined Contribution) LONG-TERM INCENTIVES DEFINITIONS Stock/Share Options – Stock/Share Options allow for the purchase of stock at a fixed price over a specified period The exercise price (known also as “strike” or “subscription” price) is often equal to the market price on the date of grant, but may be less than (with discount) or greater than (with premium) the market price on the date of grant Share Appreciation Rights (SARs) – Share Appreciation Rights provide an incumbent with the appreciation in market value of the share They may be paid out in cash, stock, or a combination of cash and stock No investment on the part of the incumbent is required Share Appreciation Rights include Phantom Appreciation Shares Phantom Appreciation Shares are an award denominated in hypothetical shares, the value of which is based on an increase in actual share value or another measure of organization value (e.g., book value) There are three types of Share Appreciation Rights: § Freestanding – SAR grant that is not attached to a stock/share option § Limited – SAR that is exercisable only upon the occurrence of a specific event such as a change in control § Tandem – SAR that is granted with a stock/share option The exercise of one cancels the other Restricted Shares/Share Units – Conditional grants of notional, actual or phantom shares of stock with vesting contingent upon employment for a specified period of time The value of each share depends upon the market value of the share at the end of the vesting period © 2017 Mercer LLC September Survey Methodology and Definitions 14 of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS Performance Shares/Share Units – Conditional grant of notional or actual shares, with payment or vesting contingent upon achievement of specified performance goals over a multi-year performance period While the number of Performance Shares/Share Units earned depends on the extent to which the performance goals are achieved, the value of each Performance Share/Share Unit depends upon the market value of the share at the end of the performance period Performance Cash Units – Conditional grant denominated in units other than notional or actual shares, with payment contingent upon achievement of specified performance goals over a multiyear performance period Performance Cash Units are cash-denominated and not tied to the price of a share of stock Although units are usually cash-denominated, their value may also be based on other constructs, such as dividends or EPS (Earnings Per Share) Where the value of each unit is equal to 1.00, the incentive type is also known as “Long-term Cash.” Long-term Cash – A pre-determined cash amount paid out contingent upon achievement of specified performance goals over a multi-year performance period LONG-TERM INCENTIVES VALUATION METHODOLOGY Grant data provided by the survey participants was used to calculate the value of Long-term Incentives (LTI) such that the result is a fair, monetary-based measure that can be used with other compensation amounts to determine Total Direct Compensation Organization matches to Shortterm Incentive Deferrals are included in the grant data In this report, Long-term Incentive values have been calculated using Mercer’s Black-Scholes and Accounting Cost Methodologies 8.1 Black-Scholes Method Under the Black-Scholes methodology certain LTI awards are discounted for required performance conditions A performance discount is applicable to all plan types if vesting is designated as performance based and the plan structure is defined as Fixed Amount or Defined Maximum Performance-contingent awards with these plan structures are discounted by 20% to 50% to reflect the risk that the award will not vest or be paid out A 20% discount is applied if the performance measure does not include Relative Total Shareholder Return Other discounts, ranging from 35% to 50%, are applied depending upon the degree to which Relative Total Shareholder Return is used as the performance measure Otherwise, LTI values generally have not been adjusted to reflect any discounts for service-based vesting, lack of transferability, or risk of forfeiture Fixed Amount awards not have a downside or upside potential and in some markets may commonly be referred to as an “All or Nothing” type of award For example, these might include awards where a participant will receive 100 shares if an EPS (Earnings Per Share) goal is met and nothing if the goal is not met Defined Maximum awards include a “maximum” number of shares/share units corresponding to performance The number of shares awarded may be less based upon performance Fixed Amount and Defined Maximum plans are in contrast to Defined Target Plans Defined Target awards include a “target” number of shares/share units corresponding to target performance The number of shares awarded may be more or less based upon actual performance (e.g., payouts may be 0% to 200% of target) Defined Target awards are valued at the “target” level with no discount © 2017 Mercer LLC September Survey Methodology and Definitions 15 of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS Appreciation Based Incentives – These plans include Stock/Share Options and Share Appreciation Rights (SARs) § Annual Dividend Yield – based on dividends paid in the 12 months preceding the date of grant (For grant dates later than December 31, 2016, the annual dividend yield is based on dividends paid from January 1, 2016 to December 31, 2016.) § Estimated Option Term – an assumed estimated term based on SEC safe harbor accounting rule is used The estimated term is the sum of (option term as reported by survey participants + assumed year vesting)/2 For example, an option with a reported term of 10 years will have an estimated option term of 6.5 years (10+3)/2 If a participant does not provide an option term, then we assume an estimated option term of 6.5 years § Risk-free Rate of Return – this value is based on a rate of return for the country in which the stock for the LTI grant trades For all countries other than the United States, Canada, and Australia, the Risk-free Rate is based on available bond yield data using an estimated 7-year rate as of December 31, 2016 Risk-free Rates for the United States, Canada, and Australia are established using the following values: – United States – Monthly U.S Treasury rates in place on the date of the grant, rounded to the nearest year – Canada – Monthly Bank of Canada Bond Yields in place on the date of the grant, rounded to the nearest year – Australia – Monthly Reserve Bank of Australia Capital Market Yields – Government Bond rates in place on the date of the grant, rounded to the nearest year § Annualized Volatility of Stock Prices – based on daily closing prices for 36 months preceding the date of grant (For grant dates later than December 31, 2016, the stock price volatility is based on daily closing prices from January 1, 2014 to December 31, 2016.) If the underlying stock has not existed for three years, then the volatility is calculated for an abbreviated time frame Stock Price Volatility is capped at 50% The survey value is equal to the product of: (1) the per-share Black-Scholes value, (2) the number of shares granted in the most recent grant and (3) where applicable, discounts detailed above for certain performance-contingent awards to reflect the risk that the award will not vest or be paid out The result is adjusted for the frequency of awards, as appropriate, to annualize the result (e.g., if awards are made every two years, then the product is divided by two) For privately held organizations, we assume that the per-share Black-Scholes value of an appreciation based incentive is equal to 33% of the market price of the underlying shares on the date of the grant as reported by the survey participants Stock/Share Based Incentives – These plans include Restricted Shares/Share Units and Performance Shares/Share Units The survey value is equal to the product of: (1) the per-share value on the date of the grant as reported by the survey participants, (2) the number of shares granted in the most recent grant and (3) where applicable, discounts detailed above for certain performance-contingent awards to reflect the risk that the award will not vest or be paid out The result is adjusted for the frequency of awards, as appropriate, to annualize the result (e.g., if awards are made every two years, then the product is divided by two) Cash Denominated Incentives – These plans include Performance Cash Units and Long-term Cash For Performance Cash Units the survey value is equal to the product of: (1) the per-unit value on the date of the grant as reported by the survey participants, (2) the number of units payable for performance granted in the most recent grant and (3) where applicable, discounts detailed above for certain performance-contingent awards to reflect the risk that the award will not vest or be paid out © 2017 Mercer LLC September Survey Methodology and Definitions 16 of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS The result is adjusted for the frequency of awards, as appropriate, to annualize the result (e.g., if awards are made every two years, then the product is divided by two) For Long-term Cash, the survey value is equal to the product of the monetary value payable for performance reported by the survey participants and where applicable, discounts detailed above for certain performancecontingent awards to reflect the risk that the award will not vest or be paid out This amount is adjusted for the frequency of awards, as appropriate, to annualize the result (e.g., if awards are made every two years, then the value is divided by two) 8.2 Accounting Cost Method We have provided this methodology as a comparison point to that of the Black-Scholes Methodology Survey participants were asked to report their total accounting cost per share on the date of grant, under either FAS 123R or IFRS2 Long-term Incentives under the Accounting Cost Method are not discounted for performance conditions However, for plans without accounting cost per share provided values calculated under Black-Scholes Method will be used for reporting under this method Appreciation Based Incentives – These plans include Stock/Share Options and Share Appreciation Rights (SARs) The survey value is equal to the product of: (1) the accounting cost on the date of the grant as reported by the survey participants and (2) the number of shares granted in the most recent grant The result is adjusted for the frequency of awards, as appropriate, to annualize the result (e.g., if awards are made every two years, then the product is divided by two) Note: If an Accounting Cost is not provided by a survey participant for an Appreciation Based Incentive, an assumed value is equal to value obtained with Black-Scholes Method Stock/Share Based Incentives – These plans include Restricted Shares/Share Units and Performance Shares/Share Units The survey value is equal to the product of: (1) the accounting cost on the date of the grant as reported by the survey participants and (2) the number of shares granted in the most recent grant The result is adjusted for the frequency of awards, as appropriate, to annualize the result (e.g., if awards are made every two years, then the product is divided by two) Note: If an Accounting Cost is not provided by a survey participant for a Stock/Share Based Incentive, an assumed value is equal to value obtained with Black-Scholes Method Cash Denominated Incentives – These plans include Performance Cash Units and Long-term Cash For Performance Cash Units the survey value is equal to the product of: (1) the accounting cost on the date of the grant as reported by the survey participants and (2) the number of units payable for performance granted in the most recent grant The result is adjusted for the frequency of awards, as appropriate, to annualize the result (e.g., if awards are made every two years, then the product is divided by two) Note: If an Accounting Cost is not provided by a survey participant for a Performance Cash Units, an assumed value is equal to value obtained with Black-Scholes Method For Long-term Cash, the survey value is equal to the product of the monetary value payable for performance reported by the survey participants and where applicable, discounts detailed above for certain performance-contingent awards to reflect the risk that the award will not vest or be paid out © 2017 Mercer LLC September Survey Methodology and Definitions 17 of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS This amount is adjusted for the frequency of awards, as appropriate, to annualize the result (e.g., if awards are made every two years, then the value is divided by two) 9.1 BENEFITS VALUATION METHODOLOGY Benefits Valuation Assumptions This section details the assumptions used by Mercer to value the main benefit plans We have applied these techniques, with adjustments where necessary, to the actual features of your plan Employee Value The valuation process has been undertaken from the perspective of employee value as opposed to employer cost Employee value reflects the amount of gross salary required to purchase an equivalent benefit in the marketplace to replace the benefit provided by the employer This process takes into account the fact that some benefit plans are tax effective when provided by the employer, so that the valuation is grossed up where the equivalent benefit, if provided by the employee, would be paid out of net salary Employee contributions have been deducted from these values where appropriate in order to establish the benefit provided by the employer We value the benefit based on value to a new employee (if he or she had to purchase this himself or herself) Therefore we assume that all employees are receiving the current benefits available for a new hire Gross Salary Equivalent Values normally reflect the amount of salary that would be required to purchase the equivalent benefit Thus, the value of a benefit that enjoys a tax-preferred status in relation to salary (e.g., medical plans) will include a tax “gross-up” to equate it to taxable salary required to purchase a similar benefit Mean Use Two organizations with the same benefit plan will each have the same value attributed to their plan irrespective of the costs of the plan to the employers Market or Actuarial Valuation Benefits are valued using the “walkaway” method The values represent the cost to the employee of employer provided benefits if he or she left the employer and were to duplicate them in the marketplace In many instances, these amounts will be greater than the cost to the employer For example, an individual medical plan that is identical to the employer’s medical plan will cost more because of the greater marketing, administrative, and underwriting costs associated with an individual plan Valuation reflects market pricing wherever possible If there is a market yardstick which employees are likely to use to determine the personal value attributed to an employee benefit, this is used Where market pricing does not exist, an actuarial valuation using standard assumptions and pricing techniques will be used For example, although individual medical or dental policies containing provisions matching an employer plan would typically not be available in the open market, the value © 2017 Mercer LLC September Survey Methodology and Definitions 18 of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS of the employer plan is estimated by valuing the employer plan using the same rate methodology as is used for individual benefit Employee Participation Values are calculated assuming that all employees participate in the primary plans offered even when they are voluntary and certain employees may have opted out For example, it is assumed that all employees participate in medical, pension, and stock purchase plans (where offered) This gives a measure of the opportunity value to the employee Personal Substitution Values reflect as close substitution as possible to the benefit provided by the employer For example, it has been assumed that employees will replace their life insurance benefit with the same amount of coverage We understand that in reality this may not always be the case Demographic Profiles As demographic characteristics, such as date of birth, date of hire, gender and family status, are generally required to run benefit valuations, we have defined a standard employee profile for this purpose This is done in order to remove the effect of demographics from the valuation of benefits Profiles are attributed to the career stream definitions in the TRS job match For information about career streams, please refer to the section on the Mercer Universal Position Coding System (MUPCS®) As an example career stream refers to executives All incumbents with a career stream will be assumed to participate in benefits offered to executive members Incumbents with a management career stream will be assumed to participate in the benefit plans offered to management employees Incumbents in career stream will be assumed to participate in the benefits offered to professional employees and incumbents in career stream are assumed to participate in the plans for para-professional employees It is possible that the same plan could be applicable for all groups of employees Car benefits will be assessed on a per incumbent basis as eligibility for car benefits is not defined per career stream typically The following provides the age/service characteristics for the profile used in the valuation Executive (Profile 1): Age 45 years and 10 years of past service, married with two children Management (Profile 2): Age 40 years and years of past service, marries with two children Professional & Para-Professional (Profile 3) : Age 35 years and years of past service, married with two children 9.2 Benefits Valuation Methodology On an annual basis benefits valuation methodology is reviewed and updated to take into account changes in market practice, underlying premiums and rates and also changes to legislation While the valuation methodology is consistently applied across the survey, the participants should expect some variation when making year-over-year comparisons © 2017 Mercer LLC September Survey Methodology and Definitions 19 of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS Retirement Plans – Defined Benefit Scheme The quantification of this benefit is based on the organization cost of benefits accruing in the following year This means that the funding situation of the plan or the actual organization contributions to the plan is not taken into consideration Retirement age is a key factor when determining the value of the benefit because it affects both the accumulation period and the pay-out period Early retirement subsidies such as unreduced benefits or bridge supplements are also a factor In order to produce values which differ based on plan provisions, we use a single set of retirement probabilities We will assume that the employee will retire at Normal Retirement Age All the calculations will be based on the benefit that is accrued after service to retirement Maximum and minimum benefits will be considered Accessory benefits such as pre-retirement death, disability and vesting benefits would not be considered For plans with employee contributions, we assume the maximum percent of salary an employee is allowed to contribute For organizations with a mixed approach, both this section and the following (Defined Contribution) will have to be considered Retirement Plans – Defined Contribution Scheme The benefit is the contribution that is being credited during the year to the employee’s account When the organization contribution is defined as a percentage of the employee contribution and where the employee can decide the contribution level, we will assume the maximum employee contribution on which there is an organization match Accessory benefits such as pre-retirement death, disability and vesting benefits were not considered Past service contribution were also ignored Retirement Plans – Cash Balance Plans Cash Balance Plans are Defined Benefit schemes with Defined Contribution characteristics Therefore the valuation is performed according to the Defined Contribution Plan methodology, based on the assumption that the employee has years of service In all instances, the matched and unmatched employer contributions are constrained by plan rules and any government maximums Medical Plan Medical and dental benefits are valued using a market representation of a mean cost of employer provided benefits This means that the benefits are valued as the amount an employee would need to individually pay a medical provider to acquire the same level of coverage These amounts may be greater or lower than the actual cost to your organization, depending on the organization’s overall negotiation with plan providers Where employee contributions are required in the monthly cost of the plan, the amount is deducted from the final value of the benefit © 2017 Mercer LLC September Survey Methodology and Definitions 20 of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS Death Benefits Death benefits are valued as the amount of insurance premium an individual would need to pay to acquire the same level of coverage For valuation purposes, the value determined is based on the expected coverage in the year following the valuation date The coverage amount valued is equal to the amount of coverage which is provided (i.e paid for) by the employer The benefit is valued using a representation of an average cost of group insurance premium in the market Where employee contributions are required, the amount is deducted from the final value of the benefit Long-term Disability Benefits Disability benefits are valued as the amount of insurance premium an individual would need to pay to acquire the same level of coverage For valuation purposes, the value determined is based on the expected coverage in the year following the valuation date The coverage amount valued is equal to the amount of coverage which is provided (i.e paid for) by the employer The benefit is valued using a representation of an average cost of group insurance premium in the market Where employee contributions are required, the amount is deducted from the final value of the benefit Share Purchase Plan We assume that employees sell their stock immediately after the offering period Each organization’s offering period and discount rate are factored into the valuation The value is taken as the amount of the gain available to the employee on the basis that the stock could be bought and sold on the same day at a defined discount Company Cars This benefit’s value is based on the assumption that the employee will replace the company car provided by the employer with the same type of car The valuation of company cars can be based on the purchase price, lease cost or cash allowance, which may be taken in lieu of the car Where applicable, the costs of maintenance, insurance, and fuel for private use are included in the valuation Car Loan, Housing Loan and Personal Loans The method computes the annual average subsidy that the employer provides on interest cost of the loan over the payment period The total loan subsidy is calculated over the entire payment period and divided by the payment period to derive the average annual employer-provided benefit value Average market loan rates are assumed in the calculations If a company subsidies more than the assumed loan market rate, then the company is assumed to have subsidized the entire cost of the loan © 2017 Mercer LLC September Survey Methodology and Definitions 21 of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS Flexible Benefits The value of flexible benefits is the monetary contribution of the employer to non core benefits on an annual basis, based on the assumption that the employee is married with two children and has years of service 10 JOB MATCHING METHODOLOGY Position Class – The Mercer level produced using Mercer’s International Position Evaluation (IPE) system (discussed in detail in the next section) Position Code – Based on Mercer Universal Position Coding System (MUPCS®) described in the final pages of this section 11 MERCER’S INTERNATIONAL POSITION EVALUATION SYSTEM (IPE VERSION 3.1) The IPE system is a proven approach to position evaluation and is used by thousands of organizations around the world As Mercer is dedicated to continuous quality improvements, the IPE system is reviewed regularly based on input and feedback from users and consultants worldwide The improvements made to the system address the changing environment and evolution of organization structures The system allows accurate comparisons between positions, as job titles alone can be misleading For example, the title “finance manager” in one organization may describe a position that has greater operational responsibilities as compared to a finance manager in another organization with more strategic responsibilities In other words, the scope and content of a finance manager position could be broad in some organizations and limited in others By using the IPE method, we can further isolate similar positions and responsibilities The information in the survey is presented to allow a rapid and precise measurement of salary levels It is important to remember that, when conducting job matching and position evaluations, it is the “position” that is being matched and not the person holding that position The qualifications and the performance of the present position holder may differ from what is actually required by the position Position evaluation is not just a tool for salary comparisons but also instrumental in recruitment, career planning, designing organization structures and, in addition, when dealing with expatriate compensation and planning The Mercer IPE Methodology is available for internal use in organizations based on licensee terms and conditions The Mercer eIPE Unlimited web software is available through the license and Mercer consultants offer fee based in-house training and position evaluation expertise in most countries and languages 11.1 The Five Factors of the International Position Evaluation (IPE) System The user should note that each position evaluation system has its own terminology and peculiarities It is always easier to learn these details from a specialist so that the “how-to-use” questions are quickly understood Equally important, the role of the Mercer survey specialist is to ensure proper © 2017 Mercer LLC September Survey Methodology and Definitions 22 of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS representation of compensation available in each market, so that organizations can accurately compare their compensation strategy across markets, regions and industries Factor 1: Impact Organization’s context specific to the position is sized by a monetary scale such as sales or assets, range of activity and number of employees Within this context impact and relative contribution to overall results is measured Factor 2: Communication Required communication skills within as well as outside of the corporation Factor 3: Innovation Specific responsibilities in the position for development of new ideas, methods, techniques and improvements to products, procedures or services Factor 4: Knowledge Relates to the knowledge level required, how this is applied in teams and the geographical and intellectual breadth wherein the objectives are accomplished and value created Factor 5: Risk Available for use in high-risk industries or specific professions where the position environment adds special constrains to the incumbent The factors are weighted with points and the summary of points across all factors converts into a Position Class © 2017 Mercer LLC September Survey Methodology and Definitions 23 of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS Table of Typical IPE Classes for each Hierarchical Level Typically, we found the following distribution of the Mercer IPE Classes for the different hierarchical levels involved: Hierarchical Levels Mercer IPE Classes General Directors/Presidents 60 – 70 VPs/Directors 58 – 62 Managers 53 – 59 Supervisors/Specialists 50 – 54 Professional/Admin./Staff 45 – 51 Blue Collar 40 – 45 12 MERCER UNIVERSAL POSITION CODING SYSTEM (MUPCS®) The coding system categorizes positions by: § § § § § Position Family Position Sub-family Career Stream Career Level Activity Code (this unique identifier is necessary when positions are coded the same in all other categories above) Family and Sub-family – The family and sub-family are defined in the first six digits of the code For example, the code 210.352 represents the Finance family (210) and the Financial Planning/Analysis sub-family (352) Additional sub-families within Finance (e.g., Treasury, Audit, Tax etc.) are represented with unique sub-family codes These are used to ensure each position in © 2017 Mercer LLC September Survey Methodology and Definitions 24 of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS the survey contains a unique code The system has been designed with enough flexibility to allow future positions to be added to the survey Career Stream, Level, and Job/Activity – Career Stream (seventh digit within the position code) defines the level within the organization hierarchy and the knowledge and competency requirements: Executives – Typically includes Top Executives and Function Heads providing strategic vision and/or tactical/strategic direction across multiple functions or sub-functions Management – Typically includes Management and Supervisory Professionals focusing on tactical and/or operational activities within a specified area Professionals – Typically includes Professionals with no management responsibility, although may provide mentoring and coaching to less experienced staff Para-Professionals – Typically roles that are semi-skilled or unskilled with no supervisory or management responsibility These career streams, when combined with a level and job activity (eighth and ninth digits), allow all positions within a position family/sub-family to contain unique characteristics which differentiate them from one another The following chart illustrates how the position code is structured Example: © 2017 Mercer LLC September Survey Methodology and Definitions 25 of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS MUPCS® Career Stream and Career Level Framework The table below illustrates the breakdown of career streams by career level When using Mercer WIN®, Mercer’s online data analysis tool, you can complete various analyses For example, you may want to analyze bonuses for all positions at function head level across job families or collapse the para-professional level positions to compare pay regardless of level Please get in touch with your Mercer contact for more information on MUPCS đ â 2017 Mercer LLC September Survey Methodology and Definitions 26 of 26 ... September Survey Methodology and Definitions 18 of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS of the employer plan is estimated by valuing the employer plan using the same rate methodology. .. of the Mercer survey specialist is to ensure proper © 2017 Mercer LLC September Survey Methodology and Definitions 22 of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS representation... each position in © 2017 Mercer LLC September Survey Methodology and Definitions 24 of 26 01 JUNE 2017 SURVEY METHODOLOGY AND DEFINITIONS VIETNAM TRS the survey contains a unique code The system has