TORONTO, Sept. 4, 2012 /CNW/ - Natural resource companies face unique
challenges in recruiting, retaining, and motivating the key talent they
need to be successful, because of volatile commodity prices and the
long time between capital investments and shareholder returns. A study
produced for The Conference Board of Canada, Compensation Challenges for Natural Resource Companies, outlines approaches that businesses can use to address the needs for
employee retention, pay for performance and a long-term focus on the
"Retention issues exist during both high and low commodity price cycles.
Paying for performance is challenging because volatile commodity prices
can create misalignment between management pay and shareholder returns.
And the long-term nature of the business makes it difficult to pay at
an appropriate level in the short term," said Christina Medland, the
study's principal author from Meridian Compensation Partners.
"Meeting these challenges requires advance planning, multiple
strategies, clear communication with the shareholders, and discipline
to hold a steady course through commodity pricing cycles."
Two characteristics in the natural resource sector pose specific
challenges for firms. First, share value is strongly influenced by
macroeconomic factors often beyond the direct control of management,
most notably commodity price. Second, these capital-intensive
businesses require substantial investment and it may be years before
returns are generated for shareholders.
The report presents strategies to help organizations overcome these
challenges in the areas of retention, pay for performance and creating
a focus for employees on the company's long-term success.
Ensure Sound Succession Planning - The cyclical nature of the market for talent makes succession
planning vital to fill key positions as they are needed. A good
succession plan positions the company to manage employee turnover when
it becomes necessary.
Make Long-Term, Share-Based Compensation a Substantial Part of
Compensation -The cyclical movement of commodity prices and the length of time
between a discovery of a reserve and production make long-term
compensation crucially important.
Balance Share-Based and Cash-Based Incentives - A "portfolio approach" - consisting of options, restricted share
units, performance share units, and cash -mitigates the downside of any
single method of compensation.
Pay for Performance Strategies
Balance Absolute and Relative Performance - Compensation programs should have a mix of absolute and relative
measures. Absolute measures reflect key drivers of shareholder value,
while relative measures reward performance compared to other businesses
that face similar external factors (such as commodity price
Align Performance Metrics - Metrics need to be aligned with the company's long-term strategy, and
the annual incentive plan should reflect specific measureable
milestones tied to the strategic plan.
Communicate with Shareholders- Natural resource companies need to communicate to shareholders how
compensation programs support the business strategy and align pay with
Strategies to Enhance Long-Term Focus
Ensure Long-Term Incentives are Truly Long-Term - Long-term focus can be created through share-based awards that vest
over time, share ownership requirements, and requirements to hold the
shares received under incentive plans for a period of time.
Create Employee-Owners - Share ownership is key to retention. Employees who
have enough skin in the game are more likely to stay through the up and
down cycles. Share ownership also creates and supports a culture of
employees who act and think like owners for the long term.
Pay for Avoiding Catastrophic Risks - The potentially catastrophic consequences of an error require
significant employee focus on avoiding risks. A large part of a
successful compensation program is creating a culture of prudent risk
taking and anticipating and managing risks.
This briefing was prepared for The Conference Board of Canada by
Meridian Compensation Partners, which is an independent firm of
executive compensation consultants providing trusted counsel to boards
and management at hundreds of large companies.
The report's principal author, Christina Medland, is a senior consultant
with Meridian Compensation Partners. Tom McNeill, the report's
co-author, is a senior consultant with Meridian Compensation Partners.
SOURCE: CONFERENCE BOARD OF CANADA
For further information:
Link to publication: http://www.conferenceboard.ca/e-library/abstract.aspx?did=5008
FOR MORE INFORMATION:
Brent Dowdall, Media Relations, Tel.: 613- 526-3090 ext. 448