Slide 1: Hydro One Networks Inc. Compensation Cost Benchmark Study
30 May 2011 Hydro One Networks Inc. Compensation Cost Benchmark Study www.mercer.ca
Slide 2: Today
Today Introduction & Overview – Mercer & Oliver Wyman – Our Mandate Our Approach – Total Compensation Cost Benchmarking – Productivity Measures & Consulting Advice Further Discussion and Next Steps Mercer (Canada) Limited 1
Slide 3: Introduction – Mercer Project Team
Introduction – Mercer Project Team • Lead consultant for Iain Iain Morris Morris 2008 Mercer Study Project Project Leader Leader • Industry experience Kristi Kristi Robins Robins • Over 30 years human • Extensive industry capital consulting Compensation Compensation Consultant Consultant // experien
Slide 4: Introduction - Our Energy and Utilities business
Introduction - Our Energy and Utilities business Over 75 of the largest energy/utility companies & unregulated service providers, across North America. About Mercer Sample of clients – Consulting, investment, outsourcing – 17,000 employees in 180 cities in 41 countries – Over 1,500 in Canada – Dedic
Slide 5: Introduction – Our Capabilities
Introduction – Our Capabilities Our energy & utility practices help clients create value by providing strategic and operational consulting advice to address the issues facing energy & utility companies. Enterprise-Wide Strategy & Human Performance Organizational value creation capital Improvement tr
Slide 6: Introduction – Mercer Survey Expertise
Introduction – Mercer Survey Expertise Annually, Mercer conducts more than 1,000 rewards surveys in over 100 countries Mercer’s benchmark TRS (Total Remuneration Survey) is conducted in more than 100 locations worldwide Industry focused surveys include: – Chemical Industry – Consumer Goods Industry
Slide 7: Introduction – Our Mandate
Introduction – Our Mandate Reliable and “repeatable” total compensation cost benchmarking study – improving on the “Mercer Study” Identify internal productivity measures used by other regulated transmission and distribution utilities in North America Recommend internal productivity measure for Hydro
Slide 8: Our Approach – Benchmarking
Our Approach – Benchmarking Our general approach to custom surveys Determine Select comparator companies based on scoping criteria survey sample Select benchmark jobs to include in survey and benchmark Identify contacts within target organizations jobs Identify clear objectives Design survey Select
Slide 9: Total compensation cost benchmarking: Challenges in the Canadian market
Total compensation cost benchmarking Challenges in the Canadian market Specific industry samples are usually limited by the market size Regional differences in the compensation market can be significant – Today greatest private sector differences are found east of Ontario and in Alberta – Quebec is
Slide 10: Our Recommended Approach
Our Recommended Approach An integrated survey to benchmark costs and identify productivity measures Compensation Cost Benchmarking Canada United States Compensation: Productivity: Benchmarking at Reporting requirements Comparable for Electric Utility Organizations Organizations Productivity: Identif
Slide 11: Our Approach - 2011 Compensation Cost Benchmark Study
Our Approach - 2011 Compensation Cost Benchmark Study Capitalize on our Experience Similar methodology to Mercer Study 2008 – Similar data collection methodology – Same analytical methodology for compensation benchmarking – Keep “core” participant list, expand slightly – Keep “core” benchmark jobs,
Slide 12: Our Approach - Sample Selection
Our Approach - Sample Selection Selecting an appropriate market sample is the first step to total compensation cost In the 2008 study, a sample of Canadian electrical utilities, multi- utilities, gas utilities and local distribution companies with total assets between 33% and 300% of Hydro One were
Slide 13: Peer Groups: Transmission, Distribution & Generation
Peer Groups Transmission, Distribution & Generation Electrical transmission, distribution and generation companies in Canada that were invited to participate in the 2008 study: All values in $CDmillions Company Name Participated? Revenue (1) Assets (2) Hydro Quebec Yes $12,330 $64,852 OPG Yes $5,564
Slide 14: Peer Groups (cont’d): Similar Regulatory Environment
Peer Groups (cont’d) Similar Regulatory Environment Other Canadian companies operating in a similar regulatory environment (i.e., telecom, gas utilities, railroads and gas pipelines) that were invited to participate: All values in $CDmillions Company Name Participated? Revenue (1) Assets (2) Bell Ca
Slide 15: Determining the Benchmark Positions
Determining the Benchmark Positions Need to represent different functions and organization levels Individual jobs – Stable job content that is well understood – Large population – Found in other organizations Benchmark jobs in aggregate – Represent all major functions – Represent all levels in the o
Slide 16: Determining the Benchmark Positions (continued)
Determining the Benchmark Positions Need to represent different functions and organization levels (continued) Balance numbers – Enough to understand complete picture – Not so many as to cloud conclusions Recognize reality of surveying We recommend 30 to 40 jobs for this study Ensure like to like com
Slide 17: Elements of Total Compensation
Elements of Total Compensation Focus on items that can be monetized Base wages or salaries Short-term incentives – Annual incentive plans – Productivity incentives – Etc. Long-term incentives – Various forms mostly at senior management level Insured Benefits – Company paid portion Retirement and Sav
Slide 18: Providing Data That is Understandable
Providing Data That is Understandable Minimizing assumptions and adjustments Focus on jobs that are directly comparable – However, need to understand differences in some key jobs – Identify key job content – compare and contrast market Confirm that sample is representative of the entire organization
Slide 19: Productivity Metrics
Productivity Metrics Summarize measures used in the marketplace Study very different than what was attempted in 2008 – Canadian market practices Gather internal metrics from Canadian benchmark survey participants – United States market reporting requirements Identify productivity measures required b
Slide 20: Productivity Metrics: Consultant recommendations
Productivity Metrics Consultant recommendations Work with Hydro One – Understand internal metrics currently in use or under development – Develop further understanding of unique business, market and territory characteristics – Understand key labour cost drivers – Share knowledge of relevant practice
Slide 21: February 2011 Consultative Meeting Key Points of Agreement
10 February 2011 Consultative Meeting Key Points of Agreement a) Principle objective - to revisit the Mercer Study to appropriately compare HONI compensation costs to those of regulated Transmission and Distribution utilities in North America. b) Keep it simple to entice survey participants c) Be in
Slide 22: February 2011 Consultative Meeting Key Points of Agreement
10 February 2011 Consultative Meeting Key Points of Agreement e) Mirror the scoping in the Mercer study for peer selection, job classes, etc, changed as deemed appropriate by the consultant f) Enable reasonable comparison to the last Mercer study and provide trending analysis for Hydro g) Consider m
Slide 23: February 2011 Consultative Meeting Key Points of Agreement
10 February 2011 Consultative Meeting Key Points of Agreement i) Request data about pension as a percentage of total benefits, and benefits as a percentage of compensation j) Rely on the expertise of the selected consultant to recommend appropriate changes in methodology and assumptions Gather infor
Slide 24: Further Discussion and Next Steps
Further Discussion and Next Steps Questions? Concerns? Mercer (Canada) Limited 23
Slide 25: www.mercer.ca
www.mercer.ca