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Compensation—Programs & Actions
Executive Compensation
We compensate executives based on the market and performance. We target each compensation element at median market rates based on an annual analysis of companies in a wide variety of industries that are of similar size and scope to Alcoa. In addition, the Compensation and Benefits Committee of our Board of Directors retains its own independent consultant to analyze market data and provide general compensation advice, particularly on CEO compensation.
Our compensation programs are designed to motivate our executives to take actions that are best for the long-term performance of the company while delivering positive annual results. We place a heavy emphasis on performance-based incentive and equity compensation. This compensation mix offers an opportunity for above-average compensation for above-average performance balanced by the risk of below-average compensation when our performance does not meet our goals.
As executives move to greater levels of responsibility, the percentage of their pay based on performance is increased. Furthermore, the percentage of total compensation paid in the form of equity also increases as executives have increasing responsibility for corporate performance, thereby more completely aligning their interests directly with those of our shareholders.
In 2009, our annual cash incentive compensation plan will have two components: a formula based on company performance (at the business unit, group, and corporate levels) and a qualitative evaluation of individual performance. The business unit performance is based on a combination of financial, non-financial, and diversity goals, with the non-financial goals including safety, productivity, delivery performance, quality, and other metrics specific to a particular business.
Our equity awards are a combination of stock options and restricted stock units. In 2008, performance-based stock options and restricted stock units were awarded at the top management level. The final number of options and stock units will be determined based upon company performance in comparison to an external peer group and will vest over a three-year period. Our plan prohibits re-pricing stock options, and we have not granted options with a reload feature since 2003.
For a more thorough overview of the our executive compensation programs and practices, including a complete explanation of compensation decisions for our five most highly compensated employees, please see the Compensation and Discussion Analysis in our annual proxy statement.
General Compensation
Our general compensation programs are designed for simple and flexible delivery based upon the financial and operating metrics of the company and the relevant business unit.
The structure is designed to deliver median compensation within a specific labor market when median performance is achieved at the individual, business unit, or corporate level. When superior individual or team performance is achieved, compensation may be higher than the median.
We openly communicate the total compensation program to employees and link it to ongoing performance feedback.
Recognition
In today’s competitive market, we take the initiative to reward and recognize employees. By providing and utilizing recognition programs, we can:
- Create a positive work environment and improve morale;
- Motivate high performance and reinforce desired behaviors; and
- Encourage loyalty, increase retention, and decrease turnover.
To give corporate-wide recognition to our award-winning employees, we introduced “Recognizing Employees” on the MyAlcoa intranet during 2007 to showcase recent award recipients. It is one of the intranet’s most popular features, indicating that employees want to see more recognition of their peers.
Some of our corporate recognition programs include the following.
Quarterly Special Stock Award program
Special quarterly stock grants are awarded to employees who make outstanding long-term contributions to the company. These grants are intended for professional employees who are not eligible for annual equity grants. A total of 512 employees received an award under this program in 2008.
You Make a Difference Awards
The You Make a Difference Awards provide our Executive Council and senior regional leaders a significant way to instantly recognize and reward individual employees who achieve exceptional results that go beyond normal job expectations.
IMPACT Awards
The Impact Awards are our highest employee recognition. The awards recognize teams of employees for accomplishments that positively impact our business performance. Award categories are community; copy/paste (i.e., sharing best practices); customers; environment, health and safety; excellence; and innovation.
Global Leadership Awards
The Global Leadership Awards recognize our top-performing businesses for outstanding results in support of our values and major initiatives. The competition is based on a standard set of criteria and metrics that are compared across business/resource units to identify the winners based on prior-year results. Award categories are: operational excellence improvement; environment, health, and safety performance; talent development; business unit financial performance; customer/market performance; and the chairman’s award.
Benefits
Our benefit packages vary by country due to statutory requirements and priorities established by the workforce.
We have developed a global database that houses all statutory and non-statutory benefits by country to provide better management and to also help with the movement of employees between countries.
As part of our ongoing efforts to increase choice and flexibility related to the benefits we provide, we introduced a new benefits program for our U.S. employees in 2008. Like the former program, an employee selects benefits from a menu of healthcare, insurance, and disability coverage options. Under the new program, we added a health savings account (HSA) option. Under this option, the company and the employee contribute to a tax advantage savings account owned by the employee. This allows the employee to save for current and future health-care expenses.
One of our primary focuses is to promote wellness within the workforce. Employee wellness programs have several advantages for both the employee and Alcoa, including improved employee health, lower health-care costs, reduced turnover, and improved productivity. We are working to expand our wellness initiatives and have piloted programs at several locations that include smoking cessation, Weight Watchers, and strength training.
Global Mobility
Achievement of Alcoa’s business strategies is contingent upon having the right people in the right jobs at the right time on a global basis.
In 2007, we implemented design changes to our global mobility program to assure that the program supports our increasingly global company and is competitive but not excessive. The program elements have been integrated with our talent management process to strengthen the global talent pipeline.
An ongoing challenge for Alcoa is learning to manage our "new globalization" efforts. Alcoa has had a long-standing global presence in many regions of the world. We are recognized as an employer of choice in South America and Australia, for example. However, as we enter new regions of the world, we are faced with the challenge of branding for employment purposes, developing infrastructure, and demonstrating how we deploy our corporate values. We are using recent experiences in Iceland and Russia to identify what are best practices that can be transferred elsewhere. This will continue to be a challenge for us as we grow globally.
Case Studies
Providing Flexibility for Long—Term Incentive Rewards
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