TOLEDO, Ohio - Owens-Corning Fiberglas Corp. is restructuring its retirement programs for U.S. employees, part of a move toward a performance-based total compensation system.
The company will:
Convert an existing defined benefit plan to a cash balance plan.
Cut the company match to the employee savings plan to 35 cents on the dollar from 50 cents.
Add a profit-sharing contribution tied to company profitability.
Both the company match and the profit-sharing contribution will be made in company stock.
Extend a stock purchase program - previously available only to company officers - to all employees.
The changes will reduce the cash cost of the company's retirement benefits about 20%.
Overall, employee compensation of all forms will be tied more closely to the company's annual performance, moving away from a program of fixed entitlements. The company is placing special emphasis on employee ownership and wealth building.
Owens-Corning's defined benefit plan, which has $600 million in assets, will be converted to a cash balance plan Jan. 1. The cash balance plan will provide a guaranteed rate of return equal to five-year Treasury securities. Owens-Corning will contribute 2% of base pay up to a Social Security integration level and 4% in excess of the integration level. The integration level is 50% of the Social Security taxable wage base figure; in 1995, the figure is $61,200.
There are no changes planned in investment policy or money managers, said Steven Rabinowitz, a consultant with Kwasha Lipton, Fort Lee, N.J., and leader of the project.
Employees close to retirement will receive additional credits in the cash balance plan to help ease their transition to retirement.
The basic unbundled design of the $350 million savings and profit-sharing plan will not be altered fundamentally, but Owens-Corning changed the formula for company contributions. The fixed employer match has been reduced to 35 cents from 50 cents on every employee dollar contributed up to 10% of salary.
Profit-sharing contributions will be equal to as much as 4% of base salary.
Owens-Corning executives are looking at ways to allow employees to move some or all of the employer contributions from company stock into other asset classes.
"I'm not sure how we'll end up doing it, but we will figure out a way to allow employees to diversify out of company stock to some degree, if they want to, in 1996," said Richard J. Vair, director of rewards and resources for Owens-Corning.
Mr. Vair said when the company hits its midlevel target performance, the company contribution works out to be 15% higher than under the old contribution formula.
For now, the plan will continue to offer monthly valued record keeping from Watson Wyatt Worldwide, Washington; trust services from Citibank, New York; and six diversified investment options, including company stock.
However, Mr. Vair said during the five-year introduction period, officials will consider moving to daily valuation and adding some mutual funds to allow for more portfolio diversification.
One fundamental change in what the company calls its "reward" system is the expansion of the after-tax employee stock program to include all employees worldwide. Previously, a stock purchase plan was available only to company officers.
Under the new Global Stock Plan, every U.S. employee will receive company stock options of up to 4% of salary annually. The stock options must be exercised three to 10 years after issuance, at the price established on the day the option is granted. The percentage for the company's union workers is subject to union negotiations, said Mr. Vair.
Additionally, the company will contribute to the plan for U.S. workers an annual performance award of company stock if Owens-Corning meets certain performance goals.
The highest award, for maximum performance, is 8% of base salary.
Mr. Vair said the company has performed above its target during the past five years, so employees would have received stock every year during that period. The first stock grant will be made in January 1997, based on 1996 company performance.
Somewhat different rules will apply for the 30% of Owens-Corning workers based outside the United States, depending on tax and legal requirements.
William M. Mercer Inc., New York, designed the stock plan.
Overall, Mr. Vair said employee reaction to the new programs has been enthusiastic.
"Employees are beginning to act almost as if this is their own business, with the prospect of company ownership ahead of them. Their rewards are dependent on their performance, and....they think that's fair. The plan will be 15% richer than it was under the old scheme if we hit our performance target. And the company is saving 20% on its cash obligations, freeing up that money to further enhance company growth," said Mr. Vair.