Creating a Sustainable Rewards and Talent Management Model

© 2010 Towers Watson. All rights reserved.

Creating a Sustainable Rewards and Talent Management Model:Results of the 2010 Global Talent Management and Rewards Study

Laura SejenLaurie BienstockSeptember 22, 2010

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Today’s agenda

Economic Context

Survey Methodology and Key Insights

Attraction and Retention in Today’s Environment

Current Landscape of Rewards and Talent Management

Global Consistency

Moving Forward: Creating a Sustainable Model

Q&A


About the Surveys

Global Talent Management and Rewards Survey

Conducted in May through June 2010

Captures the current landscape of rewards and talent management

Represents 1,176 companies across 17 locations

Employee Data from Towers Watson’s Global Workforce Study

Conducted online in 22 markets around the world between November 2009 and January 2010

Includes over 22,000 full-time employees in mid-size to large organizations


While the recession is over in many countries, its impact has been profound

Following the global financial crisis and recession that occurred in many countries, we may be at a point of inflection

China, India and Brazil experiencing strong economic growth

Spain and Ireland continue to suffer through economic contraction and double digit unemployment

U.S., most of Europe, Canada and Japan are somewhere in between — U.S. unemployment remains

stuck around 10%

Most regions took cost cutting and cost management actions as a reaction to the recession

Real wages have been flat or declining


Recession forced companies out of “business as usual” mode and changed the employee mindset

Companies:

Reduced labor costs through hiring and salary freezes, reduced bonuses and layoffs

Over 44% of companies globally took four or more cost cutting actions

Resulted in reduced rate of increase in the real value of total rewards

Re-evaluating business strategies to protect bottom line and drive productivity gains

Employees are…

Thankful to have a job in light of past layoffs

Recovering from no pay increase, no/smaller bonus, reduced benefits and furloughs

Less likely to have promotion opportunities

Survivors who have made it through in one piece…barely

Theme of Security

Employees are looking for job security, stability and opportunities to earn higher levels of pay

(which may be unavailable in current organization)

Theme of Renewal

Looking forward, organizations must re-think the way they design and manage their reward

and talent programs


Looking Ahead…

As we emerge from the recession, companies are faced with additional challenges

Continue to get the basics right: competitive base pay and benefitsRespond to increasing demands by employees for security, stability and opportunity that are difficult to meetConfront the complexities caused by lack of career advancement opportunities for top talent and employees with critical skillsDevelop new leadership competencies for their executives to ensure they can manage in the new and changing environment

In order to attract, retain and engage employees, organizations need develop a sustainable rewards and talent management Strategy – one that is flexible enough

to be vital throughout the economic cycle


The recession forced most companies to take multiple cost cutting actions costs

Organizations’ immediate reaction to the crisis was to freeze or reduce labor costs

There were regional differences in approaches and extent of the actions European and US companies were more aggressive: over 60% of US companies took four or more cost cutting actions

Companies in different regions took different approaches to cost cutting and cost management


And this focus on cost control will continue…

Pay, bonuses and training budgets are the programs organizations are most likely to change if economic or business conditions change substantially in either direction


For many employees, the real value of rewards has dropped over time

Fewer North American and European employers report that real wages have increased over the last five years

62% of US companies report that the real value of managers’ total cash compensation for managers has been flat or declined since 2005

Economic growth continues to drive increases in the real value of rewards in Asia and Brazil

Prevalence of real value of rewards over the past five years and 10 years (as reported by respondents)


Companies recognize the impact of cost cutting measures on employee engagement

Employers recognize some of the adverse impacts cost cutting has had on employee well-being and engagement

The more cost-cutting actions employers have taken, the more likely they are to recognize the impact

TW research has shown that declines in employee engagement often have an adverse business impact

Employers are less likely to identify impact on quality, customer service, or employee productivity

Impact of cost-cutting actions taken


Attraction and retention challenges are confined to selected employee groups

Employers are having difficulty attracting and retaining top talent, but not employees in general

High unemployment rates feed labor pool

Critical Skill and Top Performers are reluctant to leave current employer due to uncertainty

Severity of difficulty varies across regions as economic recovery is uneven

Percentage of respondents reporting great or very great difficulty attracting or retaining employees

Attraction and retention difficulties vary significantly by region


Attractions drivers are shifting due to the current environment

Employers recognize the importance of base pay, challenging work and career advancement opportunities in attracting employees to their firm

Employers have not made the connection between employee well-being (e.g., flexible scheduling, time off) and an employee’s decision to join an organization


Retention drivers are also shifting, with increased emphasis on employee well-being

There are large gaps between employee and employer perceptions regarding the influence of security and flexibility on employee retention


Significant gap exists between employee preferences and what is available in their current organization

What is important and achievable at your current organization?


Companies will need to address the “deal gap” and shifting employee attitudes…

I want a wide range of jobs and work experience – do I need to change

companies?

I want job security, stability and good pay/benefits — but I see the safety net

eroding.

I want career advancement, but may need to leave my company to get it.

I want more freedom and flexibility in how I work.

I want to deliver innovative products and services – but I am

not sure I can here.


…which brings us to the Employee Value Proposition (EVP)?

Ultimately – it comes down to “the give” and “the get”

An employee value proposition is the experience offered by an employer in exchange for the productivity and

performance of an employee.

Employer perspectiveA strategically designed EVP attracts,

retains, engages and motivates employees to drive business success.

Employee perspectiveEmployees’ connection with the EVP determines their level of discretionary effort in bringing the company mission,

vision and values to life.


Opportunity exists to formalize the EVP

While all organizations have an informal value proposition, only one-third globally have formalized the EVP

The other two-thirds indicate their EVP is implicit and has evolved over time

There is significant regional variation around formalization of EVP

This presents a great opportunity to review components of the deal, formalize and communicate to employees (and prospective employees)

High-performing organizations are more likely to have a formal EVP


The Current Landscape of Rewards and Talent Management: Trends among the core components of the EVP for broad-based employees

Base PayRenewed focus on competitiveness of base payRestoring year over year increases in merit budget

Annual Incentives

Broader use across all organizational levelsMore alignment between executive and broad based employee measuresIncreased focus on profit, revenue and individual goalsGoal-setting moving toward pre-recession practices

Talent Management

Renewed focus on career development opportunities, succession management and executive competenciesContinued focus on enhancing the performance management processIntegration of talent management and other reward programs

18


Merit Increases: Significant differences in size of merit increases by region

Organizations are delivering a minimum of approximately 2x more to those far exceeding expectations versus those meeting expectations

There is still room for further differentiation – moving away from rewarding those who do not meet expectations

Limited merit budgets in Ireland and Spain may have forced organizations to rethink the way they allocate rewards among top performers

Merit Increases by Performance Rating


Short-term Incentives: Overall STI funding is holding steady in most regions

Companies that have outperformed their peers are increasing their performance targets for this year

Poor performing companies are decreasing their targets

As a results, high performing companies have lower expected payouts this years than last, while high low performers expect their payouts to increase

Short-term Incentive Payouts Relative to Target


Short-term Incentives: Companies continue to differentiate between top performing and average employees

Organizations are delivering a minimum of approximately 1.5x more to those far exceeding expectations versus those meeting expectations

Poor performing companies are providing the same relative differentiation rather than allocating a larger share of scarce resources to top performers

Short-term Incentive Payouts by Performance Rating


Companies with global operations are moving to increase consistency of their reward and talent management programs

Drivers of the move to more globally consistent design and administration include:

Alignment GovernanceCost Management Efficiency QualityTalent Mobility Complexity


Becoming globally consistent: Many organizations start with pay and performance management

Organizations are balancing the need for local variation with the benefits of global consistency

The pattern of global consistency varies by job level

Multinational organizations are more likely to develop consistent programs for top management

Foundational programs, such as job leveling and/or competency models, are more utilized more frequently across all levels of the organization

Program Design is Globally Consistent


Talent Management: Promoting effectiveness through emphasis and consistency

Organizations that increase their emphasis on aspects of talent management are more likely to find them very effective


Organization-wide job leveling serves as a foundation for rewards and talent management

Nearly 70% of all organizations report having an organization-wide job-leveling program

Organization-wide job leveling programs facilitate establishing other globally consistent programs


Global consistency in job leveling helps companies become more effective in their other programs

Globally consistent job leveling systems provide a framework and starting point for alignment and integration of talent management programs


Talent Management: Strategy and emphasis vary

Economic and business conditions cause organizations in different regions to emphasize different business and talent management strategies and executive competencies


Looking ahead, there is an imperative to create a sustainable rewards and talent management model

What is Sustainability?Effective in any economic environment; supports robust growth but is scalable in a downturn— Flexible in terms of company investment in rewards and talent management

programs

Addresses the broad range of elements of the “deal” that are important to employeesAllows for flexibility to target key employee groups such as high performers, critical-skill employees and high potentials

Formalize and communicate the EVP to both current and prospective employees

Organizations can focus on key high gain actions for building sustainability…


High Gain Actions for Building a Sustainable Model

Organizations with global consistency report higher level of talent and reward program effectivenessProvides a platform for getting the basics right

FOCUS ON THE BASICSThose elements of the deal that are attractive across employee segments

Competitive Base PayChallenging WorkCareer Advancement OpportunitiesConvenient Work LocationVacation or Paid Time OffSecurity - retirement Formalize

and Communicate

EVPDEVELOP LEADERSHIP

COMPETENCIESTo ensure they can manage in the new and changing environment

.

DIFFERENTIATERewards based on employees’performanceElements of T&R based on different employee segments

DEVELOP GLOBAL CONSISTENCYAcross regions, levels and talent and reward programs


Questions?

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