The Role of Reward in Retaining Key Talent
WorldatWork Conference (May, 2012)
2© 2012 Hay Group. All rights reserved
Presenters
Dow Scott, Ph.D.
Loyola University Chicago
312.915.6597
Tom McMullen
Hay Group (Chicago)
312.228.1848
3© 2012 Hay Group. All rights reserved
Agenda
Why this topic?
Research initiative
Findings and discussion
Recommendations
4© 2012 Hay Group. All rights reserved
Why this topic?
Economy starting to recover
Unemployment down to 8.2%; 4.3% for college graduates
An increasing number of Americans are quitting their jobs
20% of employees intend to quit in the next 2 years
Number of job changes are increasing; employees born
between 1957 and 1964 have had an average of 11 jobs
5© 2012 Hay Group. All rights reserved
Scary talent shortages coming
Categories
Engineers
Doctors
Scientists
Health Technicians
Nurses
Information Technology
Teachers
Shortfall
50M – 250M
55M – 200M
100M – 200M
200M – 400M
340M - 1MM
500M - 1MM
500M - 1MM
Sources: Bureau of Labor Statistics & Professional Associations
U.S. Talent Shortages 2010-2020
6© 2012 Hay Group. All rights reserved
Serious skills shortages by sector
0% 10% 20% 30% 40% 50% 60% 70%
Other
Consumer Products
Industrial Products
Energy & Resources
Life Sciences & Med. Devices
Aerospace & Defense
Source: Manufacturing Industry Survey by Deloitte, Oracle, & Manufacturing Institute
7© 2012 Hay Group. All rights reserved
Key predictors of employee retention
Total Percent Favorable
Employees planning to stay for > 2
years
Employees planning to
leave within 2 years
Gap (%)
Confidence in ability to achieve career objectives at company 64% 31% 33%
Trust and confidence in company senior management 60% 35% 25%
Opportunities for learning and development 71% 45% 25%
Benefits that meet employee needs 68% 45% 23%
Company demonstrates care and concern for employees 62% 39% 23%
Company is effectively managed and well run 73% 51% 23%
Adequate authority to do job 73% 51% 23%
Employees paid fairly for the work they do 53% 31% 22%
Supervisory coaching for development 67% 45% 22%
Support for employee creativity and innovation 70% 48% 22%
Cross-work unit collaboration and support 63% 41% 22%
Direction and goals are the right ones for the company 73% 51% 22%
Source: Hay Group Employee Opinion Norms (2012)
8© 2012 Hay Group. All rights reserved
Easy for key talent to leave
Key talent always scarce especially during economic recovery
You can’t hide key talent; Linked-in and social media promote their
capabilities and accomplishments
Top talent can compare their “deal” with everyone else's on
salary.com, vault.com, O’net.gov, etc.
Your company’s reputation is always on the line; a disgruntled
employee has an audience of millions
9© 2012 Hay Group. All rights reserved
Cost of turnover
Replacing employees estimated to cost .5X to 2X salary
Key employees cost much more because they:
Are difficult to find
Often require special reward packages
Require special development efforts
Contribute at much higher level than everyone else
Research Initiative
11© 2012 Hay Group. All rights reserved
Research objectives
Our objectives were to find answer to these questions:
Is the economic recovery creating significant challenges
in retaining key talent?
What are organizations doing to retain key employees?
How effective are these efforts?
Are counter-offers a viable strategy for retaining key
talent?
12© 2012 Hay Group. All rights reserved
Research scope
Perspective of reward professionals
Organizations from diverse industries and sizes
Focus on managerial and professional population
Primarily respondents represent N. A. organizations
13© 2012 Hay Group. All rights reserved
Survey methodology
Survey of 526 WorldatWork members
Methods of analysis:
Descriptive analysis (e.g., means and frequencies)
Quantitative and qualitative analysis
Organization size and sector of the economy considered
14© 2012 Hay Group. All rights reserved
Representative survey participants
15© 2012 Hay Group. All rights reserved
Number of Employees
13%
34%
28%
12%
13% 0 to 999
1,000 to 9,999
5,000 to 19,999
20,000 to 39,999
40,000 or more
Economic Sector
48%
26%
13%
13%Publicly Traded
Privately Held
Public Sector
Non-Profit
Participant demographics
16© 2012 Hay Group. All rights reserved
Organizations Represented: Industry Affiliation
16%
13%
11%
10%8%5%
37%
Finance, Ins & Real EstateManufacturing
Healthcare & Social SvcsUtilities, Oil & Gas
Consulting, Prof & Tech SvcsInformation
Participant demographics
Findings and Discussion
18© 2012 Hay Group. All rights reserved
What do you think? - #1
I am confident that our organization can retain top
talent as the economy improves?
1. Strongly disagree
2. Disagree
3. Neither agree nor disagree
4. Agree
5. Strongly Agree
19© 2012 Hay Group. All rights reserved
What do you think? - #2
I expect turnover among key talent to increase
substantially as the economy improves?
1. Strongly disagree
2. Disagree
3. Neither agree nor disagree
4. Agree
5. Strongly Agree
20© 2012 Hay Group. All rights reserved
Is retaining key employees a significant challenge?
83%
65%
61%
56%
51%
0% 20% 40% 60% 80% 100%
Confident in my organization’s ability to
retain key talent as the economy improves
Retention of key talent has become
more difficult in recent months
I expect turnover of key talent to increase
substantially when the economy improves
Employee retention of key talent is a major
concern of senior management right now.
Turnover of key employees is very
costly for our organization.
% Agree & Strongly Agree
21© 2012 Hay Group. All rights reserved
What do you think? - #3
My organization has a clear definition of key talent?
1. Strongly disagree
2. Disagree
3. Neither agree nor disagree
4. Agree
5. Strongly Agree
22© 2012 Hay Group. All rights reserved
What do you think? - #4
Our definition of key talent includes:
1. We don’t define key talent
2. Top performers
3. High potential
4. Critical job holders
5. Some combination of the above
23© 2012 Hay Group. All rights reserved
What do you think? - #5
We have identified key talent in our company?
1. Strongly disagree
2. Disagree
3. Neither agree nor disagree
4. Agree
5. Strongly Agree
24© 2012 Hay Group. All rights reserved
Identifying key talent
55%
77%
Approximately 80% for each
60%
53%
0% 10% 20% 30% 40% 50%
We have a clear definition of key talent.
We have actually identified key talent
Key talent defined as top performers, high
potentials, empl.s in critical jobs
Our identification of key talent goes below
the executive level.
Retention efforts focuses primarily on
key talent versus all employee base
% Agree and Strongly Agree
25© 2012 Hay Group. All rights reserved
What do you think? - #6
Why does key talent quit?
26© 2012 Hay Group. All rights reserved
Most likely reasons why key talent quits
0 10 20 30 40 50 60 70 80 90
Inadequate use of employee’s skills and abilities
Lack of empowerment or influence on the job
Lack of training and developmental opportunities
Conflicts or problems with immediate supervisor
Work-life balance issues-
Workloads are too heavy
Pay levels perceived as unfair vs. employee's performance
Dissatisfaction with job or work responsibilities
Pay levels perceived as unfair vs. others outside organization
Lack of promotional opportunities
Opportunity to earn more pay elsewhere
27© 2012 Hay Group. All rights reserved
Least likely reasons why key talent quits
0 5 10 15 20 25 30 35 40 45 50
Opportunity for a better health-care package
Opportunity for a better retirement benefit package
Job insecurity, fear of job loss
Non-job related factors/ life changes
Easier commute
Retired
Organization culture – e.g., team work, trust
Pay levels perceived as unfair vs. others within co.…
Concerns about the direction of the organization
28© 2012 Hay Group. All rights reserved
Methods most often used to retain key talent
82%
83%
83%
84%
88%
0% 20% 40% 60% 80% 100%
Identified key employees who are
essential to the business
Discussed with key employees their
future opportunities within the
organization
Pay key employees above the labor market
Provided tuition reimbursement and
other educational opportunities
Created a succession plan to replace
individuals critical to success.
% Use these methods
% Effective
or Very
Effective
74%
67%
73%
53%
67%
29© 2012 Hay Group. All rights reserved
Least used methods to retain key talent
74%
74%
71%
69%
68%
0% 20% 40% 60% 80% 100%
Provided increased incentive or bonus
opportunity to key employees
Provided mentors for key employees
Provided key employees with
stock options or equity awards
Provided a rich (i.e., extensive) benefit
package
Provided cash bonuses for retaining
key employees
% use these methods
% Effective
or Very
Effective
68%
59%
63%
67%
64%
30© 2012 Hay Group. All rights reserved
Counter-offers
1. Only 14% of organizations have a counter-offer policy;
3% had a documented policy
2. For those with a policy, it applied only to key employees
(39%) or at the request of a manager (36%)
3. Respondents said counter-offers seldom create a
problem (47%) or have created some problems (46%)
4. HR/compensation jointly decides counter-offer cases with
management (47%) or provides input (38%)
5. Consistent with previous research (2005)
31© 2012 Hay Group. All rights reserved
What do you think? - #7
At the end of the day, what are the most
effective key talent retention processes and
programs in your organization?
Recommendations
33© 2012 Hay Group. All rights reserved
Top talent management
Develop clarity around what defines “top talent” and
develop clarity around the definition of “high potential”,
specifically “potential for what?”
e.g., achievement relative to current role?, Future role?,
General competency profile?
Articulate a top talent communications strategy
Do we communicate status? Why? Why Not?
Identify the benefits and risks of communication
Identify messages, messengers and mediums of
communications
34© 2012 Hay Group. All rights reserved
Top talent management (cont.)
Identify governance structure and roles of corporate, BU
and function leadership as well as HR, manager and
employee in top talent management processes
Ensure transparency in talent reviews and ensure a
substantive role of functions to:
Minimize sense of talent ownership by business
Improve collaboration and calibration processes
35© 2012 Hay Group. All rights reserved
Critical jobs
Leverage the notion of a “critical job” or “accelerator
experiences”
Clarify purpose, applications and process of the notion
of a critical job
Align top talent management with management of critical
job posts, including clarifying eligibility requirements on
who can assume a critical job
Develop principles around job evaluation “lean forward”
or “grandfather” situations (e.g., eligibility, decision
rights, time windows, communications)
36© 2012 Hay Group. All rights reserved
Reward program management
Clarify reward strategy for top talent
Determine degree of variation, if any, vs. other employee
groups
Include principles, design and communications
Common programs include more aggressive base salary
positioning, off-cycle pay increases and restricted stock grants
Monitor performance and reward differentials for top talent
vs. others to ensure appropriate differentiation
Differentials across all cash reward elements
Differentials in treatment across non-financial reward programs
On a current year and multi-year (i.e., career income) basis
37© 2012 Hay Group. All rights reserved
Counter-offers
Develop a counter-offer strategy that consists of clarifying:
The types of people/jobs that are eligible for counter-offers
The role HR, management and senior management play
The information to collect to formulate a counter-offer
How to structure and communicate the counter-offer
How to respond to other employees who may learn about the
counter-offer
How to limit the need for making counter-offers in the future
38© 2012 Hay Group. All rights reserved
Counter-offers (cont.)
Recognize that work climate issues often trigger a search for a new
job and employees often consider:
do I work for a winner?
is this job meaningful?
am I enabled to do a good job?
do I feel respected and valued?
do I like my boss?
is this job challenging?
am I developing new and valuable skills?
Nonetheless, many counter-offer and retention strategies focus on pay
increases, retention bonuses, and stock options
Ensure you have a good understand of the real issues and take action
on them
39© 2012 Hay Group. All rights reserved
Program effectiveness
Measure program effectiveness
Develop criteria for program effectiveness assessment
Involve top talent in developing the strategy, design and evaluation
of top talent programs
Common measures include:
Velocity of key talent through the pipeline (e.g., # and % of talent
who have been promoted)
Growing the amount of key talent in the organization
Retention rate of top talent
Active involvement of CEO and C-suite is viewed as key program
enabler
Your questions
41© 2012 Hay Group. All rights reserved
Presenters
Dow Scott, Ph.D.
Loyola University Chicago
312.915.6597
Tom McMullen
Hay Group (Chicago)
312.228.1848