WINNING THE TALENT WAR ON THE HOME FRONT A GUIDE TO RETAINING TALENT USING REWARDS AND RECOGNITION

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1 EXECUTIVE SUMMARY WINNING THE TALENT WAR ON THE HOME FRONT A GUIDE TO RETAINING TALENT USING REWARDS AND RECOGNITION In his book, War Memoirs, former British Prime Minister Lloyd George opined, the home front is always underrated by generals in the field. And yet that is where the Great War was won and lost. The Russian, Bulgarian, Austrian and German home fronts fell to pieces before their armies collapsed. While he was talking about World War I, business leaders should heed his timeless advice when it comes to the talent wars they face. Talent wars will intensify, according to the Bureau of Labor Statistics. Scholars predict that talent shortages are going to increase well into the next decade, limiting the ability of companies to expand and even jeopardizing their chances of survival as global competition intensifies drastically (e.g., Coombs, 2012; Gordon, 2009; Krell, 2011). A litany of trends are conspiring to create these long-term shortages: Baby Boomers retiring; slower population growth; increasing job specialization and technical demands; Millennials and Gen Y not getting the education and experience to advance into more demanding jobs; and increased global competition for talent.

2 Even though unemployment is still relatively high in many parts of the world, many developed economies are already experiencing talent shortages in a number of labor markets. And in the U.S., the Bureau of Labor Statistics (BLS) reports that voluntary terminations are growing. The rate of unemployment for people with college degrees is about half the national unemployment rate, and it continues to decrease. Employers report they are finding it difficult to fill engineering, highly skilled technical, managerial, executive, skilled trades and sales representative positions (Bureau of Labor Statistics, 2012). Finally, even when there are high unemployment rates, key talent is always in demand and an improving economy will exacerbate the challenge of retaining the most capable employees who have unique or critical skills. Winning the Talent War on the Home front // 2 WINNING HEARTS AND MINDS Winning the hearts and minds of your existing employee base is the foundation of true competitive advantage in the marketplace. Increasing engagement in the workplace not only correlates with higher revenue and profits, but it also lowers turnover rates. In other words, holding onto your talent is a critical issue and deserves to be continually examined and managed as a priority. Rewards and recognition are critical tools in accomplishing that goal. THE ACUTELY HIGH COST OF TURNOVER We know that losing employees is painful, and we also know it is immensely expensive. Depending on the job level in question, turnover is generally estimated to cost between 50%-200% of an annual salary. So to consider the total costs to the company, let s look at a medium size company with 10,000 employees, an assumed 11% turnover, and a conservative estimate of 75% of a year s salary being the typical cost to replace an employee: Average Annual Salaries Cost to Replace (@75% of salary) Annual Loss of Talent (@11% turnover) Company with 10,000 Employees 70% 20% Entry Level Midmgmt $30K $70K $22.5K $52.5K 770 people 220 people $17.3MM $11.6MM 10% Senior mgmt $150K $112.5K 110 people $12.4MM $41.3MM in bottom line turnover costs

3 In a recent survey conducted by Hay Group, WorldatWork and Dr. Dow Scott at Loyola University of Chicago with approximately 700 WorldatWork members, the extent of the retention problem is glaringly evident. Retention of key talent has become more difficult in recent months I expect turnover of key talent to increase substantially when the economy improves Winning the Talent War on the Home front // 3 Employee retention of key talent is a major concern of senior management right now Turnover of key employees is very costly for our organization 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% Percent Agree What can HR do to better retain employees and reduce turnover expense? The answer is not complicated: focus on measuring, understanding and improving employee engagement. Make the business case for engaging and retaining employees: Leaders are increasingly focused on employee engagement and retention, which reflects a growing understanding of the link between engaged employees and business results. Thus, the new focus of engagement initiatives is not simply about making employees happier, but on creating the conditions that encourage high levels of discretionary effort to benefit the organization, while simultaneously reducing costly turnover. UNCOVERING KEY EMPLOYEE MOTIVATORS How do you draw up a strategy to engage, empower and retain your employees, in order to win the war for talent on the home front? First, it s critical to understand what will motivate your employees to stay with your organization over the long haul. In an era of diminished loyalties between companies and employees, this is a tall hurdle.

4 Hay Group has examined this problem using its global employee opinion database of over 4 million employee records, isolating employees who indicated that they are committed to staying with their companies for more than two years and comparing them with employees reporting intentions to leave their organizations within the next two years. The analysis indicates clear predictors for employee retention. The work environment factors that were most important to employees planning to stay with their organization for two or more years are noted below: Employees planning to stay for > 2 years Total Percent Favorable Employees planning to leave within 2 years Gap (%) Winning the Talent War on the Home front // 4 Confidence in ability to achieve career objectives at company Trust and confidence in company senior management Opportunities for learning and development 64% 31% 33% 60% 35% 25% 71% 45% 25% Benefits that meet employee needs 68% 45% 23% Company demonstrates care and concern for employees Company is effectively managed and well run 62% 39% 23% 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% Connect people with the future: Sustained engagement and commitment stems from building positive attitudes about the present realities of the organization and ensuring that people have positive views of their futures at the company. Focus on creating opportunities for employee development. If employees are not expanding their capabilities, they risk compromising their employability within their current organizations and elsewhere. As these results demonstrate, corporate and individual growth and development are among the strongest predictors of employee engagement.

5 APPRECIATION IS A FUNDAMENTAL EMPLOYEE REQUIREMENT At the same time, results from the Globoforce Spring 2012 Employee Mood Tracker survey of approximately 700 full-time workers in the US also reveal how critical it is for employees to feel that they are recognized and appreciated for their contributions at work. In fact, those who don t feel appreciated at work are 300% more likely to search for a job. Survey Question: Do You Plan to Search For a New Job in 2012? 20% of those who feel appreciated Winning the Talent War on the Home front // 5 60% of those who do not feel appreciated And frequency of recognition also is strongly correlated with employees desire to look elsewhere for work. In fact, the Employee Mood Tracker survey reveals a demonstrable correlation between when employees were last recognized and whether they plan to search for a Would you work harder if your efforts job this year. were better recognized and appreciated? Would you work harder if your efforts were better recognized and appreciated? 78% 78% Yes Yes Do you plan to search for a new job in 2012? 55% 37% 40% No No 22% 22% 23% 22% Last 2 Years Last Year 6 Months 3 Months Within a Month Last Recognized One key thing organizations can do is implement a company-wide strategic recognition program. One of Globoforce s clients, Quintiles, was concerned about its retention rates and made the decision to implement a centralized, global recognition program. In just over a year, retention rates had increased by 13 percent. Not only are recognized and appreciated employees more likely to stay, they are for more likely to be engaged and productive. The Mood Tracker survey results below bear this out. Make strategic recognition part of your management operating system: Employees want to feel connected not only to the success of your company but to the values of your company. Employees also have the fundamental craving to be recognized for their contributions. Creating a strategic recognition program that rewards employees for their contributions while continually reinforcing corporate values creates a workforce that is aligned with company objectives.

6 A recent Hay Group, WorldatWork and Dr. Dow Scott at Loyola University Chicago study assessed the impact of rewards on employee engagement and retention in the eyes of senior reward professionals. In terms of financial rewards, short-term incentives/bonuses and benefits have the highest impact on employee engagement and retention. Base Salary level Base Salary increase Benefits and perquisites programs Short-term incentives/bonus programs Long-term incentives/bonus programs 32% 41% 42% 48% 54% Winning the Talent War on the Home front // 6 55% Create a strong but fair pay-for-performance culture: Clearly, pay matters and perceived pay fairness matters. Create a compensation 40% strategy that rewards people in a way that makes sense and is perceived as fair. Identify your most valuable employees and compensate them accordingly. Conversely, don t 37% overpay those who don t deserve it. Fairness cuts both ways and your best employees will respect that. IT S NOT ALL ABOUT THE MONEY 0% 10% 20% 30% 40% 50% 60% % agree high impact on engagement 23% Non-financial rewards generally have a much greater impact on employee engagement than do financial rewards. Note that the reward professionals who responded to the study recognized that most non-financial rewards (see chart below) have a higher impact on employee engagement than the most financial rewards (see chart above). Career development opportunities, organization climate and the nature of the work itself all have significant impact on engagement. The nature of the job/quality of work Work environment/climate Career development opportunities Work-life balance 69% 61% 59% 55% 0% 10% 20% 30% 40% 50% 60% 70% % agree high impact on engagement Go beyond financial rewards to a total rewards mindset: Smart leaders understand that rewards go far beyond compensation and benefits and build the core organization messages (i.e., an employment value proposition) around what is meant by total rewards. Develop tools for managers so they can effectively reward employees beyond the confines of compensation and benefits and develop and reinforce communications around total rewards.

7 CONCLUSION Creating engagement and bolstering retention involves striking a new employment bargain with employees. Employees are expected to invest more effort into their work and deliver superior performance. To earn that effort and ongoing commitment to the organization, companies must thoughtfully and intentionally create the conditions that make work more meaningful and rewarding financially, intellectually and emotionally. As discussed in this paper, the blueprint for creating those conditions includes the following: Winning the Talent War on the Home front // 7 * Make a business case for engaging and retaining employees * Connect people with the future * Make strategic recognition part of your management operating system * Create a strong but fair pay for performance culture * Go beyond financial rewards to a total rewards mindset Tending to the needs of the home front is the first step toward winning the war on talent. Learn more about how recognition can help you win on the home front. VISIT OUR SITE: globoforce.com» READ OUR BLOG: globoforce.com/globoblog» US: info@globoforce.com» CALL US: GFORCE Hay Group (Worldwide Headquarters) The Wanamaker Building 100 Penn Square East Philadelphia, PA USA t // f // Hay Group is a global management consulting firm that works with leaders to transform strategy into reality. We develop talent, organize people to be more effective and motivate them to perform at their best. Our focus is on making change happen and helping people and organizations realize their potential. We have over 2600 employees working in 85 offices in 47 countries.our clients are from the private, public and not-for-profit sectors, across every major industry. For more information please contact your local office through Globoforce (Europe) 21 Beckett Way Park West Business Park Dublin 12, Ireland t // f // e // info@globoforce.com Globoforce (North America) 144 Turnpike Road Suite 310 Southborough, MA USA t // f // e // info@globoforce.com Founded in 1999, Globoforce is the world s leading provider of SaaS-based employee recognition solutions. Through its social, mobile, and global technology, Globoforce helps HR and business leaders elevate employee engagement, increase employee retention, manage company culture and discover the power of real-time performance management. Today, employees across the world are living their company values and achieving peak performance through the Globoforce platform. A private corporation, Globoforce is co-headquartered in Southborough, Massachusetts, and Dublin, Ireland. To learn more, please visit or the company s blog at Globoforce Limited and Hay Group. All rights reserved.