2012 Talent Management & Rewards Study The Next High Stakes Quest: Balancing Employer and Employee Priorities Presentation to Prince William SHRM January 9, 2013 Theresa Lynch 2012 Towers Watson. All rights reserved.
Companies face serious challenges when it comes to attraction, retention and engagement of talent. Our research reveals what it takes to get it right. 5X Companies that have adopted an increasingly integrated approach to Total Rewards strategy, design and delivery decisions supported by an overarching Employee Value Proposition are: more likely to report their employees are highly engaged 2X more likely to report achieving financial performance significantly above their peers 2
About the survey The 2012 Talent Management & Rewards Survey 17th annual study of employers views on trends and issues in rewards and talent management 1,605 participants 30 markets Fielded between April and June of 2012 Employee views captured via our Global Workforce Study 32,000 full-time workers 29 markets globally Fielded between February and May of 2012 7% TM&R participants by region 25% 26% 41% AP EMEA LA NA 3
Discussion outline The strategic value of the Employee Value Proposition (EVP) Towers Watson EVP & Total Rewards Index The EVP and better outcomes Building blocks for effective design and delivery Best practices in design and delivery Processes and tools to support effective execution Conclusion 4
The Strategic Value of the EVP The EVP and Total Rewards Index and Outcomes 5
A company s Employee Value Proposition (EVP) and Total Rewards portfolio should stem directly from business strategy 6
The evolution of an effective EVP and Total Rewards strategy We defined four groups of organizations based on our EVP and TR Index Tactical Group 1 32% Have not progressed in formally articulating an EVP or in developing a total rewards strategy Integrated and Strategic Group 2 26% Have formally articulated an EVP and adopted a Total Rewards approach Greater focus on an integrated strategy for managing rewards and talent management Have stated objectives for each reward and talent management program Communicating and Delivering Group 3 23% Have effectively communicated their EVP to employees and delivered on their EVP promises Have differentiated their EVP from other organizations with whom they compete for talent Group 3 has accomplished the steps described for Groups 2 and 3 Group 4 has accomplished the steps described for Groups 2, 3 and 4 Segmenting and Differentiating Group 4 18% Have customized EVPs for critical workforce segments More likely to employ organizational analytics to test the effectiveness of total rewards programs 7
Organizations that have progressed their EVP and Total Rewards strategy are less likely to report attraction and retention Global Fast-growing economies Developed economies 100% Group 1 Group 4 Group 1 Group 4 Group 1 Group 4 90% 86% = Global sample 80% 70% 73% 70% 75% 66% 72% 78% 60% 60% 58% 60% 50% 50% 49% 56% 40% 40% 30% 20% 10% 0% Problems attracting critical-skill employees Problems retaining critical-skill employees Source: Towers Watson 2012 Talent Management and Rewards Study Global. 8
Organizations that have progressed their EVP and Total Rewards strategy are realizing better financial and engagement outcomes 50% Global Group 1 Group 4 Fast-growing economies Group 1 Group 4 Developed economies Group 1 Group 4 = Global sample 40% 30% 28% 30% 27% 30% 26% 22% 20% 14% 13% 16% 19% 13% 10% 6% 6% 7% 0% Financial performance is substantially above peer group Highly engaged workforce Source: Towers Watson 2012 Talent Management and Rewards Study Global. 9
Building Blocks for Effective Total Rewards Design & Delivery From Job Architecture to Workforce Segmentation 10
Companies with a highly effective EVP are more likely to have a common job architecture and linked reward and career programs Formal job architecture accompanied by a systematic approach to job leveling establishes the basis for consistency and integration in the design of talent management and reward programs Group 1 Group 2 Group 3 Group 4 My company has a common job architecture that is used to define all jobs 60% 72% 79% 87% The reward and career programs at my organization are linked to a common job architecture 48% 67% 78% 82% Pay progression is aligned with career progression at my organization 65% 78% 84% 87% Source: Towers Watson 2012 Talent Management and Rewards Study Global. Percentage agreeing with the above statements 11
Aligning competencies to job levels correlates with more effective performance management processes Organizations with a job architecture, global job leveling and scaled competencies report higher levels of performance management effectiveness JA, Job Leveling and Scaled Competencies Other Organizations Percentage Difference Percentage agreeing that their organization's performance management process is effective at Creating a high performance culture Incorporating competencies into our performance management process Incorporating career development into the performance 73% 63% 44% 36% 66% 75% management process 57% 31% 84% Percentage agreeing managers are effective at Conducting career development discussions as part of the performance management process Explaining possible career opportunities or available career paths Utilizing performance results to determine development 51% 42% 28% 23% 82% 83% plans 60% 31% 94% Source: Towers Watson, 2012 Talent Management and Rewards Study Global. 12
Aligning competencies to job levels supports higher effectiveness around pay Organizations with a job architecture, global job leveling and scaled competencies report being more effective at linking pay to performance Percentage agreeing that their organization's performance management process is effective at Linking salary increases to individual performance results Linking bonus payouts to individual performance results Differentiating pay based on performance even for employees who receive the same performance rating JA, Job Leveling and Scaled Competencies 82% 79% 60% Other Organizations 57% 61% 39% Percentage Difference 44% 30% 54% Percentage agreeing managers are effective at Fairly reflecting overall performance in the employee's final performance rating Differentiating performance between high and low performers Fairly reflecting performance in pay decisions 75% 76% 74% 48% 48% 49% 56% 58% 94% Source: Towers Watson, 2012 Talent Management and Rewards Study Global. 13
More highly effective EVP organizations are more likely to segment their workforces and communicate In all but the most effective EVP companies (Group 4), fewer than half of employees identified as high-potential have been informed of their status This creates a retention risk for a workforce segment that is hard to attract and retain Group 1 Group 2 Group 3 Group 4 Formally identifies employees with critical skills 38% 64% Formally identifies top-performing employees 54% 76% Formally identifies high-potential employees 47% 69% 69% 82% 74% 81% 87% 88% Informs employees who have been identified as high-potential employees 23% 33% 38% 65% Percentage agreeing that their organization fulfills these statements Source: Towers Watson 2012 Talent Management and Rewards Study Global. 14
Best Practices in Design & Delivery Getting Total Rewards Right 15
An effective Total Rewards strategy optimizes the Total Rewards portfolio to meet business and workforce objectives 16
Foundational rewards: Base pay is the #1 driver of attraction and retention globally Organizations need to ensure the baseline competitiveness of salaries to support their attraction and retention goals Organizations with high EVP and TR Index scores are about 90% more likely to report that their base pay program supports attraction and retention goals Percentage agreeing with statements about the way the base pay program is currently designed and implemented Group 1 Group 2 Group 3 Group 4 Employees understand how their base pay is determined 39% 61% 63% 75% Our managers execute our base pay program well 38% 54% 67% 72% Our base pay program supports our attraction and retention goals Our base pay program supports our long-term business goals, strategy and objectives 42% 62% 67% 82% 40% 51% 65% 76% Our base pay program supports our desired culture 34% 54% 64% 79% Sources: Towers Watson 2012 Global Workforce Study, 2012 Talent Management and Rewards Study Global. 17
Performance-based rewards: Achieving best practice in annual incentive design and delivery Group 4 companies are more likely to indicate effective execution of STI programs Short-term Incentive Programs Employees understand how their short-term incentive payouts are determined Our managers execute our short-term incentive programs well Our short-term incentive programs support our desired culture Group 1 Group 2 Group 3 Group 4 51% 73% 76% 83% 44% 58% 65% 83% 34% 60% 71% 84% Source: Towers Watson 2012 Talent Management and Rewards Study Global. 18
Performance-based rewards: Well-designed recognition programs reinforce desired culture, behaviors and results Recognition programs are better received when offered in the context of a highly effective EVP Group 4 organizations report better outcomes across the board in relation to design and implementation of recognition programs Percentage agreeing with statements about performance-based recognition at their organization 85% 65% 45% 87% 77% 72% 47% 76% 61% 53% 33% 88% 80% 70% 54% 83% 75% 60% 41% Group 4 Group 3 Group 2 Group 1 25% Employees understand how recognition awards are determined Our managers execute our recognition programs well Our recognition programs support our desired culture Recognition programs have a specific role in our Total Rewards portfolio Source: Towers Watson, 2012 Talent Management and Rewards Study Global. 19
Career & environmental rewards: Leadership is the top driver of sustainable engagement While employers rate their leadership development programs highly; a majority of employees express concerns about leadership interest and support Effectiveness of leadership development programs increases as the EVP evolves Our organization s leadership development programs (percentage agreeing): Group 1 Group 2 Group 3 Group 4 Support attraction and retention goals 61% 66% 84% 89% Support long-term business goals, strategy and objectives 75% 93% 85% 94% Support the desired culture 75% 85% 84% 94% Sources: Towers Watson 2012 Global Workforce Study, 2012 Talent Management and Rewards Study Global. 20
Processes and Tools to Support Effective Execution Performance Management, Effective Managers, Technology & Monitoring 21
Performance management: Clarity of goals and objectives is a top driver of sustainable engagement Communication and differentiation are critical to effective performance management Group 4 organizations are twice as likely as those with less evolved EVPs to report that their performance management program creates a high-performance culture and are three times more likely to incorporate career development into the performance management process Percentage agreeing that their performance management process is effective at the following 90% 70% 50% 30% 80% 66% 56% 45% 78% 67% 61% 46% 45% 37% 32% 30% 66% 39% 35% Group 4 Group 3 Group 2 Group 1 10% Communicating expectations for organizational performance Creating a highperformance culture Incorporating competencies into our performance management process 19% Incorporating career development into the performance management process Sources: Towers Watson 2012 Global Workforce Study, 2012 Talent Management and Rewards Study Global. 22
Performance management: Differentiating pay based on performance Group 4 organizations are twice as likely as those with less evolved EVPs to report that their performance management process supports differentiating pay based on performance Percentage agreeing that their performance management process is effective at the following 85% 65% 45% 81% 69% 64% 46% 79% 72% 66% 49% 85% 80% 74% 58% 66% 50% 42% Group 4 Group 3 Group 2 Group 1 25% Linking salary increases to individual performance results Linking bonus payouts to individual performance results Linking bonus payouts to organizational performance results 29% Differentiating pay based on performance even for employees who receive the same performance rating Sources: Towers Watson 2012 Global Workforce Study, 2012 Talent Management and Rewards Study Global. 23
Manager effectiveness: Relationship with supervisor/manager is a top driver of retention; effective supervision is a top driver of sustainable engagement Investing to improve the effectiveness of managers in HR management yields returns Group 1 Group 2 Group 3 Group 4 Working with employees to set appropriate individual performance goals 34% 54% 62% 70% Giving employees regular coaching and feedback on their performance 20% 39% 48% 64% Differentiating performance between high and low performers 33% 59% 64% 76% Fairly reflecting performance in pay decisions 75% 63% 36% 54% Percentage agreeing that their organization fulfills these statements Sources: Towers Watson 2012 Global Workforce Study, 2012 Talent Management and Rewards Study Global. 24
Leveraging available technology tools is essential to effective execution of Total Rewards designs Companies with an execution focus rely on technology to help them prioritize delivery and focus Functional area HRMS system helps meet talent management objectives Compensation - Base pay 78% Total rewards statements 76% Performance management (goal setting, assessment) 77% Compensation - Global grading/job leveling 71% Competency models 65% Career development/planning 61% The Towers Watson Global HR Service Delivery Survey shows effective HR service delivery and operations functions help meet talent management objectives Source: Towers Watson 2012 HR Service Delivery Study - Global 25
Monitoring implementation against program objectives supports effective execution Group 4 companies are much more likely to regularly monitor the effectiveness of Total Rewards programs, an essential element to long-term success of program design and delivery Percentage of organizations that monitor the implementation of the following to make sure they are consistent with program objectives and guidelines: Group 1 Group 2 Group 3 Group 4 Rewards programs Recognition programs 47% 69% 76% 86% Base pay programs 49% 68% 75% 89% Short-term incentive programs 51% 71% 80% 90% Long-term incentive programs 41% 65% 67% 80% Sales force compensation programs 51% 70% 75% 86% Talent Management Programs Competency models and aligned behavioral expectations 32% 51% 69% 87% Career management programs 20% 29% 45% 67% Coaching and/or mentoring programs 42% 61% 58% 65% Employee learning and development programs 42% 66% 74% 83% Source: Towers Watson 2012 Talent Management and Rewards Study Global. 26
Conclusion The EVP is an effective tool in creating the right balance between employee preferences and employer needs leading to stronger overall performance and improved financial outcomes Improve design and execution of Total Rewards programs Communicate and deliver on promises to employees Segment and differentiate populations for greater engagement and cost management Realize improvements in sustainable engagement and stronger business performance 27
Questions 28