Employee Value Proposition and Total Rewards: Modernize or Risk Irrelevance

Transcription

1 Employee Value Proposition and Total Rewards: Modernize or Risk Irrelevance Findings from the 2016 Global Talent Management & Rewards and Global Workforce Studies September 29, Willis Towers Watson. All rights reserved.

2 About the 2016 studies Global Talent Management & Rewards Study (TM&R) Global Workforce Study (GWS) 2016 Global TM&R Study Fielded April June, markets globally 2,004 employer respondents representing >21 million employees Fielded April May, markets globally >31,000 employee respondents 26% 35% 21 st annual survey Key topics covered: Attraction and retention drivers Talent mobility and challenges EVP and total rewards Leader and manager effectiveness Career management Performance management Pay for performance Key topics covered: Attraction and retention drivers Drivers of sustainable engagement Leader and manager effectiveness Career management Performance management Health, stress, wellness Communication 18% Asia Pacific Latin America 21% EMEA North America Number of participants (Financial Services): GWS: 4,816 TM&R: 350 2

3 Modernizing your Employee Value Proposition and Total Rewards Discussion outline Setting the Stage What s driving a modernization agenda Talent market context What it all means The Modernization Agenda The ROI on Getting it Right Understanding the Drivers of Attraction, Retention and Sustainable Engagement Modernizing your EVP Effective Leaders Work, Stress and Wellness Performance Management Total Rewards Anticipating the Future of Work Conclusion Additional Information 3

4 Setting the Stage The Modernization Agenda Getting it right Effective Leaders are Critical to a Compelling EVP Addressing the Work Component of the EVP Employers need to focus on workplace stress and wellness Achieving Effective Performance Management Implications for Total Rewards Future of Work Effective management of work types, channels and options is part of the modernization agenda Conclusion Additional Information 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only. 4

5 Modernization, relevance and what s at stake Creates increased pressure and stress on the workforce and a whole new definition of what it means to be a leader Market trend/reality Fast-changing market Fast-changing technology Demographic shift It s really happening Expectations of transparency and individualization 5

6 GLOBAL Challenges attracting employees in key workforce segments remain high overall Even more so for organizations operating in emerging economies 90% 80% Attraction Challenges Nearly half (48%) of employers report hiring activity increased 77% 76% 70% 66% 60% 55% 54% 56% 57% 50% 45% 44% 40% 30% 28% 20% 10% 0% All employees Diverse employee populations Critical-skill employees High-potential employees Top-performing employees All employees Diverse employee populations Critical-skill employees High-potential employees Top-performing employees Mature Markets Emerging Markets 6

7 GLOBAL Retaining key employee groups remains difficult, especially in emerging markets Close to three quarters of employers have trouble retaining high potentials 80% 70% 60% Retention Challenges One-third (35%) of employers report turnover activity increased 59% 70% 65% 50% 40% 37% 47% 44% 41% 47% 30% 28% 20% 20% 10% 0% All employees Diverse employee populations Critical-skill employees High-potential employees Top-performing employees All employees Diverse employee populations Critical-skill employees High-potential employees Top-performing employees Mature Markets Emerging Markets 7

8 GLOBAL The cost of turnover puts significant value at risk Lost productivity Hiring Training Job vacancy Financial cost of turnover Probability of turnover Financial cost at risk Job Level Financial cost of turnover (% of annual compensation)* % of ee s at high risk of turnover** Financial cost at risk*** Senior Manager/Executive 74% 31% 23% Professional 59% 25% 15% Sales & Customer/Client Management 59% 27% 16% Business Support 48% 27% 13% *FCOT measured in our proprietary benchmark database **% at risk of turnover from 2016 Global Workforce Study ***Financial cost at risk=fcot*% at risk of turnover 8

9 Needed: A modernization agenda to address the challenges of today s workplace and remain relevant The Modernization Agenda companies need to: Be agile and nimbly respond to changes in business strategy and talent markets Introduce flexibility into talent and reward plan design and delivery Improve transparency in reward programs Tailor programs to key segments of their workforce Leverage technology to digitally engage employees Transition from job security to relevance (career security) Address work place stress 9

10 Modernizing also means getting the EVP right Best practice EVP companies: Have formally articulated their EVP that is clearly aligned with what they stand for in the marketplace, and differentiates them from other organizations with whom they compete for talent Understand their employees and potential candidates the same way they would understand their external customers Customize their EVP for employees with critical skills Effectively communicate and deliver their EVP, leveraging technology to understand employees and communicate differentiated messages to them 10

11 Setting the Stage The Modernization Agenda Getting it right Effective Leaders are Critical to a Compelling EVP Addressing the Work Component of the EVP Employers need to focus on workplace stress and wellness Achieving Effective Performance Management Implications for Total Rewards Future of Work Effective management of work types, channels and options is part of the modernization agenda Conclusion Additional Information 11

12 GLOBAL Modernizing your EVP should be accomplished in the context of an overarching human capital framework Best practice EVP companies achieve better outcomes Leadership Business strategy Human capital dimensions Outcomes almost 3x as likely to report their employees are highly engaged Desired Culture Human Capital Strategy EVP Employee Value Proposition 93% more likely to report significantly outperforming their industry peers financially More than 10% less likely to report difficulty attracting and retaining key employees segments 27% fewer regrettable new hires in the first year 17% lower voluntary turnover Measurement, Change Management, Communication and HR Technology 12

13 Getting it right starts with understanding the top drivers of attraction Comparing top drivers of attraction Rank Financial Services Global Employee view Employer view Employee view Employer view 1 Base pay/salary Career advancement opportunities Base pay/salary Career advancement opportunities 2 Job security Base pay/salary Job security Base pay/salary 3 Career advancement opportunities Reputation of organization as a great place to work Career advancement opportunities Reputation of organization as a great place to work 4 Challenging work Challenging work Challenging work Challenging work 5 Reputation of organization as a great place to work Job security Opportunities to learn new skills Job security 6 Opportunities to learn new skills Organization's mission, vision and values Reputation of organization as a great place to work Organization's mission, vision and values 7 Health care and wellness benefits Opportunities to learn new skills Health care and wellness benefits Opportunities to learn new skills 13

14 You also need to understand why employees would choose to leave your organization Comparing top drivers of retention Rank Financial Services Global Employee view Employer view Employee view Employer view 1 Base pay/salary Base pay/salary Base pay/salary Career advancement opportunities 2 Career advancement opportunities Career advancement opportunities Career advancement opportunities Base pay/salary 3 Job security Relationship with supervisor/manager Physical work environment Relationship with supervisor/manager 4 Ability to manage workrelated stress Ability to manage workrelated stress Job security Ability to manage workrelated stress 5 Length of commute Short-term incentives (e.g., annual bonus) Ability to manage workrelated stress Opportunities to learn new skills 6 Relationship with supervisor/manager Opportunities to learn new skills Relationship with supervisor/manager Flexible work arrangements 7 Flexible work arrangements Trust/Confidence in senior leadership Trust/Confidence in senior leadership Short-term incentives (e.g., annual bonus) 14

15 GLOBAL Job security and the modernization agenda are not irreconcilable Job security is a top driver of attraction and retention, but can mean different things to different people Group Fearful Stable and steady Financially concerned Making a career of it In a good place 26% 24% 22% 10% 19% Key characteristic Don t want to lose my job Don t want my job to change Don t want to lose my paycheck In it for the long haul I m happy, for now Employers can offer Career Security through training to remain relevant in the new market Integrated Performance Management to help employees to adapt to changing workplace needs Alternative work arrangements to allow employees to do same tasks for more than one employer Total Reward programs redesigned to help employees with concerns about budgeting and financial planning Leadership and managers who support an innovative culture Greater use of pay programs with emphasis on LT payoffs (Career Management, LTI, Pensions) Pay for performance and skills Training for high valued skills to remain relevant in marketplace *Percentages represent those who selected job security as a driver of retention and who fall into this group. 15

16 To achieve desired outcomes, companies must address the drivers of sustainable engagement Sustainable Engagement Drivers Rank 2016 Financial Services Global Global 1 Senior Leadership Senior Leadership Senior Leadership 2 Supervision Clear Goals & Objectives Clear Goals & Objectives 3 Clear Goals & Objectives Supervision Workload & Flexibility 4 Workload & Flexibility Image & Integrity Image & Integrity 5 Image & Integrity Workload & Flexibility Empowerment What is Sustainable Engagement? Engagement Rational, emotional and behavioral attachment to the company Enablement - A local work environment that supports productivity and performance Energy - Individual physical, interpersonal and emotional well-being at work 16

17 Sustainable engagement pays dividends... but only one-third of employees are highly engaged 20% 12-month change in gross profit margin vs. sector Financial Services Global 23% 41% 25% 37% 0% 1.9% 5.2% 19% 21% 17% 17% -13.3% -20% Disengaged Unsupported Highly engaged Highly Engaged: Those who score high on all three aspects of sustainable engagement Unsupported: Those who are traditionally engaged, but lack enablement and/or energy Research shows that companies with high levels of sustainable engagement outperform those lacking energy and enablement Detached: Those who feel enabled and/or energized, but lack a sense of traditional engagement Disengaged: Those who score low on all three aspects of sustainable engagement 17

18 Setting the Stage The Modernization Agenda Getting it right Effective Leaders are Critical to a Compelling EVP Addressing the Work Component of the EVP Employers need to focus on workplace stress and wellness Achieving Effective Performance Management Implications for Total Rewards Future of Work Effective management of work types, channels and options is part of the modernization agenda Conclusion Additional Information 18

19 In the modernization agenda, we (re)define the term leader However, what the leader leads is dependent on the role within the organization In simplest terms, a leader is someone who leads not necessarily a specific role or title (e.g., a manager or executive) Manager The manager-leader: Makes sure things are done right Engages others in getting the work done every day Manages the work/outcomes while leading others Creates a local environment for success and fulfillment The executive-leader: Makes sure the right things are done Engages others in building and driving the business Leads others while managing outcomes/results Executive Fosters a broad culture of success and fulfillment 19

20 What makes a leader effective? There are key areas of leadership effectiveness that are universal Based on our research, the requirements of the leader are guided by three performance factors and the impacts needed from the leader Applies expertise and deep knowledge. Uses strong analytical and reasoning capability. Investigates and solves problems using specialist expertise. Impact created through: Managed Risk Service & Product Delivery Expert Reputation Professional People Handling a wide range of people issues across teams and functions. Interacting assertively with people to achieve results. Understanding and adapting to the needs of others. Impact created through: Engagement Successful Teams Communication Driving success, change and growth. Seizing commercial opportunities and outperforming competitors. Generating imaginative solutions and a longterm vision. Pioneering Impact created through: New Product/Markets Organizational Transformation Organizational Growth 20

21 Our research indicates that the emphasis on performance factors changes, depending on leadership level Managers tend to focus more on the professional side than other levels of leadership. And the impacts they create are related more to operational activities. Successful Executives focus more on the pioneering factor but they don t lose focus on professional or people; they are still bringing their domain expertise to bear, and industry leadership. Additionally, the people side of their role is still a key area of focus. The emphasis on certain areas shifts depending on scope of role in the organization Manager Executive 21

22 So what are companies doing around leadership development? Overall there is room for improvement Which of the following HR technologies does your organization currently have or plan to add in the next year or two? Our organization develops leaders who will be able to meet changing business needs Strongly Agree/Agree 64% My organization makes effective use of a leadership competency model Strongly Agree/Agree 61% Leadership development Currently have 46% Plan to add in next year or two 35% No plans 20% In Financial Services: 71% of organizations agree or strongly agree that they develop leaders who will be able to meet changing business needs 60% report that they make effective use of a leadership competency model 49% currently have and 33% plan to add leadership development technology in the next year or two, while 18% have no plans 22

23 Employees give senior leadership low marks on key aspects of their role Percent favorable Item How would you rate the job that senior leadership is doing to: Financial Services Global Grow the Business 62% 52% Manage Costs 57% 47% Develop Future Leaders 44% 39% Senior leadership behaves consistently with the organization's core values 59% 52% I believe the information I receive from senior leadership 56% 50% I have trust and confidence in the job being done by the senior leadership of my organization Senior leadership at my organization has a sincere interest in employees' well-being 55% 48% 49% 44% Fewer than half (46%) of the next generation of leaders globally think their organization does a good job of developing future leaders 23

24 Less than 20% of employers are removing or redeploying blockers, or using software for succession management Succession Management process : Financial Services Employer view Global Uses work assignments and talent movement to develop leaders 78% 75% Uses actual succession plans to fill vacancies 62% 60% Links our succession management process with other talent and reward programs (e.g., performance management, compensation) 41% 38% Uses psychometric tests to assess potential 29% 28% Uses software to enable succession management 20% 18% Removes/Redeploys "blockers" to provide development opportunities to top talent 13% 16% Succession management is a key enabler of developing future leaders. There s a significant opportunity for employers to do more. 24

25 Employees give their immediate managers better marks than senior leaders Given the importance of managers, there is still room for improvement Employee view My immediate supervisor/manager: Financial Services Global Treats me with respect 76% 72% Assigns tasks suited to my skills and abilities 70% 66% Clearly communicates goals and assignments 56% 55% Encourages new ideas and new ways of doing things 60% 54% Listens carefully to different points of view before reaching conclusions 58% 54% Helps remove obstacles to doing my job well 56% 52% Is effective at differentiating performance between high and low performers 58% 52% Makes fair decisions about how my performance links to pay decisions. 53% 48% Has enough time to handle the people aspects of the job 48% 46% Coaches me to improve my performance 47% 44% 25

26 The responsibility-respect mismatch: Less than half of all employees think the role of the manager is respected Which of the following are facilitators of your performance management experience at your organization? The People manager role is 45% highly respected in my organization global 46% Financial Services Yet so much is expected of them, and having the necessary skills is the number one facilitator of performance management Inadequate time spent in their role as people manager My line manager/ supervisor has the necessary skills 42% global 46% Financial Services Lack of effective feedback is the #1 barrier to the performance management experience (#1 globally) Managers are spending 5.5 hours per employee/year on managing performance (3 to 4 hours globally) 26

27 GLOBAL The bottom line: Employees with effective senior leaders and managers are much more likely to be highly engaged Both effective 5% Effective senior leaders & ineffective manager 17% 11% 24% 18% 33% Effective manager & ineffective senior leaders 67% 25% 26% 23% Highly Engaged Unsupported Detached Disengaged 32% 20% Both ineffective 9% 11% 54% 26% Source: Willis Towers Watson 2016 Global Workforce Study Global. Note: Proportions may not sum up to 100% due to rounding. 27

28 GLOBAL So what does it take to be an effective leader? Effective leaders demonstrate these key competencies Rank How effective is your manager at Favorable Not Favorable 1 Developing Talent (creating developmental opportunities, coaching and mentoring, giving feedback) 2 Leading Change (identifying change needs, driving change, addressing concerns) 3 Engendering Confidence and Trust (demonstrating reliability, being open and honest, being consistent) 4 Building Effective Teams (forming teams, creating shared purpose, identifying talent needs) 5 Displaying Entrepreneurial Spirit (perceiving subtle changes, thinking boldly, pursuing opportunities) 6 Focusing on Customers (identifying needs, developing relationships, developing solutions) 7 Articulating the Vision (communicating the vision, translating the vision, showing commitment) Source: Willis Towers Watson 2016 Global Workforce Study Global. 56% 20% 54% 20% 53% 20% 54% 19% 54% 21% 52% 20% 52% 21% Engagement levels are significantly higher among employees who rate their managers favorably on these competencies 28

29 Setting the Stage The Modernization Agenda Getting it right Effective Leaders are Critical to a Compelling EVP Addressing the Work Component of the EVP Employers need to focus on workplace stress and wellness Achieving Effective Performance Management Implications for Total Rewards Future of Work Effective management of work types, channels and options is part of the modernization agenda Conclusion Additional Information 29

30 GLOBAL Two-thirds of employers globally identify stress as the top workforce health risk issue Rank Global US Canada Europe Latin America Asia Pacific 1 Stress (64%) Stress (75%) Stress (85%) Stress (74%) Stress (72%) Lack of physical activity (52%) 2 Lack of physical activity (53%) Overweight/ Obesity (70%) Lack of physical activity (46%) Lack of physical activity (45%) Lack of physical activity (58%) Stress (44%) 3 Overweight/ Obesity (45%) Lack of physical activity (61%) Unplanned absences (45%) Presenteeism (35%) Overweight/ Obesity (47%) Overweight/ Obesity (32%) 4 Poor nutrition (31%) Poor nutrition (50%) Overweight/ Obesity (43%) Overweight/ Obesity (31%) Presenteeism (40%) Lack of sleep (30%) 5 Lack of sleep (30%) Lack of sleep (31%) Poor nutrition (41%) Poor nutrition (30%) Poor nutrition (36%) Presenteeism (23%) Source: 2015/2016 Global Staying@Work Survey 30

31 GLOBAL Addressing workplace stress involves rethinking pay, addressing staffing issues, and changing an organization s culture Causes of stress: main disconnects between employer and employee views #1 Lack of work/ life balance Employer view Employee view #1 Low pay (Global, Lat. Am. & APAC) Inadequate staffing (US, Canada & Europe) Global US Canada Europe Latin America Asia Pacific Lack of work/life balance #1 #5 #1 #6 #1 #8 #1 #6 #1 #5 #1 #4 Inadequate staffing #2 = #2 #2 #1 #3 #1 #2 #1 #2 #3 #2 = #2 Technologies that expand day #3 #13 #3 #12 #4 #12 #3 #14 #6 #11 #4 #11 Company culture #10 #3 #12 #3 #10 #3 #9 #4 #11 #9 #8 #3 Low pay #11 #1 #11 #2 #12 #2 #12 #2 #10 #1 #10 #1 Source: 2015/2016 Global Staying@Work Survey and 2015/2016 Global Benefits Attitudes Survey GBAS sample: US and Canada full-time employees with an employer health plan. Rest all employees. Note: Rankings based on options 3/4/5 on a 5-point Likert scale 31

32 So what does it take to build a culture of health and well-being? 1 The employer role: Move from pull (encouragement) to push (driving change) gradually build employee permission. 2 Trust: There is a strong connection between health engagement and the broader employment deal. Address concerns on privacy of personal information. 3 Social connections: Leverage worksite and support interactions and competitions around health. Important for managers to be effective advocates of employer programs. 4 New technology: Use technology, peer groups and personal communication to motivate action. 32

33 Setting the Stage The Modernization Agenda Getting it right Effective Leaders are Critical to a Compelling EVP Addressing the Work Component of the EVP Employers need to focus on workplace stress and wellness Achieving Effective Performance Management Implications for Total Rewards Future of Work Effective management of work types, channels and options is part of the modernization agenda Conclusion Additional Information 33

34 Performance management and going ratingless are in the spotlight What are companies actually doing? Very few employers have gone or are considering going ratingless Most are focusing on having more and better performance management conversations Is your organization planning to make any of the following changes to your performance management process? Already taken action Planning to take action Considering taking action Neither planning nor considering taking action Financial Services Global Financial Services Global Financial Services Global Financial Services Global Focus on increasing frequency and improving quality of performance conversations/dialogue between manager and employee Using performance management to evaluate/measure future potential Implementing new enabling technology (e.g., to support crowdsourcing or enable mobile platforms) Eliminating performance ratings/scores entirely Eliminating performance ratings/scores for performance management but keeping for compensation purposes 35% 33% 23% 23% 26% 24% 16% 19% 32% 28% 22% 20% 24% 25% 22% 27% 13% 15% 15% 16% 23% 21% 49% 48% 4% 8% 4% 3% 14% 15% 77% 74% 3% 5% 6% 4% 14% 14% 78% 77% 34

35 Employees continue to say that performance management as they experience it is not very helpful Employee View The extent to which you agree with the following statement: Financial Services Global People are held accountable for their performance at my organization 60% 56% The people who evaluate me have clear visibility of my performance on the job 63% 56% My performance was accurately evaluated in my most recent performance review 60% 52% My organization does a good job explaining our performance management process 57% 50% My performance reviews have helped me improve my performance 51% 48% High-performing employees in my organization are rewarded for their performance 57% 46% There is a clear link between my job performance and my pay 54% 45% This represents a lost opportunity to address a top driver of sustainable engagement: clear goals and objectives 35

36 While more favorable, employers are not enthusiastic about their performance management process The performance management process at your organization is effective at: Employer View Financial Services Global Aligning individual performance objectives with strategic business priorities 82% 76% Identifying high, average and low performers 82% 74% Reinforcing key organization-wide values and desired behaviors 75% 73% Providing a mechanism for differentiating rewards 79% 70% Driving high performance across the workforce 70% 67% Informing development needs and plans 69% 64% Providing a mechanism for determining talent program eligibility 65% 60% Encouraging employees to set stretch goals 61% 60% Creating a positive employee experience 53% 51% Clarifying accountability of specific roles 51% 47% Just 51% of employers indicate that their performance management process is effective at clarifying accountability for specific roles 36

37 Employers views on managers effectiveness at performance management are not very favorable Managers are effective in the following aspects of performance management: Differentiating performance between high and low performers Fairly reflecting overall performance in the employee s final performance rating Working with employees to set appropriate performance goals for individual performance Financial Services Global 58% 53% 53% 50% 47% 49% Fairly reflecting performance in pay decisions 54% 49% Identifying development opportunities 41% 39% Giving employees regular coaching and feedback on their performance 40% 35% Conducting career development discussion 33% 30% Driving the right degree of risk taking to enable innovation 23% 22% 37

38 Over 75% of managers spend less than six hours per employee per year on performance management The Math: On this critical process, the typical manager globally devotes time to performance management equal to 0.2% of the hours a typical fulltime employee works in a year. What falls through the cracks? In the typical year, how much time per employee do you spend on performance management, including any time spent on the ratings calibrations process? % of managers Financial Services Global 2 hours or less per employee 21% 27% 3 or 4 hours per employee 27% 26% 5 or 6 hours per employee 23% 22% 7 or 8 hours per employee 7% 10% 9 or 10 hours per employee 4% 5% More than 10 hours per employee 18% 10% 38

39 Managers also say they spend too much time filling in forms The amount of time I spend on the performance management process: Financial Services Too little About right Too much Global Financial Services Global Financial Services Global Collecting feedback from colleagues is... 22% 24% 68% 63% 10% 14% Ongoing conversations with employees about their individual performance is... Helping employees set performance goals or objectives is... Understanding and using performance management technology is... 22% 19% 64% 64% 13% 16% 18% 19% 68% 66% 14% 14% 16% 18% 69% 67% 15% 15% Year-end performance feedback sessions is... 12% 18% 74% 66% 15% 16% Participating in calibration sessions is... 16% 16% 69% 64% 15% 21% The process overall is... 12% 15% 72% 68% 15% 17% Completing forms is... 6% 7% 68% 69% 26% 24% And not enough time on setting goals, collecting feedback and discussing individual performance 39

40 GLOBAL There appears to be a sweet spot in terms of time invested in performance management activities and desired outcomes Outcomes reported by managers vary based on how much time they spend per employee per year on performance management It is easy to get the information I need to update my direct reports on key organizational changes Our annual base salary increases are effective at driving higher levels of performance among my direct reports Our annual base salary increases are effective at differentiating pay based on performance among my direct reports Our annual incentives or bonuses are effective at driving higher levels of performance among my direct reports Our annual incentives or bonuses are effective at differentiating pay based on performance among my direct reports Our formal performance ratings are effective at driving higher levels of performance among my direct reports Our performance management system is effective at differentiating performance among my direct reports 2 hours or less per employee 3 or 4 hours per employee 5 or 6 hours per employee 7 or 8 hours per employee 9 or more hours per employee 45% 60% 60% 67% 58% 37% 52% 52% 53% 49% 36% 52% 54% 61% 49% 38% 57% 57% 61% 56% 39% 55% 60% 59% 51% 39% 52% 56% 57% 50% 38% 58% 60% 66% 55% 40

41 Setting the Stage The Modernization Agenda Getting it right Effective Leaders are Critical to a Compelling EVP Addressing the Work Component of the EVP Employers need to focus on workplace stress and wellness Achieving Effective Performance Management Implications for Total Rewards Future of Work Effective management of work types, channels and options is part of the modernization agenda Conclusion Additional Information 41

42 Modernizing Total Rewards means challenging conventional thinking Traditional approach Employees never discuss pay and benefit details with each other New reality Living out loud on Glass Door; emerging legislative agendas that prescribe pay transparency Pay for performance = merit increase and incentive pay based on last year s company performance + individual performance rating Changing business models and nature of work means challenging the individual performance definition and the role of base pay Provide guaranteed jobs Enable career security through career development One size fits all Segmentation and customization 42

43 Employees claim to understand how pay is determined, but not its value relative to other groups Percentage of employees who agree they understand 70% 60% 50% 40% 37% 37% 43% 44% 48% 47% 59% 54% 62% 62% 30% 20% 10% 0% How my total compensation compares to the CEO at my organization How my total compensation compares to the typical employee at other organizations like mine How my total compensation compares to the typical employee in my organization How my bonus is determined How my base pay/salary is determined Financial Services Global 43

44 Employee perceptions of internal equity and market competitiveness are mixed Pay fairness Globally, half think they are paid fairly, but 1 in 5 disagree 50% 54% 51% 55% Global Financial Services Global Financial Services Paid fairly compared to others in other companies Paid fairly compared to others in my organization Overall, how do you think the value of each of the following compares to that offered for similar positions in other organizations? Total Rewards 17% 37% 46% Financial Services Bonus 26% 36% 38% Base Pay 16% 42% 42% Total Rewards 23% 38% 39% Global Bonus 33% 36% 31% Base Pay 18% 43% 39% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Below Average Average Above Average 44

45 Employers promise pay for performance differentiation, but fail to deliver 40% globally Only Financial 47% Financial Services 50% globally 58% Services Of employers think that base salary think that short term incentives do increases drive performance Perceptions of differentiation effectiveness are mixed Our base salary increases are effective at driving higher individual performance Our base salary increases are effective at differentiating pay based on individual performance Our short-term incentive programs are effective at driving higher individual performance Our short-term incentive programs are effective at differentiating pay based on individual performance Our formal performance ratings are effective at driving higher levels of performance among my direct reports Our performance management system is effective at differentiating performance among my direct reports Employer view Financial Services Global Manager view Financial Services Global 47% 40% 45% 48% 58% 55% 49% 49% 58% 50% 49% 52% 66% 52% 49% 52% n/a n/a 50% 50% n/a n/a 53% 53% 45

46 GLOBAL The need for consistency in performance reviews and compensation decisions raises the importance of job leveling and career frameworks The transparency agenda demands it The organization has defined job levels that reflect a common definition of internal job contribution across the organization Our career planning and growth program includes emphasis on dual career paths for people managers and comparable-level individual contributors No Yes No Yes My organization has a formal process to ensure there is no bias or inconsistency in performance reviews My organization has a formal process to ensure there is no bias or inconsistency in compensation distribution 39% 59% 52% 62% 39% 66% 57% 68% 52% of organizations globally report that they have formally defined and communicated career paths/tracks (e.g., support/professional/management) 46

47 GLOBAL Incentive plan funding and differentiation results Suggest that pay for performance programs are not delivering the overall performance lift or the differentiation levels intended in design Merit increase Employees who did not meet expectations 0% Employees who partially met expectations 1% Employees who met expectations 3% Employees who exceeded expectations 4% Employees who far exceeded expectations (e.g., top 10%) 6% Overall merit increase 3% Short-term incentive/bonus amounts Target differentiation* Actual differentiation* Employees who did not meet expectations 21% 18% Employees who partially met expectations 52% 50% Employees who met expectations 88% 86% Employees who exceeded expectations 101% 99% Employees who far exceeded expectations (e.g., top 10%) 118% 113% *Values represent averages At the same time 90 percent of organizations have, are planning, or considering changing some aspect of their performance management program 47

48 How do we put pay for performance back on track? Get crisp on what performance needs to be rewarded and adapt programs accordingly You may need to take a step backwards to move forward Define performance Drive the right performance Reward for performance Cultivate a high performance culture Define all key performance dimensions (e.g., results, potential, behaviors, culture, collective, individual) and how and where they may differ by employee segment Ensure objectives (e.g., results-based, behavioral, cultural) are aligned to deliver on the defined performance dimensions Improve the performance experience through efficiency and effectiveness Determine the performance dimensions to be rewarded by talent segment and choose the right combination of reward vehicles This may include broadening performance pay to include other rewards (e.g., PTO, career management) Genuinely commit to a change strategy to build and embed the desired performance culture Ensure all leaders and managers are communicating and engaging in an ongoing dialogue with employees on performance Adopt Enabling HR Software 48

49 On merit increase decisions, HR puts most emphasis on final rating and achievement of goals; managers take a more holistic view Final rating in most current year-end performance review Factor should effect Financial Services HR s view Global Manager gives more weight than intended Financial Services Global Manager s view Factor does effect their decision Financial Services 78% 72% 55% 52% 66% Global Achievement of individual goals 61% 65% 45% 47% 66% 65% Demonstration of knowledge and skills required in current role 53% 55% 43% 41% 70% Penetration in pay range for current role 58% 54% 31% 30% 55% 57% Achievement of team goals 51% 49% 38% 29% 68% 66% Concerns over market competitiveness 52% 48% 42% 37% 50% 55% Possession of skills critical to the success of the future business model 51% 46% 43% 40% 61% Criticality of the role 57% 48% 60% 54% 58% 62% Concerns over internal equity 44% 42% 47% 44% 50% 52% Perceived potential 45% 41% 40% 41% 56% 59% Demonstration of company values 33% 35% 20% 19% 52% 57% 63% 68% 63% 49

50 Base pay, the number 1 driver of attraction and retention globally, gets mixed reviews while the world will get more complicated Suggesting that old tools and approach to the annual merit cycle may need to change. As the number one driver of attraction and engagement, we need to get base pay right in the modern context Performance Rating Unsatisfactory performance Performance needs improvement Below Minimum Salary Range Position Lower Third Middle Third Upper Third 0.0% 2.0% 0.0% 2.0% 0.0% 0.0% 2.0% 4.0% 1.0% 3.0% 0.0% 2.0% 0.0% 1.5% Good performance 4.0% 7.0% 3.5% 6.0% 2.5% 4.5% 1.0% 3.0% Excellent performance 7.0% 11.0% 5.0% 8.0% 3.5% 6.0% 2.5% 4.5% Half of employers globally expect to pay more for certain skill sets in the next 3 years, in comparison to an expected 46% of Financial Services employers Our managers execute our base pay program well 51% global 59% Financial Services 50

51 After base pay, career management continues to be a top driver of attraction, retention and sustainable engagement But effective career management remains elusive 44% of employees globally feel they need to leave to advance their career. This doesn t change for top performers (42%) or high potentials (45%) Most employers provide traditional career paths, on-thejob training and internal job boards Only a third of employers globally provide lateral or dual career paths, beyond-the-job training, employee self-service tools and integration within technology (e.g. HRIS) Financial Services Global All employees All employees Top performers High potential My company does a good job explaining how I can advance in my career My immediate supervisor/manager helps me with career planning and decisions My organization provides career planning tools and resources that are helpful to me (coaching, self-assessment, career paths, job rotation, competencies) I have to leave my organization and join another organization in order to advance to a job at a higher level 43% 42% 48% 59% 37% 38% 47% 54% 51% 44% 51% 60% 43% 44% 42% 45% 51

52 GLOBAL Employees with alternative and flexible work arrangements are more engaged and a lower retention risk Flexible work schedule Compressed work week Work from home Work from other remote location Hot desking/ hoteling None of these By Engagement Group Highly engaged 48% 46% 43% 49% 49% 29% Unsupported 15% 17% 19% 19% 17% 16% Detached 19% 19% 19% 17% 19% 23% Disengaged 18% 18% 19% 15% 16% 32% By Retention Risk Stayers 45% 38% 47% 47% 45% 39% Soft Stays 29% 30% 27% 28% 29% 35% At Risk 10% 17% 10% 10% 9% 5% Leavers 15% 15% 16% 15% 17% 21% 52

53 In summary, the new Total Rewards reality suggests 1 Transparency is a core principle 2 Career security is the new job security 3 Changing nature of work demands modern approach to pay for performance 4 Base pay needs an identity check, it s purpose may be lost 5 Recognize that the total in total rewards includes flexibility and a move away from one size fits all 53

54 Setting the Stage The Modernization Agenda Getting it right Effective Leaders are Critical to a Compelling EVP Addressing the Work Component of the EVP Employers need to focus on workplace stress and wellness Achieving Effective Performance Management Implications for Total Rewards Future of Work Effective management of work types, channels and options is part of the modernization agenda Conclusion Additional Information 54

55 The Reality: The employment relationship is changing The plurality of work options is here Traditional employees Outsourcing Other types of workers Alliances Talent platforms Volunteers Robotics Artificial Intelligence 55

56 Resulting in fundamental shifts in how work and organizations are organized Our organization is a place containing employees doing work. Our organization is a fixed set of functions that work together to create value. Supply chain Retail stores IT Manufacturing Marketing R&D Our organization organizes work and talent. Our organization is a malleable set of functions and deciding which ones get done inside the organization is a big part of strategy. Supply chain Retail stores IT Retail stores Manufacturing Marketing R&D R&D 56

57 The use of non-employee talent is increasing and having an impact on businesses 25% globally 24% globally 46% globally 54% globally Growth in share of non-employee talent expected over next three years Of all managers say they manage at least one contingent worker on their team Of all managers say they manage at least one contractor Of companies report changing their workforce activities enabling them to use more non-employee talent due to technology now or in in the next three years 28% 19% 43% 58% Financial Services Financial Services Financial Services Financial Services 57

58 GLOBAL Considering the future, employers feel it s more likely they will need to redesign jobs to be done by employees with lower or higher skills Which of the following areas of your workforce and work activities are changing today or will change in the next three years due to technology? Today but not in 3 years Today and in 3 years In 3 years Neither Paying more for employees with certain skill sets 29% 15% 35% 22% Increasing work flexibility (e.g., scheduled hours to get work done) Changing the way we design jobs so they can be done by employees with lower skills 30% 13% 31% 26% 14% 4% 29% 53% Enabling work to be deployed to other locations 27% 11% 27% 36% Changing the way we design jobs so they can only be done by employees with more skills 16% 4% 26% 54% Requiring/Enabling us to use more nonemployee talent* 18% 6% 23% 52% Improving collaboration and information sharing 45% 22% 18% 16% 58

59 Identify the tipping points While jobs filled by employees will continue to be the dominant means for getting work done, companies are experiencing challenges in two key areas High Value/Limited Supply: Premier Value Supply High Supply/Eroded Value: Democratized Highly skilled work with challenges attracting & retaining and market supply (e.g., software development talent) By deconstructing jobs companies can change the talent curve creating supply for select activities and tasks Technology is fragmenting traditional skilled work into tasks that can increasingly be performed by less skilled talent (e.g., accounting, manufacturing assembly) There are significant cost opportunities to be realized by thinking beyond employment 59

60 Setting the Stage The Modernization Agenda Getting it right Effective Leaders are Critical to a Compelling EVP Addressing the Work Component of the EVP Employers need to focus on workplace stress and wellness Achieving Effective Performance Management Implications for Total Rewards Future of Work Effective management of work types, channels and options is part of the modernization agenda Conclusion Additional Information 60

61 Modernization will create a more equal value exchange The employee-employer relationship in the new world of work Key Leverage Points for Employers to Improve Leadership Instill trust and confidence/build trust-based relationships; role model the EVP, develop the next generation of leaders Supervision Make room for managers to have the time needed to provide effective people management Transparency Heighten transparency Performance Management and Pay for Performance Re-define performance management and differentiate Flexibility Create flexible career paths, embrace flexible work arrangements Technology Enablement Leverage digital media to drive engagement 61

62 Setting the Stage The Modernization Agenda Getting it right Effective Leaders are Critical to a Compelling EVP Addressing the Work Component of the EVP Employers need to focus on workplace stress and wellness Achieving Effective Performance Management Implications for Total Rewards Future of Work Effective management of work types, channels and options is part of the modernization agenda Conclusion Additional Information 62

63 Thank you 63