the role of reward in retaining key talent

The Role of Reward in Retaining Key Talent

WorldatWork Conference (May, 2012)

http://globalgateway/supportingyou/globalmarketing/Brand Images/iStock_000008989982Large.jpg

2© 2012 Hay Group. All rights reserved

Presenters

Dow Scott, Ph.D.

Loyola University Chicago

[email protected]

312.915.6597

Tom McMullen

Hay Group (Chicago)

[email protected]

312.228.1848


Agenda

Why this topic?

Research initiative

Findings and discussion

Recommendations


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


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


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


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)


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


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


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?


Research scope

Perspective of reward professionals

Organizations from diverse industries and sizes

Focus on managerial and professional population

Primarily respondents represent N. A. organizations


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


Representative survey participants

http://www.deere.com/

/

/

http://www.cargill.com/

/Eaton/index.htm

http://www.farmers.com/

http://www.dell.ca/


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


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


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



I expect turnover among key talent to increase

substantially as the economy improves?


2. Disagree


4. Agree

5. Strongly Agree


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



My organization has a clear definition of key talent?


2. Disagree


4. Agree

5. Strongly Agree



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



We have identified key talent in our company?


2. Disagree


4. Agree

5. Strongly Agree


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



Why does key talent quit?


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


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


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%


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%


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)



At the end of the day, what are the most

effective key talent retention processes and

programs in your organization?

Recommendations


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


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


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)


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


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


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


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


Presenters

Dow Scott, Ph.D.

Loyola University Chicago

[email protected]

312.915.6597

Tom McMullen

Hay Group (Chicago)

[email protected]

312.228.1848

the role of reward in retaining key talent

Business