we’re not getting any younger: managing the risk of an aging workforce strima conference 2009...
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We’re Not Getting Any Younger: Managing the Risk of an Aging Workforce
We’re Not Getting Any Younger: Managing the Risk of an Aging Workforce
STRIMA Conference 2009
Seattle, Washington
September 23, 2009
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The workforce is getting older…
Year Milestone
Now Every 7 seconds a Baby Boomer turns 60
2010 Over 40% of the workers in the United States will be eligible to retire
2010 The projected shortfall of workers in the United States could top 10 million
2015 Over 20% of the all workers will be age 55 or older
2030 All Baby Boomers* in the United States will be eligible for retirement – All 78.2 million of them!
2030 The projected shortfall of workers in the United States could top 35 million
* Individuals born between 1946 and 1964
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The workforce is getting older…
In the next 15 years, 80 % of workforce growth will come from employees over age 50
It’s not just the number of available workers, 80% of the shortfall in labor will involve a “skills shortage”
Key Industry’s to feel the impact:
– Government and Utilities
– Healthcare
– Engineering
– Education
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…But, will they really be able (or want) to retire
State Pension Plans under considerable strain…
Public Pension promises are now $3 trillion under funded
IRAs, TSAs, 403(b) asset values down 25% to 40%+
Home equity has been reduced or erased
Average Credit Card Debt:
– $4,013 Per Adult
– $7,861 Per Household
Over 50% of workers between 45 and 55 years of age have total savings of less than $25,000
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…But, will they really be able (or want) to retire
Americans in their 60s and early 70s represent the last generation fortunate enough to have access to:
– Corporate Pension Plans
– Social Security
American workers between 55 and 70 years stay in the workforce for two primary reasons:
– Financial Necessity (Income and/or Health Insurance)
– Want to remain active and/or try something new
Metlife Survey
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…But, will they really be able (or want) to retire
The old retirement pattern is gone (Work/Retire)
Boomers are looking for - Bridge Jobs
– Move to part-time with current employer
– Move to transitional arrangement with new employer
– Start own companies
– Become entrepreneurs
– Pursue volunteer or not-for-profit organizations
Wharton University
“The Baby Boom Generation has been so large (78.1 million) that everything it does influences popular culture….the boomers will change the definition of retirement.”- Olivia Mitchell, Wharton’s Pension Research Council
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Why You May NOT Want Them To Retire Yet
Health care costs don’t necessarily have to be more expensive
– Age is less important than the incidence of health risks
Replacement cost and talent drain is very costly
Departure could create “knowledge gap”
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Our Discussion Today
If you want to keep your aging employees with your organization you will need to:
Develop a Human Capital Risk Strategy
Keep them healthy & financially sound
Modify their work contract
Modify their work environment
Communicate with them differently
Wharton University
Human Capital Risk: Assessment and Mitigation
Human Capital Risk: Assessment and Mitigation
STRIMA Conference 2009
Seattle, Washington
September 23, 2009
10
Human Capital is a Strategic Risk
Brand / ReputationPartnerships
Attracting & Retaining TalentCorporate Social Responsibility
Social / Demographic ChangePublic HealthCompetitors
Mergers and AcquisitionsTrends/Fashion
Research/Development
ManufacturingSupply ChainProduct RecallWeatherEnergyWater AvailabilityShipping / TransportIndustrial ActionProduction CapacityExplosion / DisasterPandemic
Confusion Over Regulatory ProtectionsCopyright InfringementRegulatory ChangeLegal ComplianceCorruptionLicensingNon-Admitted InsuranceIntellectual Property
Debt ManagementForeign Exchange
CreditContractual
LiabilitiesLawsuits
Product RecallTaxation
Market Volatility
Operational
Regulatory
Strategic
Financial
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Human Capital Is a Strategic Risk Issue“People risk is now seen as one of the top 10 threats to an organization’s earnings. . . However, integrating risk management and human capital management is a major challenge for most organizations.”
PwC Saratoga 2008
“..human capital risks have emerged as one of the most challenging [risks] companies now face, yet few [respondents] think they are managing these risk effectively.”
John Bassetto, President and CEO ACE Asia Pacific
“ When people management issues are seriously addressed in a risk management context, they come high on the agenda…HR issues are fundamental to the long-term health of an organization.”
Chartered Institute of Personnel and Development, UK
“ Managers may forgo investment [in human capital because it] is intangible while the costs are immediately observable, the benefits may not become observable for many years….. Intangibles in general are not incorporated into the stock market.”
Alex Edmans, Wharton
12
Where Is Your Top Talent?
Onboarding
Recruitment
Retirement
Early Career
Mid Career
Late Career
EmploymentLifecycle
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Talent Risk Is Among Top Employer Concerns
10% 20% 30% 40% 50% 60% 70% 80%
Damage to reputation
Business interruption
Third party liability
Distribution or supply chain failure
Market environment
Regulatory/legislative changes
Failure to attract or retain staff
Market risk (financial)
Physical damage
Merger/acquisition/restructuring
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2
3
4
5
6
7
8
9
10
10 Failure of disaster recovery plan
Source: Aon Global Risk Management Survey 2007
Global ranking of top ten key risks
Percentage with written plan in place or have undertaken a formal review
65%
35%
63%
75%
70%
48%
69%
77%
56%
55%
41%
14
Employers Tend to Under Invest in Human Capital
Risk
% rating the threat risk poses to their organization’s global business operations as very high or high
Market risk
Regulatory risk
Reputational risk
Human capital risk
Source: Global survey of executives by the Economist Intelligence Unit, 2007
IT risk
Credit risk
Natural hazard risk (eg climate change, hurricanes19%
34%
37%
41%
51%
53%
60%34%
59%
53%
% rating their organization’s management of the risk as very effective or effective
24%
64%
52%
58%
15
Leadership Risk: A Key Challenge
Source: 2008 Aon Consulting's Benefit and Talents Survey.
Compliance with policies/procedures/ laws/ethics
Ability to meet talent/skills needs at
senior leadership level
Talent recruitment & selection process
Ability to meet talent/skills needs at management level
Employer branding
Employee engagement
49.6%
20%
30%
40%
50%
60% 54.9%
10%
49%
45.5%
36.2%
32.5%
% r
atin
g is
sue
extr
emel
y im
po
rtan
t
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Employers Face Four Key Challenges in Managing their Human Capital Risks
Identify and compare the impact that key human capital risks have on our organization?
Measure our human capital risk exposure and determine priorities for investing in human capital?
Understand the impact our human capital risks have on our financial and strategic performance?
How Can We?
Increase knowledge and understanding of human capital risks across the business?
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Actions Critical for the Success of Human Capital Risk Management
Gain leadership commitment
Achieve buy-in from across the organization
Gather data to measure human capital risks
Embed human capital risk process across the organization
Commit to risk mitigation
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3
4
5
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Key Stakeholder Risk Questions
• What is the organization’s risk appetite?
• Is there a senior level or Board committee on risk and do they focus on HC risk?
• Do managers understand their HC risk management roles?
• Where is responsibility for overall HC risk management located in the organization?
• How does management incorporate HC risk into its strategy development?
• Is the organization taking an appropriate amount of risk?
Risk governance
• What activities are in place to manage the organization’s key HC risks?
• Does the organization have the capabilities to execute this risk response strategy?
• What key metrics does the organization use to monitor current risk exposure levels?
• Who is responsible for monitoring the completion of action plans?
• Did the mitigation activity yield the appropriate level of benefit for the cost?
Risk Improvement
• What are the organization’s top Human Capital (HC) risks?
• What is the potential impact of the organization’s top HC risks?
• Which lines of business bring the most HC risk to the organization’s overall profile?
• Has the organization quantified any of its key HC risks? If so, which?
• How is HC risk information communicated to leadership and other key parties?
• How is the organization’s risk HC profile changing?
Risk Awareness
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Life cycle Risks
Leadership shortageAging workforceComplianceInadequate attritionKnowledge transfer
Leadership shortageLeadership skills and capabilities
Talent shortage (current & future)Talent development ProductivityEmployee engagementManagement capability
ComplianceWorkplace practices Labour relations RewardsSafety, health, and absenceOutsourcing
Inability to attract talentPoor talent selectionTalent retention
Talent and skills shortageWorkforce planning
Talent acquisition
Employment practices
Talent management
Leadership
Exiting
Human capital risk identification
Qualitative risk analysis
Quantitative risk analysis
Identify and Measure…
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Mitigate…Leadership Risk
Organizations with top-tier leadership teams outperform by 18.8%. Source: Corporate Leadership Council 2003 Succession Management Survey
Differences in the quality of executive leadership explains as much as 45% of an organization's performance. Source: Day and Lord, (1986) Executive leadership and organizational performance, Journal of Management, 14, 453-464
Aon’s experience:
– $1 invested in leadership development yields a minimum return of $10 in leadership talent retention alone
– Better onboarding reduces risk of new executive retention from 50% to 40%, yielding a savings in replacement costs alone from $300,000-$1million per new executive hired
– Replacing average leaders with top-performing leaders increases unit performance by 18%.
– Coaching and development focused on targeted leadership competencies improves leader performance by 12%.
Governance and mitigation
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Over 130 individuals assessed; per assessment costs reduced by 75%
40% of participants identified as immediately ready for advancement
30% were subsequently promoted
22% moved into developmental assignments
Recruitment from Top 10 B-Schools increased 30%
Retention of high-potentials at close to 90%
Performance of participants in development program increased 18%
Impact & Value
Disciplined identification of mission-critical leadership positions: 42 priority positions identified
Implemented Talent Conversation training for top 2 tiers
Tailored assessment program
(LEADeR™) delivered over web/phone Executive coaching
Development Resource Advisor™ (DRA) for creating development plans, tailored to the client
Approach
No clear successors identified for 60% of critical positions
Absence of coherent leadership talent management strategy made recruitment and retention of top talent difficult
Analyst calls increasingly challenged leadership on lack of strong bench-strength
Recent acquisition not going well due to absence of careful integration of leadership teams
Situation
1Financial Services company with 65,000 employees
Mitigating leadership risks
Risk Mitigation: Case Study
Keeping your aging employees healthy Keeping your aging employees healthy
STRIMA Conference 2009
Seattle, Washington
September 23, 2009
23
Critical Issues related to Health Management and an Aging Workforce
Reduce healthcare cost trend?
Maximize the impact of health management programs we offer?
How Can We?
Help employees actively manage their personal health?
Increase worker productivity through health management programs?
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<35 35-44 45-54 55-64 65+
Source: Dee Edington, PhD, University of Michigan (risk factors include tobacco usage, sedentary lifestyle, Extremely high/low body weight, high blood pressure, high blood glucose, depression)
Costs Increase With Risk Level and Age
Age and Health Risks Have Significant Impact on Medical Costs…
$Dollars
5+ Risks
3-4 Risks
0-2 Risks
Age
1,247 1,515 1,9203,366
4,319
7,268
5,445
3,6012,741
2,025
3,432
6,664
10,095
9,221
4,130
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...with Chronic Disease Being One of the Components
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
Allergies Arthritis Asthma Back/Neck pain
BreathingDisorders
Depression Diabetes Heart andCirculatory
Migraine Stomach
Work Impairment
Medical
Absence
Source: “The Assessment of Chronic Health Conditions on Work Performance, Absence, and Total Economic Impact for Employers,” JOEM, June 2005, pp. 547-557
6,500
8,750
9,750
7,000
11,350
19,000
9,500 9,7509,250
10,500
Average Expenditures
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The Full Cost of Employee Health6
6%
Workers’ Comp
Medical Costs
Productivity Costs
Absenteeism due to Illness and Injury
Presenteeism
Turnover Replacement Training
Temporary Staffing
Salary Continuation
Training Costs
Administrative Costs
Variable Product Quality
Employee Dissatisfaction
Customer Dissatisfaction
Overtime
Off-Site Travel for Care
STDLTD
Personal Health Costs
Medical CareHospitalizationPharmacyDiagnostic TestingBehavioral Health
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%
Source: Loeppke, et.al., JOEM, 2003; 45:349-359 and Brady, et.al., JOEM, 1997; 39:224-231
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Health Management Addresses Different Program Needs For Everyone
Risk Factors Alcohol/tobacco usage Physical inactivity Poor nutrition Health history Unmanaged stress Inadequate self care
Acute Care Broken leg Kidney stones Pneumonia
Complex Cases Transplants Cancer Trauma cases
Disease Management Diabetes, asthma CAD, CHF, COPD Depression
Staying Healthy(70% population)
Getting Better(14% population)
Living with Illness(16% population)
Wellness Care ManagementCase/Disease Management
15% costs 60% costs25% costs
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Aon’s Perspectives on Health Management
Secureorganizational support and commitment
Address entire population in program design
Maximize engagement and measure outcomes
Create branding for personalized communication campaigns
We believe the following actions are critical to the success of Health Management
Use claims, demographics and health risk data in program design Apply predictive modeling results in the stratification process Develop focused interventions and personalized messaging Balance resource allocation between modifiable risks and chronic conditions
Educate key stakeholders on bottom line impact of employee health Obtain leadership commitment to visibly promote health and well-being Identify resource commitment and allocation for program management Establish roles and responsibilities, including performance based metrics
Incorporate population-appropriate incentives to increase participation Compare and contrast Health Plan and specialty market capabilities when
selecting a vendor partner; demand vendor integration to maximize outcomes Establish realistic expectations for evaluating program results (e.g. ROI) Develop metrics to measure program success
Adopt e3 approach: Educate, Engage, Empower Conduct surveys/focus groups to assess readiness and identify employee
needs and interests Create branding Incorporate change management methodology
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There Exists a Wide Variance In Health Management Programs
Health Management “Lite” “Best-in-Class” Programs
Generic programmingProgramming based on data assessment and employee needs
Education only; primarily mailingsFocused interventions w/active outreach based on predictive modeling and risk stratification
Incentives limited to prizes, drawingsMeaningful incentives for program completion and/or desired outcomes
Off the shelf communicationFrequent, ongoing communication that requires employee action
< 20% Program Participation > 50% Program Participation
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Value of program is Measured Along Several Dimensions
IMPACT AREA IMPROVEMENT POTENTIAL
Healthcare utilization (targeted conditions)
For members with chronic conditions:• Reduce hospital admissions by 10-
15%• Reduce emergency room visits by 15-
25%• Improve compliance with evidence
based medicine by 10%*
$25 million over 5 years for every 5,000 employees
Lifestyle riskImprovement in risk ratings for 30% of participants over 3 to 5 years
Productivity Reduce absence days by 20% or more
Employee satisfactionIncrease participant engagement to 70% or more through effective incentive and communication strategies
Note: * Results can vary based on disease condition, disease prevalence in the population, and Disease Management program model
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Health Management Strategy Reversed Cost Increases and Improved Employee Health
• A South Carolina utility client• 5,000 employees and 2,000 retirees• Client Situation
• 200% growth in medical claims expenses over a three-year period
• Short-term disability costs double benchmark levels
• Aon was engaged to help identify root causes of the problem and to craft a strategy and supporting tactics to reverse the trend
• Aon’s analysis identified:• Significant chronic disease-
based cost pressure (60% of total cost)
• Financial concern related to the FAS 106 cost of retiree medical
• Self-administered and self-insured disability programs with no clinical oversight and limited discipline
• Aon created a three-year plan to control costs, including:
• 3rd party claim management function
• Evaluation of disability plan design and cost/financing alternatives
• Disease management evaluation • On-site pharmacy & wellness
center• Health coaching model• Decision support website• Medicare Part D strategy
• Negative 3% trend in the medical plan costs from 2005 to 2006, translating to $1.5 million in savings
• Factors contributing to overall impact:
• Health risk assessment incentives program has a 94% participation
• 80% participation in health coach follow-ups for those with lifestyle risks
• Short-term disability durations have been reduced by 22%
• On-site pharmacy and wellness center has been a major success with employees and their families
Aon Consulting Delivers Distinctive Client Impact & Value
Aon Consulting ApproachClient Situation
Keeping your aging employees financially sound
Keeping your aging employees financially sound
STRIMA Conference 2009
Seattle, Washington
September 23, 2009
33
Aon Consulting’s Replacement Ratio Study Many Plan Sponsors report that they have little
understanding of their employees’ needed income replacement at retirement*
Aon’s 2008 Replacement Ratio Study shows that the needed replacement ratios range from:– 94% of earnings for workers earning $20,000
– 77% of earnings for workers earning $80,000
Trends away from Defined Benefit Pension Plans and Retiree Health Plans place a higher responsibility on individuals to actively plan for retirement – Is this a recruitment edge for Public Sector Employers?
(Who often offer Pension and Retiree Health Care Coverage)
* Aon Consulting’s 2009 Benefit and Talent Survey
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Defined Contribution Plans – Call to Action*
Plan Sponsors must take a broad view of their Fiduciary Responsibilities by:
– Implementing plan design options the support participation, such as Automatic Enrollment and Auto Escalators
– Selecting an investment lineup that matches the diverse needs of employees
– Managing investment and administrative expenses
– Assisting employees in making prudent decisions about participation, savings and investments
– Controlling their fiduciary risk
– Producing flexible and targeted communications that appeal to multiple audiences and reflect economic changes and market forces
* Aon Consulting’s 2009 Benefit and Talent Survey
Modifying the work contract to attract aging workers
Modifying the work contract to attract aging workers
STRIMA Conference 2009
Seattle, Washington
September 23, 2009
36
What are older employees are looking for from their current (or future) employers?
Older workers will look to facilitate a new career cycle
Careers will no longer be a linear path of;
– Go to school
– Get a job
– Retire
Many retirees will choose to elect a Cyclical Career/Life that repeatedly intersperses - Education, Career and Leisure
The Eldercare Generation, Wharton University
Agewave.com
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What are older employees are looking for from their current (or future) employers?
The Boomers have always gotten what they have wanted and they will drive employers to provide:
The Eldercare Generation, Wharton University
Agewave.com
Flexibility in work hours and work environment
Investments in retraining and continuing education (Higher Ed)
Support with eldercare (time off, community support, etc.)
Coaching on financial planning
Extended leaves with continuation of benefits
Options for Phased Retirements (when they are ready)
38
What are employers doing to recruit and retain their aging workforce?
SC Johnson
The Eldercare Generation, Wharton University
On-site medical center and wellness
Fitness and recreation programs
On-site education program that provides lifelong learning and college credits
Paid sabbaticals to experienced employees
Comprehensive financial benefits
Retirement planning tools
Mercy Health System “Float" options (ability to work at different facilities or departments)
“Seasonal work" allows employees to go on leave for lengthy periods while maintaining their eligibility for benefits.
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What are employers doing to recruit and retain their aging workforce?
Michelin North America
The Eldercare Generation, Wharton University
Flexible work schedules
Temporary assignments for workers
Access to job rotations
Part-time work policy for retirees
Working caregiver leave program - employee the option to work a part-time schedule for up to 12 weeks a year while maintaining job security and full benefits.
The Principal Financial Group
Modifying the work environment for aging workers
Modifying the work environment for aging workers
STRIMA Conference 2009
Seattle, Washington
September 23, 2009
41
Prevention Tips for Older Workers
University of Cincinnati
Sensory System Performance Change with Age
Vision Visual Acuity, Depth Perception, Contrast Perception, Peripheral Awareness, Glare Recovery performance can begin deteriorating after age 40 and increases after age 50
Hearing After age 50, reduced detection of high frequencies, distinguishing between similar sounds and ability to localize sounds in space through hearing
Touch Sensitivity gradually diminishes. Pronounced sensitivity to vibration in legs effects equilibrium in moving vehicles
Proprio-ception
A person’s ability to know their body’s position in space and adjust posture diminishes after age 70 impairing their ability to maintain balance in response to unexpected movements
Vestibular The vestibular system shows noticeable effects after age 65 (Balance and visual perception when head is moving)
42
BMW Case Study
Harvard Business Review
Power-train Plant in Southern Bavaria
Average age expected to rise from 37 to 47 years of age by year 2017
Plant has committed to guaranteed employment
Largest employer in Region
Politically unfeasible to close plant
Plant’s long-term strategy called for ambitious productivity growth and improvements
43
BMW Case Study
Harvard Business Review
“Project 2017 Production Line”
Staffed production line with their workers of the future
38 person production line for Rear Axle Boxes (560 per day)
Staffed line with older workers who were skeptical/afraid of operating the line at normal production pace (no prior experience)
No one “Volunteered” for the “Weird Experiment”
Results
Productivity improved by 7% after three months
Zero Absenteeism and Zero Defects
Small modifications and ergonomics were the only needed changes
Adjustable seating & workbenches
Wooden flooring for cushioning and insulation
Communicating with your aging workers(and the rest of your workforce)
Communicating with your aging workers(and the rest of your workforce)
STRIMA Conference 2009
Seattle, Washington
September 23, 2009
45
Veterans
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Baby Boomers
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Generation Y
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How The Generations Compare
VeteransBaby
Boomers Generation X Generation Y
Work Perspective
Work First! Live to Work!
Work to Live! Live, then Work!
Interactive Style
Individual Team player Entrepreneur Participative
Rewards Satisfaction is a job well
done
Money, title recognition
Freedom is the best reward
Meaningful work
Motivators Experience is respected
Employees are valued
and needed
Forget the rules, do it your way
Work with other creative
people
50
Education Preferences
VeteransBaby
Boomers Generation X Generation Y
Style Formal Semiformal Not so serious, irreverent
Informal, eye-catching, fun
Content Detail, prose-style
Chunk it down, but give me everything
Get to the point – what do I
need to know?
If and when I need it, I’ll find
it online
Context Relevant to my security
Relevant to the bottom line/my
rewards
Relevant to what matters to
me
Relevant to now, today, and
my role
Attitude Accepting and trusting of authority
Accept the rules created by Veterans
Openly question authority
Okay with authority that earns respect
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Channels And Mediums
Print (handbooks, brochures, flyers, memos)
– Veterans and Baby Boomers
– Generation X and Generation Y
Face to Face (town halls, departmental meetings, one-on-one discussions)
– Veterans and Baby Boomers
– Generation X
– Generation Y
52
Channels And Mediums (cont.)
Online (intranet, email, modeling tools)
– Veterans
– Baby Boomers
– Generation X
– Generation Y
Social Media (blogs, podcasts)
– Veterans and Baby Boomers
– Generation X
– Generation Y
53
Key Messages
Veterans
1922 - 1945
Baby Boomers
1946 - 1964
Generation X
1965 - 1980
Generation Y
1981 - 2000
•Provide you with security
•Protect your future
•Reward you for your loyalty
•Are a valuable part of your compensation
•Reward you for your hard work
• Provide you with flexibility
• Provide security for your family
• Provide you with coverage for today
• Are competitive
Your Benefits
54
Recap of today’s discussion
If you want to keep your aging employees with your organization you will need to:
Develop a Human Capital Risk Strategy
Keep them healthy & financially sound
Modify their work contract
Modify their work environment
Communicate with them differently
Wharton University
55
Workforce Crisis: How to beat the coming shortage of skills and talent. (2006. Dychtwald, Erickson and Morrison)
The Older Worker Advantage: Making the most of our aging workforce. (2005. Shea and Haasen)
The 2010 Meltdown: Solving the impending job crisis. (2005. Gordon)
The Aging Workforce: Realities, myths and implications for organizations. (2005. Hedge, Borman, Lammlein)
Lost Knowledge: Confronting the threat of an aging workforce. (2004. DeLong)
The New Workforce: Five sweeping trends that will shape your company’s future.
Books on the Aging Workforce
About Aon Consulting
Among top three human capital consulting firmsAmong top three human capital consulting firms
6,300 employees worldwide
Operates in 98 countries
2007 revenue: $1.36 billion
Serve half of the Fortune 500
Serving more than 10,000 clients worldwide
Reshaping the workplace of the futureReshaping the workplace of the future
