What Matters Most: Managing Talent and Health Benefits for a More Effective Workforce - Towers Watson

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While organizations often struggle to find the right balance between rationalizing total rewards and maintaining employee engagement, there are needed-to-play programs and benefits that have a …

While organizations often struggle to find the right balance between rationalizing total rewards and maintaining employee engagement, there are needed-to-play programs and benefits that have a dramatic impact on attraction, retention and ongoing engagement -- and thus require special consideration and management regardless of economic climate. Towers Watson research and client experience show that organizations must look at both sides of the equation to keep employee productivity high.

Understand how organizations can combine fundamentals (e.g., base pay and health care benefits) with less tangible factors such as challenging work, career growth, work environments that encourage healthy behavior and clear communication to better align employee and employer perspectives and create a more productive, effective and engaged workforce.

For more information, please visit: towerswatson.com

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  • 1. Managing Talent and Health Benefits Client Ready For a More Effective WorkforceJohn BremenShelly WolffMarch 27, 2012© 2012 Towers Watson. All rights reserved.
  • 2. The presenting issue Companies often struggle to find the right balance between rationalizing total rewards and maintaining employee engagement  There are needed-to-play programs and benefits that have a dramatic impact on attraction, retention and ongoing engagement  These programs require special consideration and management regardless of economic climate Towers Watson research and client experience show that organizations must look at both sides of the equation to keep employee productivity high Today, we’ll examine  How organizations must combine fundamentals (e.g., base pay and health care benefits) with less tangible factors such as challenging work, career growth, work environments, and…  How they use these fundamentals to encourage healthy behavior and clear communication to better align employee and employer perspectives and create a more productive, effective and engaged workforcetowerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 2
  • 3. A New Era: ex-po-nen-tial (ek’spa nen’shal), adj. - rising or expanding at asteady and unusually rapid rateThe Pace and Intensity of Change is Relentless Political Economic Increased regulation, health care Slower economic growth, reform (U.S.), negative perceptions continued globalization, ferocious of key industries and executive pay competition, Euro crisis Social and Demographic Technological Younger population in developing Relentless technology innovation world-shifting consumer and labor disrupting commercial models and markets; employee motivation/ offering huge efficiency gains attitudes about worktowerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 3
  • 4. Why Total Rewards and why now?On the One Hand… Yet… Global economic turbulence pushed  Employers remain cautious about companies to reduce programs in the investing in their workforce, given volatile name of cost management…but many conditions and the unknown impact on are facing repercussions, raising labor markets concerns about how they will power  Health care reform in the United States growth adds the potential for a significant The complete “deal” has not been looked reshaping of the employee value at even though the marketplace is proposition and total rewards strategy for changing at amazing speed. Many many industry sectors companies are facing the dichotomy of  Strategic issues of competitiveness, having a “2011 workforce” with “2008 alignment and engagement are rising to programs the forefront Pressure to manage costs remains intense Many employers are now challenged to update the optimal mix of total reward programs to meet evolving business and employee needstowerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 4
  • 5. Health care is a catalyst for rethinking Total Rewards Continually mounting health care costs and the implication of health care reform are converging to ignite a new and different dialogue about health benefits within total rewards CFOs must rethink health care within unit labor costs in our global economy and are considering reducing costs/volatility or exiting health benefits HR leaders often see health care as crowding out other elements of total rewards and are increasingly receptive to more aggressive trend mitigation and workforce health improvement strategies Wellbeing is a theme often heard with senior HR leaders. The concept ties work-life balance, work environment, financial security, health-wealth attainment and support resources to help employees in achieving their goals With the advent of health reform, health care has become a total business issuetowerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 5
  • 6. Health care spending is crowding out other workforce investments Benefits as a Percentage of Direct Compensation 2000 2009 Percentage Change Cash 87.4% 84.1% - 3.7% Defined Benefit 3.4% 1.8% - 47.1% Defined Contribution 2.7% 3.5% +29.6% Retiree Medical 0.6% 0.2% - 66.6% Active Medical 5.9% 10.3% +74.6%Source: Towers Watson Client Data 2000 – 2009towerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 6
  • 7. For employees, this means a growing affordability gap — promptinganger about continuing benefit reductions Affordability Gap: Cumulative Active Employee Health Care Costs vs. Wage Increases 200% 188% 180% 160% 140% 120% Affordability 100% Gap 80% 60% 40% 20% 44% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Active employee health care costs Workers’ earningsSource: 2011 Towers Watson Health Care Trend Survey (active employee data) and Bureau of Labor Statistics, seasonally adjusted data from theCurrent Employment Statistics Survey August to August, 2000 – 2010, and 2011 assumed to be the same as 2010.towerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 7
  • 8. Health care benefits will continue to be core to EVPs in the next fewyears, with less certainty post-2014 Importance of Health Care Benefits in the EVP Over the Next Two Years Versus 2014 and Beyond (after the expected opening of the insurance exchanges) 1% 2012 and 2013 4% 14% 81% 1% 2014 and after 8% 21% 55% 16% 1 — Not at all important 2 3 — Somewhat important 4 5 — Very important Not sureSource: Towers Watson 2011 Talent Management and Rewards Survey.towerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 8
  • 9. All this leads to one inescapable question for employers right now… Is your employment deal sustainable going forward?towerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 9
  • 10. Total Rewards is a key component of a company’s Employee ValueProposition (EVP) and stems directly from business strategytowerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 10
  • 11. Total Rewards builds from strategic objectives and takes a portfolioapproach to deliver desired resultstowerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 11
  • 12. That portfolio is expressed in terms of the unique role of each rewardin the broader value propositiontowerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 12
  • 13. The need to engage employees around health and wealthis greater than ever Employees may not recognize the “squeeze” health benefits have put on retirement plans Employees are risk-averse and may not understand their retirement needs, or the value of the savings opportunities they have42 % 15 % 42 % $250Kof surveyed employees of employees, on average, of Fortune 100 employers …the amount an average couplesay they would be willing to who are eligible for offer traditional DB plans will need to save for health carepay more for more account-based health today vs. 74% 10 years ago expenses in retirement (evenpredictable health care plans are enrolled in those with Medicare benefitscosts, up 23 points from plans factored in)two years agoSources: Employee Perspectives on Health Care, November 2010; National Business Group on Health/Towers Watson Employer Surveyon Purchasing Value in Health Care, 2010; Fidelity Investments, 2010; Towers Watson research on Fortune 100 companies.towerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 13
  • 14. Drivers of Attraction – The importance of time and health Employers underestimate the importance of “fundamentals” to attracting employees — even top talent All Employees High-Potential Employees Rank Employers Employees Rank Employers Employees 1 Base pay Job security 1 Challenging work Job security 2 Organization’s mission, Base pay 2 Career development Base pay vision and values opportunities 3 Organization’s Health care 3 Organization’s mission, Career development reputation as a great benefits vision and values opportunities place to work 4 Career development Length of commute 4 Base pay Promotion opportunities opportunity 5 Challenging work Vacation/PTO 5 Organization’s financial Health care performance benefitsSource: Towers Watson 2011 Talent Management and Rewards Survey.towerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 14
  • 15. Drivers of Retention – The role of stress Work-related stress is the most commonly cited reason an employee would leave an organization – even for Top Performers All Employees Top Performing Employees Rank Employers Employees Rank Employers Employees 1 Base pay Work-related 1 Promotion opportunity Work-related stress stress 2 Promotion opportunity Base pay 2 Career development Promotion opportunities opportunity 3 Relationship w/ Promotion opportunity 3 Base pay Base pay supervisor 4 Career Trust/confidence in 4 Relationship w/ Trust/confidence in development management supervisor management opportunities 5 Work-related Incentive pay 5 Incentive pay Length of commute stress opportunity opportunitySource: Towers Watson 2011 Talent Management and Rewards Survey.towerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 15
  • 16. Changing conditions and working hours 65 % Of employers think employees have been working more hours than normal over the past three years 53 % Expect this to continue over the next three years This is especially true for senior managers and professionalsSource: Towers Watson 2011 Talent Management and Rewards Survey.towerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 16
  • 17. And the increase in work place stress is a health andperformance risk for employers United States Percentage- Sources of stress point 2009 2011 change Excessive workload and/or long hours 78% 87% 9% Lack of work/life balance 68% 79% 11% Inadequate staffing 51% 68% 17% Technologies that expand availability during 59% 63% 4% nonworking hours Unclear or conflicting job expectations 46% 60% 14% Fears about job loss 67% 56% -11% Fears about benefit reduction/loss (e.g., lower value or 48% 47% -1% loss of health care coverage, pension freeze) Low pay (or low increases in pay) — 44% — Lack of supervisor support 34% 43% 9% Lack of technology, equipment and tools to do the job 25% 34% 9%towerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 17Source: 2011/2012 Towers Watson/NBGH Staying@Work
  • 18. High Effective Companies create a culture for human performance and worker effectiveness  Simplifying the employee experience and measuring effectiveness  Focus on absence, productivity and engagement drivers  Link to a culture of health that focuses on worksite support and external resources  Six pillars of an effective H&P framework Designing an Effective Health and Productivity Framework Health Programs PREVENT RETURN SUPPORT  Health safety  Absence management  Incentive design  Social/psychological  Disability management  Quality of care  Health promotion  Disease management  Physical environment  Presenteeism management  Financial management Vendor management  Effective H&P Workforce Effectiveness Programs REWARD LEAD COMMUNICATE  Design  Alignment  Organizational messages  Delivery  Health and  Personalized health  Accountability productivity support  Social media and tools  Change management and performance towerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 18Source: 2011/2012 Towers Watson/NBGH Staying@Work
  • 19. Workplace drivers create concrete outcomes that deliverimproved human capital and business results [Engagement]towerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 19
  • 20. Numbers that matter - the financial advantage Companies with the most effective H&P programs have: 1.3 >$1,000 2.0 39% 18% percentage lower fewer days higher difference points medical (per revenue per in market lower costs per employee employee premium medical employee per year) in trends total absence Additional results: Lower turnover, fewer lost days for disability and improvement in targeted lifestyle risksSource:  2011/2012 Towers Watson/NBGH Staying@Worktowerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 20
  • 21. And higher employee *exponential engagement is relatedto higher employee health outcomes Engagement Ratio of Health Outcomes High to Low 2X Presenteeism 2X Better Health 1.5X Exercise Lower stress, anxiety, chronic health 2 conditions 1.7X Have taken action to improve healthSource: 2010 Towers Watson Employee Benefits and Work Attitudes Survey*Exponential Engagement = Enablement (Results from local work environments that support productivity) + Energy(Results from physical, interpersonal and emotional well-being Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com © 2012 Towers at work) 21
  • 22. Total Rewards strategy is business driven and fact basedto facilitate the path forward Process and Program Diagnostics Workforce Perspective External Benchmarking Provides insight regarding current workforce programs and processes Provides insight regarding Provides insight regarding trends workforce engagement, and industry process and program demographics and performance practices Business Plan/ Performance Leadership Perspective Provides insight regarding current PIVOTAL INSIGHTS Provides insight regarding future Issues business plans, priorities and vision, business strategy, corporate performance Opportunities culture and presenting issues Directions for Change STRATEGY Philosophy ● Guiding Principles ● Objectives GAP ANALYSIS People ● Process ● Programs CHANGE PLAN Interventions ● Timing ● Measurement/ROItowerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 22
  • 23. External influences on Total Rewards:compensation and benefits trends Total Rewards Compensation  General paring back of Total Rewards levels provided by  The real value of base pay has been flat for the past five employers years  Looking beyond compensation to attract and retain top  Aggregate bonus funding levels in most regions of the talent, relying instead on other aspects of their EVPs world are approximately unchanged from previous year  Increased focus on optimizing reward spend and  Significant disparities in rewards provided to high segmenting the workforce to improve return on performers versus average employees investment in Total Rewards  Increasing attention to external competitiveness, given increasing difficulty attracting and retaining critical talent and pay actions/freezes of recession Benefits  Movement from traditional DB to account-based DC plans  Paternalistic attitude of employers — which predominated in earlier eras — has now disappeared in many sectors  Governments looking for new sources of revenue have been targeting the favorable tax treatment that benefit plans have traditionally enjoyed  Controlling costs of employee health programs and addressing emerging health risks and incentives to improve employee wellness are top priorities  Comprehensive Health Care Reform legislation passed in the U.S. creates opportunity and uncertainty in how employers will deliver health care coverage in the futureSource: 2010 Towers Watson Talent Management and Rewards Survey Report and 2010 Towers Watson Workforce Health Strategies —A Multinational Perspective.towerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 23
  • 24. A holistic total rewards strategy drives employee behaviors provento ultimately influence business outcomes Linkage Model Total Rewards Employee Customer Financial Components Behavior Behavior Performance Performance-  Engagement  Customer satisfaction  Labor costFoundational Based  Retention  Customer attraction  Operating costsRewards Rewards  Productivity  Customer retention  Operating margin  Customer Service  Controllable margin  Revenue growth Career and Environmental  ROIC Rewards  TSRLinkage Methodology Demonstrates how employee behaviors affect customer behaviors and company financial performance Identifies the specific employee programs and policies that drive desired employee behaviors, customer behaviors and financial performance Allows employers to assess reward effectiveness and make better investment decisionstowerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 24
  • 25. With knowledge of employee preferences, employers can test allocation andinvestment level mixes to identify the optimal portfolio… Optimum Level of What matters to Investment + = employees — Portfolio Optimum Allocation of Conjoint Optimization Investment Analysis Segment-Specific Strategy Survey tool to capture  Reflects cost constraints Optimum solution may be to: subjective preferences on investment  Improve desired Asks employees to make  Develops an efficient behavior/result (e.g., trade-offs among program frontier of optimum retention) by changing features as opposed to allocation of investments allocation and keeping current assessing the features  Determines optimum level of investment individually investment level on the  Maintain current Is a more reliable forecast basis of program costs behavior/result at lower level of behavior than traditional and turnover cost of investment by changing survey methods savings allocation  Increase investment and desired behavior/result to economically efficient leveltowerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 25
  • 26. …and allocate investment to more effectively support strategic business and workforce objectives Increase in Indicated Retention ILLUSTRATIVE from Current Level (Percentage) 3) Increase investment Three Points on the Curve and increase retention Each point along the curve represents the best allocation of the corresponding total investment 40% 1) To reduce total cost, the curve identifies which programs should be reduced to reallocate investments in other areas and 30% maintain current levels of retention 2) Maintain current level1) Maintain current of investment while 2) To maintain current level of retention 20% increasing retention investment levels, the curve at lower investment identifies how to reallocate investment across programs to increase retention without Current levels of raising cost 10% retention and reward investment 3) To increase retention dramatically and make the most of each reward dollar, the curve indicates the best ways to –$20mm –$10mm 0 $10mm $20mm $30mm invest additional rewards funds Decrease in investment Increase in investment from current level from current level towerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 26
  • 27. Top 5 takeaways for employers1. Align with employee value proposition and total rewards strategy2. Engage leaders and employees regularly and act on feedback3. Measure results in context of business outcomes4. Connect the dots between physical, emotional and financial health5. Understand level and sources of workforce stressOrganizations that are looking to improve employee productivity and the return on their investments in health care should leverage the link between organizational and employee health and the link to engagementSource: 2011/2012 Towers Watson/NBGH Staying@Worktowerswatson.com © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 27