Key Trends in Human Capital Management

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"Ongoing economic turbulence has served to magnify the contrasts between economies and employment markets around the world.

Western Europe – and, for the first time, parts of Central and Eastern Europe – have felt the impact of the global financial crisis and have seen revenue per employee fall. Asia, by contrast, has continued to grow.

When existing demographic trends are added to the mix, it’s clear that multinational organisations are facing sharply contrasting human capital challenges from region to region."

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Key Trends in Human Capital Management

  1. 1. www.pwc.com/hrs Key trends in human capital 2012 A global perspectiveA look at the key workforcetrends from aroundthe world using datafrom PwC’s Saratogabenchmarking database.
  2. 2. About PwC Saratoga PwC Saratoga is the recognised leader in the measurement and benchmarking of human capital in organisations, HR and finance function performance and transformation. Our specialists help clients to develop predictive analytics capability by identifying connections between HR, people, functional and organisational performance, using a range of quantitative and qualitative tools. This is supported by a global repository of metrics and qualitative best practice information from more than 2,400 organisations.2 Key trends in human capital 2012. A global perspective
  3. 3. ContentsIntroduction 4Global trends in human capital 6A multi-speed global economy 8Productivity gaps widen 12A rocky road for rookies 16Survivors disengaged 20HR rising to the analytics challenge 25Priorities for business 32In conclusion 34Behind the numbers 36Contacts 37Related PwC publications 38 Key trends in human capital 2012. A global perspective 3
  4. 4. Introduction Welcome to the latest in PwC’s detailed studies of Global Trends in Human Capital. In this fifth edition we look more closely at how organisations and the global workforce have been changed by the financial crisis and economic downturn.4 Key trends in human capital 2012. A global perspective
  5. 5. ‘Knowledge and insight – in the form of human capital data – is power.’Our 2010 Global Trends paper was written In such an environment, knowledge and Talent strategyat a time of considerable upheaval, with insight – in the form of human capital data 78%many organisations cutting back sharply – is power. Human capital measurementon costs and headcount as the recession and analytics has progressed far in recent 78% of CEOs plan to make changes to talenttook hold. Two years on, business leaders years, evolving from the collection and strategy in response to the global businessare more confident about the prospects redistribution of basic workforce data environmentfor growth, in spite of continued economic through HR systems to a more thoughtful 31%turmoil. While competition is intense, and targeted approach that mirrors moremany organisations are emerging leaner general business data analytics. This 31% said that talent constraints hadand more focused. The mantra is to means joining up data from sources within already hampered innovation at theirmaximise return on investment (ROI) and outside HR, analysing trends and an organisationin every area of the business, especially increasing focus on predictive analytics. 30%human capital. Only 30% of CEOs said they were confidentIt’s all about talent management that they would have the talent they neededIn this quest for growth, talent to grow their organisation in the near futuremanagement remains a primary focusarea for business leaders. According toour 15th Annual Global CEO Survey, 78%of CEOs plan to make changes to talentstrategy in response to the global businessenvironment. There is a clear need forprofessional skills and effective leadershipto operate in challenging markets, whileemerging markets require the talent todeliver continued growth. But only 30%of CEOs said they were confident that theywould have the talent they needed to growtheir organisation in the near future, and31% said that talent constraints had alreadyhampered innovation at their organisation. Key trends in human capital 2012. A global perspective 5
  6. 6. The global financial crisis has reinforcedGlobal trends in the contrast between economies and employment markets around the world.human capital Western Europe – and, for the first time, parts of Central and Eastern Europe – have felt the impact of the global financial crisis and have seen revenue per employee fall. Asia, by contrast, has continued to grow. When existing demographic trends are added to the mix, it’s clear that multinational organisations are facing sharply contrasting human capital challenges from region to region. Four key trends have emerged:6
  7. 7. 1. 2. 3. 4. Productivity gaps widen A rocky road for rookies Survivors disengaged Best practice in human Productivity dropped sharply in One of the major consequences The most significant – and capital analytics developed economies in 2011, of the crisis is that worrying – legacy of the has arrived making the regional differences organisations in the West turmoil of the past few The best organisations are in productivity much more have chosen experience over years has been the impact leading the way in using pronounced. Latin America and youth, cutting back on the on employee engagement. analytics and the capabilities Asia-Pacific are now showing recruitment of younger workers Employees in the West who of the HR function to make sure far higher levels of productivity and banking on the experience survived the cost-cutting cull that they get the most from the than Europe, giving them a of older workers to see them have been left disillusioned investment in their people. strong competitive edge. through. While this strategy and disengaged. The younger has worked in the short term, generation has been hit There’s been a huge investment it’s storing up talent chain particularly hard as they see in human capital analytics in supply problems for the future. their opportunities dwindle and recent years and it’s paying their career path blocked by dividends for organisations older workers who can’t afford that were ahead of the game. to retire. But poor employee The advancements in data engagement isn’t just a Western collection and analysis are problem; it’s equally severe in an enormous opportunity for Asia, in spite of the high levels those who are prepared to take of demand for younger talent, advantage of them. where job-hopping has become the norm. Key trends in human capital 2012. A global perspective 7
  8. 8. A multi-speed global economy8
  9. 9. It’s clear that the fallout from the global Annual growth in GDP per capita Revenue per FTE by regionfinancial crisis has been far-reaching, bothin terms of financial results and in the long- Revenue per FTE ($)term impact on the way companies operate.There remains a clear divide between GDP per capita growth $180,733 CEE 15% $184,674organisations in developed economies,which were inevitably hit hard during $184,674 UKthe crisis, and the fast-growing emerging $180,733economies, where talent supply remains acritical issue. 10% China $230,499 Western EuropeThe impact of the economic conditions is $230,499 India $267,186 LATAM 5%by no means limited to Western Europe andthe US. There is evidence to suggest that $228,472 Brazil Czech R. $282,781 Asia Pacificthe impact is now being felt within Central USand Eastern Europe, with GDP per capita $338,773 UK US 0 $267,186 Japangrowth for some economies in EasternEurope, such as the Czech Republic,falling to levels similar to the UK and US. $0k $350k -5% $344,432Combined with rising wage costs in recentyears, parts of the CEE region are movingbeyond the period of demonstrably higher $415,668human capital ROI to levels resembling -10%other European nations. 2006 2007 2008 2009 2010 2011 Source: World BankThe major economies in Asia, by contrast,have shown year-on-year increases ineconomic output during the crisis, drivenby rapid industrialisation and an expandingworkforce in the manufacturing andservice industries. With low wage costsand/or continuing growth in most parts ofAsia, many nations demonstrate far higherhuman capital ROI than the West. Key trends in human capital 2012. A global perspective 9
  10. 10. Adapt and survive Revenue per FTEWe’ve seen significant changes toemployment markets in the West in the 21.5%wake of the financial crisis, as countriesadapt in order to maintain growth byinvesting in the better-performing sectors.In the US, the professional services sectorhas seen an increase in revenue per In the US, the professionalfull-time employee (FTE) of 21.5%, as services sector has seenbusinesses look for expert help in managing an increase in revenue perthe difficult economic conditions. In other full-time employee (FTE)industries though, employees are seeing of 21.5%, as businessesfewer opportunities – the US technology look for expert help insector saw a 28.3% reduction in revenue managing the difficultper FTE as organisations looked to reduce economic conditionsback-office expenditure.This is echoed in Western Europe, whichalso saw a fall in revenue generated inthe technology sector. Engineering and Banking: Time for change?manufacturing, and the chemicals industryhave also suffered. The pharmaceuticals The banking sector in Europe has faced Performance-related pay in the sectorsector, though, has enjoyed a small well-publicised problems in recent years, currently stands at similar levels toincrease in revenue in Europe, along with with profit levels suffering as a result. 2006/07, when banks were reportingthe insurance industry and retail and Five years ago, the sector was the most far higher levels of profit – showing thatleisure sector, and should see continued successful in Europe in terms of the level compensation reductions potentially stillinvestment and innovation generating job of shareholder return. But not any more. have some way to go.growth for Western economies. Revenue per FTE has fallen sharply. Pay remains high despite recent bonus The next few years will be critical to the pool reductions and banks continue banking sector and success will depend to pay a higher average remuneration to a large extent on the effectiveness than any other sector. The result is a of the pay reforms that are underway. dramatic reduction in the value added There are many challenges ahead. by employees; Human Capital ROI (HC ROI) has fallen by 20% over the past five years. Banking 2006/07 2007/08 2008/09 2009/10 2010/11 Human capital ROI 2.00 2.06 2.05 1.69 1.62 Average remuneration ($) 79,362 76,944 92,391 92,671 87,673 Performance-related pay (%) 8.7 17.1 16.5 15.8 14.410 Key trends in human capital 2012. A global perspective
  11. 11. “ ecognising that the world is somewhat split down R the middle between slow growth and rapid growth, you’d better be able to operate in both at the same time. You have to manage that difficult slow growth and then completely switch gears and go to high growth. You have to find ways of moving your resources – and for us it’s talent – from where it’s not being utilised to where it can be utilised.”Brian Duperreault, President and Chief ExecutiveOfficer of Marsh McLennan Companies Inc.Taken from the PwC 15th Annual CEO Survey Key trends in human capital 2012. A global perspective 11
  12. 12. Productivity gaps widen12
  13. 13. The West can’t compete Lower return on remuneration investment Remuneration/revenue by regionon productivityWhile developing economies are not Remuneration/revenue (%)immune to the downturn, they havemanaged to retain strong productivity Static 10% LATAMlevels, particularly when compared againstWestern Europe and the US. Productivity 14% CEElevels in Western Europe had remainedrelatively stable as organisations cutback on employee numbers during the 15% AsiaPacdownturn, but in 2011, productivitydropped sharply. This places regions 24% Western Europesuch as Asia, Latin America and CEE in acontinued position of strength in termsof competitiveness. Organisations have cut back on their recruitment of new, raw talent. This has 26% UK increased average remuneration levels.Employee costs rise, for less return At the same time revenue has fallen 30% USFurther analysis shows that the fall inproductivity in Europe is driven by an 0% 30%increase in average employee costs perhead. This is largely because organisations Average remuneration rises in Europehave cut back on their recruitmentof new, raw talent and so have lower Average remuneration ($) Revenue/remuneration (%)numbers of younger and lower grade Average remuneration ($) Remuneration/revenue (%)employees, which has in turn increasedaverage remuneration levels. At the same $55,000 24%time revenue has fallen, meaning thatorganisations are seeing a lower return on $52,500 23.5%their remuneration investment. $50,000 23% $47,500 22.5% $45,000 22% $42,500 21.5% $40,000 21% 2007 2008 2009 2010 2011 Key trends in human capital 2012. A global perspective 13
  14. 14. Saratoga data shows that average Human Capital ROIremuneration has once again increasedin Europe to $54,942 (an increase of over ROI15%). The level of average remunerationin the US continues to be significantly 1.1 UKhigher than in Europe, a consequenceof the greater GDP per capita generated. 1.11 Western EuropeA higher level of benefits in the US,which have continued to increase due to 1.34 UShealthcare-related costs, and the longernumber of hours that US employeeswork, also contribute to the higher 1.57 CEEaverage remuneration. 1.70 AsiaPacWe track the return that organisationsare getting for their investment in their 3.40 LATAMpeople through Human Capital Return onInvestment (HC ROI), which is at its lowest 0 3.5level in recent years in Western Europeand the US, while in CEE the HC ROI fell Remuneration in Europe and the USsignificantly after a period of year-on-year increases. Benefits PRP Other compensationHC ROI is particularly competitive in US 18.2 5.9 75.8the emerging markets of Asia-Pacific, insome cases almost twice the level seenin Western economies. But in the more Western Europe 15.1 7.1 77.7developed economies in Asia-Pacific, HCROI is only slightly higher than in Western CEE 3.4 12.5 84.1Europe and the US – the result of higheremployee costs. It will be difficult for manycountries to sustain competitive HC ROI UK 19.7 8.51 71.8levels if salaries continue to rise at theircurrent rate. 0% 100%14 Key trends in human capital 2012. A global perspective
  15. 15. Economic maturity impacts HC ROI High HC ROIRate of economic/profit growthHigh Developing Maturing (eg BRICs) (eg CEE) Low HC Return on Investment Post-industrial Undeveloped (e.g. Western economies Europe, North Measuring workforce return on investment America) While it is dangerous to focus While fundamentally a formulaLow on one measure to demonstrate combining profit with workforce workforce ROI, our HC ROI costs, HC ROI is most usefully Low Cost of workforce High metric combines in a single expressed as: number the major components of PL performance with the Revenue - non-people costs size and cost of the workforce. It FTEs x average remuneration captures the interplay between revenue generation, cost control This format provides insight to and human capital management the varying influence of the key policy, something that revenue variables, and opportunities for per employee and profit per change. Used as a modelling tool employee can’t do. In fact, it’s in this way, HC ROI can help show possible for an organisation to the impact of HR programmes, report increases in revenue and from reward strategy and profit per employee, but falling HC performance orientation, to ROI, if these gains are being made organisation design, workforce with more expensive people. HC planning, resourcing strategy and ROI only grows if profits increase employee engagement. in combination with a managed investment in people; in other words, the concept of ‘doing more with the same’ or ‘doing the same with less’. 15
  16. 16. A rocky road for rookies16
  17. 17. “ ut what is interesting and what is changing is that among Western companies, B the ability to hire, develop and retain talent in the developing economies has become a major point of competitive differentiation.” Marijn Dekkers, Chairman, Bayer AG Taken from the PwC 15th Annual CEO SurveyYounger workers suffer in the West The crisis has clearly limited the Recruitment and retention a key challengeYounger workers have been the biggest opportunities for younger employees incasualty of the cutbacks and there has Western economies. There appears to be abeen a noticeable trend for organisations strong demand for experienced employeesin Western Europe and the US to reduce to guide organisations out of economicthe number of middle and lower grade difficulty, and investment in early talentemployees. European metrics show that the has suffered as a result. In PwC’s 15th 55%number of executives with more than three Global CEO survey,1 55% of businessyears in the role has increased to 72.6%, leaders within Western economies rate thewhile the number of employees with less recruitment and retention of ‘high-potentialthan two years’ service (known as the middle management’ as a key challenge,Rookie Ratio) has fallen sharply to 21.9%. as opposed to just 32% for ‘young workers’.Overall, this represents a shift towards a While cutting back on the recruitment ofhigher proportion of senior employees; young talent may save on bottom-line coststhe organisational pyramid is becoming in the short term, it will inevitably affectnarrower at the bottom and wider at the availability of talent to fill key positionsthe top. over time. Organisations need to be cautious during this period of careful cost management that they aren’t cutting off the talent pipeline at its source. 55% of business leaders within Western economies rate the recruitment and retention of ‘high-potential middle management’ as a key challenge1 PwC 15th Annual Global CEO survey of over 1,200 business leaders – 2012 Key trends in human capital 2012. A global perspective 17
  18. 18. Older workers dig in Average tenure (months)A lack of new job opportunities for youngerworkers is slowing the rate of generationalchange in the workforce in some regions. 47 Asia-PacificIn the US for instance, the expected growthin numbers of Generation Y employees 51 CEEhasn’t occurred, with the workforcerepresentation of Generation X surpassingthe 50% mark in 2008, and increasing to 70 LATAM53% in 2010. As more Baby Boomers retire,Generation X has now become the largest 112 Western Europeworkforce presence.Evidence of a high proportion of Generation 113 USX employees can be seen in the average 0 months 120 monthstenure findings in the US, which havegradually increased in recent years.There’s an expectation that average lengthof tenure will be driven down by newGeneration Y employees, who want andexpect a varied career and who aren’tparticularly loyal to their employers; PwC’sMillennials survey2 showed that only onein five young employees expect to staywith their current employer in the longterm. However, the analysis shows thatGeneration Y does not yet represent a greatenough proportion of employees in the USto impact overall workforce trends.2 wC ‘Millennials at work: Reshaping the workplace’ – December 2011 P18
  19. 19. The hiring race continues in Asia “ s emerging markets accelerate – or maybe the rest of AThe continuing talent supply problems the world decelerates – there is a significant sense ofin Asia, coupled with aggressive growthstrategies and high levels of employee urgency. There is the sense that it may already be toochurn have resulted in recruitment rates late to place your bets. A second factor to consider isthat are approximately twice as high as in that it is much more difficult to get into those marketsEurope and the US (at 22%). The average because of their attitude change. They feel that post-tenure for employees in Asian organisations 2008 they have less to learn from the West.”is just under four years.Despite the prevailing economic Lázaro Campos CEO, SWIFT, Belgiumuncertainty, we expect hiring demand will Taken from the PwC 15th Annual CEO Surveycontinue to rise in Asia. Even as labourcosts rise in some fast-growing economies,business leaders have set out ambitiousplans to expand workforces: 55% ofAsia-Pacific CEOs expect to increase theircompany’s headcount over the next 12months. As a result of this rapid growth,acquiring talent in the external market isbecoming more challenging and expensive;43% of CEOs tell us that it has become moredifficult to hire talent in their industry. Theproblem is particularly acute in China andHong Kong, and South-East Asia wherethe proportion rises to nearly 60%. Thissuggests that there is an urgent need tostrengthen recruitment and workforce External recruitment rateplanning processes. 22% Asia-Pacific (overall) 21% Asia-Pacific (advanced) 24% Asia-Pacific (emerging) 10% United States 11% Western Europe 0% 25% Source: PwC Saratoga analysis 19
  20. 20. Survivors disengaged20
  21. 21. Engagement is a problem First-year resignations Resignation rate by regionEmployee engagement is the mantrafor HR, as it is critical to performance. 19.2% 7% 6% LATAMLow levels of employee engagementtend to result in a higher turnover of Western Europeemployees, less discretionary effort andlower productivity. 19.2% of new hires in China resign in the first year of service 8% USThe data highlights the employee retentionissues that are endemic in Asia. Themedian resignation rate for Asia is 15.2%, 9% UKapproximately twice as high as in Europeand the US. This is symptomatic of a job 10% CEEmarket where frequent changes of role arethe norm for many employees; a recentsurvey of 2,200 managers in China showed 15% Asia-Pacificthat two-thirds had received a competingjob offer in the previous 18 months.3 The 0% 20%turnover for new hires is even greater,with 19.2% resigning in the first year of Resignation rate 1 year (%)service.4 The evidence suggests that thistrend is likely to continue and is becomingan established element of employee culturein Asia. 19% Asia-Pacific (overall)In contrast to Asia, the data from CEE 20% Asia-Pacific (advanced)shows a sharp reduction in resignationrates. At first glance this appears to be a 18% Asia-Pacific (emerging)positive indicator; however, local PwCexperience suggests that resignation rateshave fallen simply because employees 14% United Statesare finding it more difficult to find a newjob. This has already been seen in Latin 13% Western EuropeAmerica, where high unemployment ratesand competition for jobs have driven down 0% 20%resignations to just 6.3%.3 MRI China Group Talent Environment Index, 20104 ‘Breaking out of the talent spiral: Key human capital trends in Asia-Pacific’, PwC 2012 Key trends in human capital 2012. A global perspective 21
  22. 22. The engagement problem in Western A primary focus of an organisation’s payEurope is equally pressing. Unemployment strategy should be to incentivise employeesis high and as a result many employees to deliver sustainable performance. Theare choosing to stay in their current role well-publicised failure of the executive payfor the sake of security. While this means model in the West to deliver this outcomethat retention in the short term is good, the has resulted in increasing pressure fordanger is that the continuing lack of job reform from stakeholders. Research intoopportunities has limited the long-term incentives by PwC5 has shown that a totalcareer choices for employees – and there is shareholder return approach to rewardevidence of employee unrest as a result. produces arbitrary outcomes, while studies into human reaction to risk suggest thatGetting reward right modern long-term incentives (LTIs) areEmployee and executive reward continue not having the desired impact on executiveto be high on the agenda. Recent performance, and so are designed to fail.years have seen an increased focus on “ erformance-related pay has now become ubiquitous Premuneration governance, with pressure HR should closely analyse the LTIs that are and forms a major part of the pay package forfrom stakeholders to ensure reward policies so often used today to ensure they really do companies globally. However, we have found thatare wholly aligned with achieving business add value. Pay models need to be relevant companies are struggling to align rewards withobjectives. Analytics have a critical role to to the business outcome, with ambiguity corporate strategy and individual performanceplay here in ensuring that organisations in pay structure one of the key causes of management, and so frequently do not get the resultsare paying employees at the right level misalignment. Organisations that take anthrough a reward structure that drives innovative approach are achieving the best they desire from their incentives spend.”sustainable performance. outcomes here, and are able to strengthen their pay models through links between pay Tom Gosling, partner and head of reward consulting,In Asia, many organisations are feeling and sustainable long-term performance. PwC UKthe dual impact of strong competitionfor talent, but a low level of engagementamong employees. Variable pay featuresheavily in Asia, accounting for almost afifth of total compensation, compared with13% in the US and 11% in Western Europe,driven by higher financial returns.5 ‘ aking executive pay work: The psychology of incentives’ PwC UK, 2012 M22 Key trends in human capital 2012. A global perspective
  23. 23. “ he demographic changes that we see occurring in T many of the regions where we operate – shrinking populations, an ageing workforce and diversifying demographics – compounds the challenges we face and intensifies the war for talent.”Dr Rüdiger Grube Chairman and CEO, Deutsche Bahn AG,Germany. Taken from the PwC 15th Annual CEO Survey 23
  24. 24. Human capital is a vital asset for organisations worldwide. BusinessHR rising to leaders are looking for growth and human capital makes this possible, but is too often treated as purely an operational cost rather than anthe analytics investment. While there is no doubt that the economic environment in countries worst affected by the crisis calls for prudence, it is alsochallenge important that organisations adopt a mindset focused on driving value from their workforce, not just reducing its cost. HR has a vital role to play in this. Key trends in human capital 2012. A global perspective 25
  25. 25. HR transformed HR Transformation: Key Changes to the HR function and management informationIn response to this increasing demand for 1st Generation 2nd Generationstrategic workforce management, there HR function • Review HR delivery model • Focused HR strategy executionhave been extensive changes to the way • Development of Centres of • Global standards for HR deliveryHR is delivered in many organisations. Excellence • Continued HR process excellence • Re-engineering HR processes to • Senior executive sponsors forThese include a rapid development in the improve effectiveness HR interventionsskills and capability of HR professionals,improvements in HR technology, and a HR • Implement workforce measures/ • ROI analysis of HR function activitiesmove towards centralised HR delivery management balanced scorecards • Workforce analytics and forecastingmodels that are structured by specialism. information • Use benchmarks to track • Strategic workforce planning HR effectiveness • Alignment of HRMI acrossIn the best organisations, the result has process areasbeen an innovative change in the way HRservices are delivered – so much so, thatwe’ve seen a rapid improvement in best A minority of CEOs get comprehensive reports on their workforcepractice in many areas, including strategic Q: hen making decisions, how important is it to have information on each of the following talent- Wreward modelling, talent management and related areas? For those areas that are important to you, how adequate is the information youworkforce planning. currently receive? Percentage of CEOs who believe Do not Not Adequate InformationThe bar has also been raised in terms the relevant information is receive adequate but would received isof best practice HR measurement and important or very important information like it now comprehensiveanalytics. Improvements in capability Percentage of CEOsand technology have allowed the best 100%organisations to advance measurementpractices. Many effective HR managementinformation methods are available and this 80%is a great opportunity for HR functions to Informationshow that they can add real value. Gap: CEOs believe 60% information is  important but don’t receive comprehensive reports 40% 20% 0 Costs of Return on Assessments Labour costs Employees Staff employee investment of internal views and productivity turnover on human advancement needs capital Source: PwC’s 15th Annual Global CEO survey, 201226 Key trends in human capital 2012. A global perspective
  26. 26. Unfulfilled potential The current state of human capital analyticsIn a recent client poll we found that around75% of organisations have an establishedapproach to people measurement 20% 75% 5%incorporating mainstream techniques suchas KPIs, dashboards and benchmarking.However, no more than 5% of organisationshave, or are developing, a full analyticscapability. This comes at a time whentalent issues are back at the top of CEOagendas and they are seeking more insight 20%: Ad hoc/no formal 75%: established 5%: full workforceand impact from HR on workforce analysis. approach measurement programme analytics capability Key trends in human capital 2012. A global perspective 27
  27. 27. Predictive analysis Driving employee engagement is often Predictive solutions in workforce managementHR is increasingly turning to analytics as a key focus of HR strategy. Ultimately,a key tool to provide evidence and insight overall productivity levels and financial Hiring Turnover Performance Engagement Workforceto support decision-making, but even so, results can be used as indicators of past planningstill lags behind the use of analytics in engagement levels. However, there is moreother business disciplines such as sales strategic value in using human capital Predict new Predict flight Predict Predict Predictand marketing. If HR is to prove its worth analytics such as absence and recruitment hire quality risks performance impact of employee engagement demandas a strategic function, it needs to go one rates, grievances, resignation rates and Predict Predict Predict driversstep further and explore patterns and productivity indicators to provide insight success of retirement absenteeism Predict supplycorrelations in the data, to provide the into the impact of current engagement on hiring source Predict impact by roleevidence and analysis business leaders future business results. An increasing on business performanceneed to improve people performance. number are, however, reflecting the need for analytical skills in their hiring decisions forAlthough predictive analytics in HR is the HR function.still in its infancy, an increasing numberof multinationals, particularly in thefinancial services, professional servicesand technology sectors are beginning tobuild predictive solutions. Organisationsthat are focused on talent to drive growthare especially keen on developing solutionsthat predict employee exit risks, or newhire quality. The ultimate aim should be tointroduce predictive analysis that drivesworkforce planning and produces resultsthat are genuinely helpful.28 Key trends in human capital 2012. A global perspective
  28. 28. Human capital reporting in the spotlight While financial information will always This trend is reflected globally, as be at the heart of an organisation’s corporate reporting initiatives such reporting, stakeholders now expect as the EC-sponsored project Valuing information to cover more intangible Non-Financial Performance6 and the aspects such as the risks and International Integrated Reporting opportunities that could influence framework being developed by the future prospects. Human capital – often International Integrated Reporting the most valuable intangible asset in Committee7 (IIRC), recognise the need an organisation as well as the largest for better alignment of human capital controllable cost – is a key piece of and broader business reporting. this jigsaw. Despite the improvements in human Human capital disclosures in corporate capital reporting, it’s clear that there reports have improved steadily over the is still a lot to be done. PwC’s annual past decade, prompted by the greatly award for ‘people reporting’ in the increased scrutiny on organisations from UK’s largest companies,8 for instance, shareholders, regulators, governments showed that only 33% of companies set and other external stakeholders. It’s out a clear link between their people become more common for organisations strategy and business strategy, and only to provide human capital measures 4% referred to the ROI delivered by within their main annual report, often their workforce. While organisations supported by strategic analysis of the are better at describing what human organisation’s workforce management. capital is, they still struggle to provide disclosures describing why it’s essential to achieving business priorities. A detailed description of the actual value of human capital within an organisation is very rare.“ uman capital is central to the corporate reporting H 6 www.investorvalue.org model set out within the IIRC’s recently released 7 www.theiirc.org 8 Building Public Trust Awards UK proposals for an International Integrated Reporting Framework. The discussion paper, ‘Towards Integrated Reporting: Communicating Value in the 21st Century’, recognises that the drivers of corporate performance have changed and that, for many companies, the frequently cited mantra ‘people are the key to our success’ needs to be better reflected within company disclosure. We are seeing a rapid evolution in corporate reporting in response.”Jessica Fries, Integrated Reporting, PwC UK andIIRC Board Director 29
  29. 29. Addressing talent supply Addressing talent supplyFour out of five companies surveyed inPwC’s Asia-Pacific study do not havededicated HR resources responsible fortalent management strategyThe ongoing talent supply problems faced 80%by organisations in Asia have inevitablyoccupied a significant amount of HR’stime, often at the expense of longerterm workforce planning and talentmanagement. Strong growth and rapidlychanging economies have meant thatworkforce strategies in the region tend tobe reactive to changes in overall businessstrategy, rather than proactively drivingbusiness outcomes, and HR functions areinvariably operational and non-strategic.The need to effectively plan and implementchanges in workforce structure is a keychallenge for many organisations as they Four out of five companies surveyed inseek to take advantage of growing Asian PwC’s Asia-Pacific study do not havemarkets. For many, this will mean radically dedicated HR resources responsible forreinventing their approach to talent, talent management strategyand a targeted investment in strategicHR processes.30 Key trends in human capital 2012. A global perspective
  30. 30. “ hort-term foresight and slow reaction to people issues are barriers S to driving financial performance in the growing Asian markets. We’ve seen a tendency for organisations to use a traditional approach to workforce planning when a more strategic approach is required. This entails annual forecasts of supply and demand; however in this very dynamic region, we need much better transparency and control on a monthly basis.”Adam Salzer, Director in Consulting, PwC Hong Kong 31
  31. 31. Priorities for business32 Key trends in human capital 2012. A global perspective
  32. 32. Businesses remain ambitious despite Focus on productivity. Make sure all your Think carefully about reward. Too many Invest in analytics. Organisations havethe economic environment and CEOs talent management interventions have the organisations are placing emphasis over been late to recognise the value of goodcontinue to plan for growth. Intelligent right impact on productivity and contribute performance-based and variable pay, when quality HR management informationworkforce planning will be a vital element to creating value. Keep a close eye on the the evidence is mounting that incentives affecting their ability to be a strategicof any strategy and the organisations key measures and how your peers are don’t necessarily work. Different sections contributor. HR strategy shouldthat stand out against the competition performing. CEOs need help and HR needs of the workforce are motivated by different reflect a commitment to acquiring thewill be those that are able to harness to take a lead. things and non-financial rewards are systems and skills to build crediblethe newly developed potential of human increasingly valued by employees. analytics capabilities.capital analytics. Concentrate on engagement. Employee engagement is clearly a problem, both for Look out for rookies. The Millennial But select your metrics wisely.There are important messages the West where low levels of engagement generation has been hardest hit by the Technological advances and the growingto remember: are the legacy of the financial crisis, and downturn, but time will make them the interest in human capital analytics means in Asia, where job-hopping has become dominant force in future workforces. that the volume of information hasLearn from the best. The talent supply standard practice. Engaged employees are Organisations in Asia are already increased exponentially, but not always tochain should be managed with the same productive employees. struggling with their propensity to switch great effect. The key to success is intelligentrigour as every other vital resource. The jobs frequently – finding ways to persuade and targeted use of the data available.development of predictive analysis in young people to stay should be a priority.human capital measurement is a strongopportunity for organisations at a timewhen everyone is working to coax the mostout of their people. Best practice is alreadyemerging, and there’s much to learn fromthose that are ahead of the curve. Key trends in human capital 2012. A global perspective 33
  33. 33. Organisations cannot realise their growthIn conclusion potential without the people to make it happen. Businesses that develop a well-informed and proactive approach to strategic workforce planning have an opportunity to gain a crucial competitive edge. Getting talent management right means you can worry less about your talent problems and more about your business opportunities. Whatever the size or shape of your business, we believe there are four fundamentals to talent management:34 Key trends in human capital 2012. A global perspective
  34. 34. 1. 2. 3. 4. Align your business plan Face the future – look at Pay attention to pivotal Focus on the financials and talent strategy – make where your business is heading, roles – get the right talent – make measurement, sure every aspect of your talent not just where you’ve been. into the roles that have a benchmarking and predictive strategy directly contributes Keep questioning whether your disproportionate ability analytics part of your plan. to your overall business plan talent management pipeline to create (or destroy) Look to your people ROI. and to creating value. Change will give you what you need business value. anything that doesn’t. when you need it. Key trends in human capital 2012. A global perspective 35
  35. 35. Behind the numbersPwC Saratoga has developed and applied For this study, we integrated findings from Metrics formulaemeaningful metrics to help organisations to our Saratoga teams in the US, Western Human capital impactmaximise their ROI for over 30 years. Europe, AsiaPac, LATAM and CEE, in order Human capital return on investment X:1 (Profit before tax + Compensation + to look closely at comparisons between (HC ROI) Benefits) ÷ (Compensation + Benefits)Today, we integrate employee attitudinal key workforce effectiveness measures, Revenue per FTE $ Revenue ÷ Total FTEsresearch and metrics to drive execution drawing on our global database of overaction and support clients who are looking 2,400 organisations. Remuneration/Revenue % (Compensation + Benefits) ÷ Revenueto develop and deploy dashboards,employee surveys, predictive solutions, As part of our approach, we analyse data Compensation and benefitsconduct workforce planning initiatives and submitted by client organisations for over Variable pay % (Performance related pay + Attendance- related pay) ÷ Compensationbenchmark the workforce and HR function. 60 metrics. The following selected metrics Performance-related pay % Performance-related pay ÷ Compensation have been used within this report. Average remuneration $ (Compensation + Benefits ) ÷ Total FTEs Human capital engagement Resignation rate % Resignations ÷ Headcount Resignation rate 1 year % Resignations less than 1 year ÷ Headcount less than 1 year High performer turnover rate % High performer turnover ÷ High performer headcount External recruitment rate % External recruits ÷ Headcount Organisation and workforce structure Rookie ratio % Headcount less than 2 years of service ÷ Headcount Executive stability ratio % Executive Directors less than 3 years service ÷ Executive directors FTEs per HR Department FTE X:1 FTEs ÷ HR Department FTEs36 Key trends in human capital 2012. A global perspective
  36. 36. ContactsTo discuss the issues highlighted in this report, please contact your local PwC contact, or one of the following:Key contacts North America China/Hong Kong AcknowledgementsRichard Phelps Scott Olsen Mandy Kwok Our thanks go to the contributors fromGlobal Leader Human Resource +1 646 471 0651 +852 2289 3900 our Saratoga teams across the world,Management Consulting scott.olsen@us.pwc.com mandy.kwok@hk.pwc.com who contributed to writing this report.+44 20 7804 7044 Particular thanks go to Jonathan Mosesrichard.phelps@uk.pwc.com Nik Shah Adam Salzer (UK), Michael Wood (Australia), nik.shah@us.pwc.com +852 2289 5033 Jon Burton (US), Abu Amin (Singapore),Justine Brown +1 703 918 1208 adam.salzer@hk.pwc.com Parul Dattani (Research) andMarketing Seema Shah (Research).Human Resource Services Western Europe Singapore+44 113 289 4423 Peter De Bley Thorsen Barthjustine.brown@uk.pwc.com +32 2 710 43 21 +65 6236 4382 peter.de.bley@pwc.be thorsten.b.barth@sg.pwc.com Jon Andrews India +44 20 7804 9000 Sankar Ramamurthy jon.andrews@uk.pwc.com +91 (124) 4620560 sankar.ramamurthy@in.pwc.com Central and Eastern Europe Zsolt Szelecki Australia +3614619733 Victoria Keesing zsolt.szelecki@hu.pwc.com +61 (2) 8266 0035 victoria.keesing@au.pwc.com Middle East Christopher Box Brazil +974 4419 2852 Joao Lins christopher.box@qa.pwc.com +55 11 3674 3941 joao.lins@br.pwc.com Africa Gerald Seegers +27 (11) 797 4560 gerald.seegers@za.pwc.com Key trends in human capital 2012. A global perspective 37
  37. 37. Related PwC publications www.pwc.com/talentmanagement www.pwc.com/hrs www.pwc.com/saratoga www.pwc.com www.pwc.com/hrs Delivering results through talent Breaking out Managing tomorrow’s people Millennials at work Engaging your The HR challenge in a volatile world Making executive pay work of the talent spiral pivotal talent The psychology of incentives Key human capital 15th Annual Global trends in Asia-Pacific December 2011 Are you engaging the CEO Survey. right employees for the A global study into right reasons? the impact of pay and incentives on senior executives. PwC Saratoga Asia-PacificDelivering results through Making executive pay Breaking out of the talent Millennials at work: Engaging your pivotal US Human Capitaltalent: The HR challenge in work: The psychology of spiral 2012 Reshaping the workplace, talent, 2011 Effectiveness Report, 2012a volatile world, 2012 incentives, 2012 As the Asia-Pacific talent 2011 Companies often focus on As the US economy slowlyPwC’s 15th Annual Global The debate about executive market continues to evolve, This report looks into the mind retaining star performers or recovers, key challenges areCEO Survey found that pay has mostly focused on companies face challenges of new graduates from all over leadership talent, overlooking emerging for HR. Hiringissues around talent are once whether shareholders are in terms of attracting talent, the world, who are entering pivotal roles – jobs that is trending upward, butagain top of mind. CEOs are getting what they want and retaining and rewarding the workforce for the first have an outsized ability to productivity is declining. Therecognising that their current if current levels of executive employees. These challenges time, and how their attitude create (or destroy) the value employment uptick has broughtstrategies for managing talent pay are acceptable. If pay have resulted in many and expectations have shifted customers expect. higher voluntary turnoverno longer fit – 78% of CEOs say were genuinely motivating organisations being trapped in response to the economic rates, but not for new hires.they will make a change. executives towards higher in a talent spiral of ever- downturn in many parts of In this report we explore how Organisations that understand performance, there would increasing cost, which the world. organisations are identifying and adapt to this seeminglyThis report takes a closer look surely be less controversy about ultimately impacts bottom lines and engaging their pivotal contradictory environmentat business leaders’ talent the subject. But is it? and shareholder value. It also looks at the strategies people and make some will gain the most from theirproblems – and at the actions employers could consider suggestions to help proactive investment in the workforce.leading businesses are taking. Our study in conjunction In this report our Asia-Pacific to continue attracting and organisations stay ahead. with the London School of Saratoga team report on key retaining these key talents. This report looks at data Economics and Political trends in human capital across from more than 300 US Science, reveals a number of the region. organisations and offers common behavioural traits, observations to help business which show clearly that leaders understand the executives aren’t necessarily dynamics of the US labour motivated the way many market today. employers assume.38 Key trends in human capital 2012. A global perspective
  38. 38. Key trends in human capital 2012. A global perspective 39
  39. 39. www.pwc.com/hrsPwC firms help organisations and individuals create the value they’re looking for. We’re a network of firms in 158 countries with close to 169,000 people who are committed todelivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com.This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information containedin this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the informationcontained in this publication, and, to the extent permitted by law, PwC does do not accept or assume any liability, responsibility or duty of care for any consequences of you oranyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.© 2012 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structurefor further details.Design Services 27600 (07/12).

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