The War for Talent - what it means for the bottom line


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As we continue in the grip of a recession, the potential competitive advantage of getting the people investment right is too big to miss.

This report looks at the impact of The War for Talent on the bottom line in the context of three questions: what is the impact of an ageing workforce, does it matter if your employees are engaged, and are you maximising the return on your investment in your people?

We have looked at some of the practical ways in which organisations are addressing the issues, and share some of the actions you can take to stay ahead of the game in The War for Talent.

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The War for Talent - what it means for the bottom line

  1. 1. The War forTalentWhat it means for the bottom line
  2. 2. Contents 03 Foreword 04 An ageing workforce 09 Employee engagement 12 The return on investment in people 16 Contacts2 THE WAR FOR TALENT
  3. 3. ForewordIn summer 2012 I hosted an event as part of our FD Intelligenceprogramme. The discussion focussed on how rapid changes inthe global workforce will affect the role of the finance director.We were fortunate to have a number of dynamic internationalorganisations and industry experts to explore the issues.As we continue in the grip of a the rise of the globalised economyrecession, the potential competitive and changes in demographics, theadvantage of getting the people accelerating importance of technology,investment right is too big to miss. In the difficulties of the recession and theour event we looked at the impact of need to think about environmental andThe War for Talent on the bottom line sustainability the context of three questions: what Evidence shows that how anis the impact of an ageing workforce, organisation manages talent in thisdoes it matter if your employees are environment can make all the differenceengaged, and are you maximising to the bottom line. For example,the return on your investment in organisations with engaged employeesyour people? will be 16% more profitable than those Justin Rix From our discussions at the event with poorly engaged employees. But Employer Solutions Partneritself and more generally it is clear engaging employees and maximising Grant Thornton UK LLPFDs recognise that people are one of your returns generally, are not simplytheir most valuable assets, and that the a question of spending more. In fact,effective management of and investment this will often have the opposite people is fundamental to achieving Instead, it is critical that organisationsan organisation’s growth aspirations. plan for and invest in the skills neededWhilst FDs used to leave the ‘people to drive growth as the landscapestuff’ to HR, the savvy FD now works continues to evolve.closely with their colleagues in the In this report, we have looked atpeople space to drive competitive some of the practical ways in whichadvantage. organisations are addressing the issues, Why is this shift happening now? and share some of the actions you canOrganisations face an onslaught of take to stay ahead of the game in Therapid change, not only in the UK but War for Talent.internationally too. These include THE WAR FOR TALENT 3
  4. 4. PART ONEAn ageing workforce‘As we grow Why is it an issue now? Currently, the median age of the UK population shown in the table below,older we must One of the major issues facing (ie the age at which there are the same organisations over the coming years number of older and younger people)discipline will be how to cope with an ageing is just under 40 years old. This will workforce. This is the consequence of continue to rise and is expected to reachourselves two changes: an ageing population in just over 42 years old by 2035. Over the many developed countries and the fact next 10 years, 13.5 million new jobs are forecast to be created in the UK, but into keep that people are staying economically active for longer. the same period there will only be seven million school and college leavers. Forexpanding, It’s no secret that as a nation, the UK is getting older. In 2010, for the first the first time, businesses in the UK will time on record, the number of people need to plan for the rising number ofbroadening, of retirement age and over exceeded the number of 16 year olds and under. older employees.learning, More than one in three of us is now over 50.keeping our Inevitably, an ageing population means a greater dependency onminds active a declining number of people of traditional working age. In 2011,and open.’ the UK had a dependency ratio (the number of retired and unemployed as a proportion of the number of peopleClint Eastwood, at normal working age) of 25%. This isActor forecast to increase to 38% by 2050. 36.9 35.5 26.5 SAUDI ARABIA 25.3 UNITED STATES UGANDA 15.1 CHINA INDIA Median age in 20114 THE WAR FOR TALENT
  5. 5. An ageing world China and India population distribution (by age group, in years) China 1960 India 1960 The UK is not unique in facing the Males Females Males Females challenge of an ageing population, as 80+ 80+ the table below shows. The same is 70-74 70-74 true in most northern European and 60-64 60-64 50-54 50-54 developed countries, such as Japan and 40-45 40-45 the US. It presents these countries with 30-34 30-34 a growing issue that will have to be 20-24 20-24 tackled, principally through innovation 10-14 10-14 0-4 0-4 in business practices, combined with a 80 60 40 20 0 20 40 60 80 80 60 40 20 0 20 40 60 80 change in attitude as to how business Population (in millions) Population (in millions) talent is managed. China 2010 India 2010 Males Females Males Females 80+ 80+ 70-74 70-74 60-64 60-64 50-54 50-54 40-45 40-45 30-34 30-34 20-24 20-24 10-14 10-14 0-4 0-4 80 60 40 20 0 20 40 60 80 80 60 40 20 0 20 40 60 80 Population (in millions) Population (in millions) Source: United Nations, World Population Prospects (2009) 45.0 44.8 China and India 40.040.0 With many organisations competing sharply, largely due to the one child with the emerging powerhouses of policy introduced by the authorities India and China, let’s explore the in 1979. Given the importance of UNITED KINGDOM demographics of these countries over China to the world economy, there are the same period. The age distribution of real concerns about how a shrinking India’s population follows expectations workforce, coupled with the heavy GERMANY in terms of an emerging major burden of elderly care, will impactFRANCE economy: a relatively neat pyramid China’s economic growth. JAPAN shape with a comparatively low median age. China, on the other hand, doesn’t. Its median age is only just below that of the US and UK and is increasing THE WAR FOR TALENT 5
  6. 6. A longer working lifeA longer working life is already becoming a reality for many employees, meaningemployers will face both challenges and opportunities as their workforce ages. The legal and regulatory environment has changed, age discrimination is illegaland the Default Retirement Age has been removed. According to reports, 54% ofthose aged 55 and over intend to work past the current state retirement age. Thisgroup can be roughly divided into two camps: those who need to work longerbecause of financial pressures and those who want to work longer. How willorganisations motivate these different groups?I’m working because I have to I’m working because I want to The opportunity for businessInsufficient savings for retirement and People now have a choice. Thethe economic downturn, combined with scrapping of the default pension age in How can you best leverage themajor shifts in the regulatory landscape October 2011, and tougher legislation knowledge, experience and reputationand working culture, means that many on age discrimination, means that of your ageing workforce? Ourpeople are already being forced to work employees have far more control over discussions with organisations havebeyond their intended retirement age. when they decide to retire. highlighted a number of commonAccording to the Office for National themes, including:Statistics (ONS), the average pension • Creating cultural change – dealingsavings of people retiring between the with myths about older workersages of 50 and 64 last year was £91,900,a figure that would provide an income • How to maximise this resource toof just £3,500 to £4,000 a year. Almost help drive growthhalf of the UK working population is • How to meet future resource needsnot saving enough for retirement and and use succession planningone person in five is not saving at all. effectively £91,000 Average pension saving in 2011 for retirees aged 50 to 64 Source: ONS6 THE WAR FOR TALENT
  7. 7. Almost half of the UK working population is not saving enough for retirement and oneSolutions and actions person in five is notIf, as an FD, you have an ageing workforce, the first step you will need to take is saving at get to know the likely future shape of your employee demographic. Everyonein an organisation, can contribute to the bottom line. Different groups may havedifferent motivations and understanding these enables a focus on how to maximisethat contribution.Create a culture that embraces Myth three: Older workers will we have spoken to includeolder workers take more sick leave days than other former senior employees movingCreating a culture that is positive employees. to ambassadorial roles for theabout the changing demographic Although older workers who are sick organisation, running key initiativesis an important step. Myths about tend to be sick for a longer period, older and change programmes andolder workers abound and should be workers actually take fewer sick leave becoming more involved in trainingaddressed upfront by organisations. days than younger workers. and development. Clearly, there are issues that may arise with a changeMyth one: All older workers are alike. in role, not least that it may require aFor example, they are just counting Use your resources effectively realignment of the reward structuredown the days, they are less motivated, The consensus among organisations we and working hours to reflect theless likely to take risks and can’t deal talk to is that making changes in both contribution and value of the role towith change. work environment and role are key to the organisation. In fact, although people’s priorities maximising the contribution of theirmay change, their fundamental older employees.motivation and attitude to work • Environment One size doesn’tchanges remarkably little throughout fit all. What needs to be in placetheir working life. for different people to work effectively? Some of the changesMyth two: Older workers are unwilling organisations have begun to put into learn or engage in training and place include: adaptable workingdevelopment. In other words, you can’t arrangements, more tailored training,teach an old dog new tricks. and development programmes, This assumes that all older workers remuneration and benefit structuresare the same. In reality, levels of that reflect changing priorities atengagement have far more to do with different stages in people’s lives.individual differences and motivationsrather than age. • Role Are you tailoring roles to make best use of people’s skills and experience? Examples that have worked well for organisations THE WAR FOR TALENT 7
  8. 8. Expert commentThe importance of successionplanningGood succession planning can make abig difference in retaining knowledgeand expertise within an organisation. Justin Rix, Employer SolutionsThe next generation of leaders needs to Partner, Grant Thornton: “Thebe developed, and sustainable growthhappens when older employees are seen impact of an ageing populationas contributors rather than blockers for many organisations will be anof young talent. The experience and increasing reliance on an olderknowledge of an older workforce workforce. Ensuring that thecan be used as an integral part oftheir development through effective culture is right and that there ismentoring and coaching programmes. flexibility in both working practices One of the issues many organisations and role will be key to attracting,we talk to face is how to deal withsuccession planning within the retaining and maximising theleadership team. Here, there is a clear contribution of this group ofdivide between the challenges faced by employees.”large businesses and those of privatecompanies and partnerships. In manyprivate companies, senior roles areheld by the owners of a business. Thistype of business may face the challengeof separating out the suitability ofa particular person for their role,even if they retain ownership. Larger support for retirement planning. Theorganisations, where ownership government is pushing the agenda ofis separated from role, generally making people plan for their retirement,have more rigorous performance for example the auto enrolmentmanagement processes in place for all arrangements are being introduced inemployees. These processes, although late 2012. Supporting people to plan forby no means perfect, do potentially retirement so you don’t have peopleidentify when somebody is no longer in working beyond normal retirement agethe right role as their priorities change. because they have to rather than they For the FD another choice is the want to is a sound investment.8 THE WAR FOR TALENT
  9. 9. PART TWOEmployee engagement‘The essence of What is employee engagement? Why is it an issue now?competiveness When employees understand the goals As far back as 2009 The MacLeodis liberated and ambitions of a business and how they fit in; when they feel they want to Review of Employee Engagement, commissioned by the Government,when we make be part of the success and when they demonstrated the direct link between give their extra discretionary effort to business performance and employeepeople believe take the business forward, then you’ve engagement. Engaged employees are got it. more motivated, they are more willingwhat they to stay with a company and to make extra discretionary effort at work because they feel good about whatthink and do is they do. This discretionary effort may make all the difference in distinguishingimportant – and one company from its competitors, or indeed one team from another. It’sthen get out of compelling reading: organisations in the top quartile for employee engagementtheir way while showed 18% better productivity, a 12% improvement in customer ratings and athey do it.’ massive 37% reduction in absenteeism, as well as being 16% more profitable than others.Jack Welch, former CEOof General Electric THE WAR FOR TALENT 9
  10. 10. And it’s backed up by our own What affects employee How organisations canexperience. Our internal employee engagement? promote employeeengagement surveys clearly demonstrate engagementthat the strongest performing business Many might think it’s all aboutunits have the highest levels of the money. And of course, it is an The introduction of relativelyemployee engagement. important element. According to the straightforward and inexpensive In this competitive global business What’s Working survey by Mercer initiatives by organisations canenvironment it could be argued that in 2012, 36% of staff stayed with positively impact employeeno organisation can afford not to an employer because of the benefits engagement, generating substantialhave engaged employees. And yet package, while 61% said they were tangible financial benefits. Three well-the Chartered Institute for Personnel motivated by incentives and bonus pay. recognised drivers of high levels ofDevelopment report for winter But it’s not the full story. employee engagement are:2011/12 found that 64% of employees Creating high levels of employeewere not engaged. The consequences engagement is more complicated thanof low engagement? Organisations just increasing pay. In his excellent bookwith employee engagement ranked - Drive - The surprising truth aboutin the bottom quartile by MacLeod what motivates us - author Daniel Pink autonomy:experienced 51% higher staff turnover, explains that you need to pay people the ability to62% higher incidents of accidents and enough to take the issue of money off self-direct your51% more inventory shrinkage. the table so that they can concentrate work It’s a no brainer. Getting employee on their work. All the research showsengagement right can make all the that, except for purely mechanical tasks,difference to organisations in a buoyant once ‘enough’ money has been put oneconomic climate, but is arguably even the table, purely financial incentives canmore important in a downturn, where actually impair performance. mastery:discretionary effort is a low-cost boost Organisations cannot oblige the opportunity to beto growth. their employees to be engaged. If really great at what organisations want to hang on to their you do best talent they will need to create an environment where it happens voluntarily. purpose: being able to see where the organisation is going and how you (the employee) fit in.10 THE WAR FOR TALENT
  11. 11. ‘If I am the smartest person in the room I know I’ve got a problem.’ CEO, McDonald’sWe have found 10 common themesamong organisations addressing these inpractical ways.• Establish current levels of employee engagement CASE STUDY• Focus on recruiting, developing and retaining the very best people An Australian IT company introduced an possible initiative of giving each employee one day• Have a leadership team that sets a clear vision that is authentic, every quarter to spend solely on coming up inspiring and more than just with ideas for improving the organisation’s motivated by profit processes and products, and developing• Encourage a two-way relationship new business ideas. The only condition was between employer and employee that they had to present them back to the based on mutual respect and fairness company. The results were spectacular, not• Provide opportunities for employees to challenge themselves and develop only in terms of the scale and speed of the broader skills positive impact to the financial performance• Give employees a voice and be seen of the business, but also for the impact on to respond the level of employee engagement.• Encourage a culture that enables employees to self-direct their work, and so actively contribute to the organisation• Underpin this with an effective performance management programme ‘There isn’t a• Make sure line managers empower separate department and coach people rather than micro for managing talent, manage it is everyone’s• Put in place a culture of praise where responsibility.’ the contribution and success of Lorraine Heggessey, former employees is recognised controller of BBC One THE WAR FOR TALENT 11
  12. 12. Sacha Romanovitch, National Leadership Board member for People and Skills, Grant Thornton: ‘When you hire smart Expert people it’s critical to make sure you then create the environment for them to do great comment work. If they feel inspired by what you are trying to achieve as a business, feel they have a part to play and are supported to develop the skills to be able to make a real difference, then you can create real competitive advantage. In my five years leading our London Assurance and Tax practice I found that if you get the culture right and hire people better than you, then businessGrant Thornton and performance can be phenomenal.’employee engagementAt Grant Thornton, we ask ouremployees to ask themselves thequestion: “Can I make a differenceat Grant Thornton?” Our practicalinitiatives include: • A recognition culture: Recognise• Developing skills: We involve people people when they do great work in projects and initiatives outside and they are likely to do more of it. their usual role, using short-term We introduced a recognition scheme secondments or rotation programmes where anyone in the firm can thank between divisions and functions. others for doing something well and These help to develop a broader in line with our values – this can be skills and knowledge base, as well as a simple thank you card through providing new opportunities to gift awards. We share stories of for people success to inspire others• Coaching culture: We hire smart • Engaging our employees: people; our role is to create an We recognise that effective communication is just as much FACT environment where they can do their best thinking. We’ve invested about listening as talking. We in a programme of growing our own have an elected forum of over 50 coaches (over 70 of our partners have employees who meet regularly with completed a foundation coaching our National Leadership Board and The Sunday qualification) and embedded provide input into our business – Times ‘100 best from how we communicate to key these skills in all our learning and companies to work development programmes decisions affecting them for’ list shows that• Recruitment: We’ve involved our • Innovation space: We create the time and space for employees to “being listened to” people in bringing others into the firm – from our award winning think about how we can unlock is the single most Spilling the Beans site run by our the potential – for themselves, our important factor business and our clients. We use trainees to share what it’s really social media collaboration sites to in measuring how like to begin your career with the firm through to our recruitment share and stimulate ideas. It’s really much employees incentives to reward employees who exciting seeing the passion and value their energy our people have to make a introduce talented individuals to organisations. our firm real difference in everything they do.12 THE WAR FOR TALENT
  13. 13. PART THREEThe return on investmentin people‘People are now Why is it an issue now? of just under 38%. Ten years ago, in the first quarter of 1992, it was £136.20, anbecoming the Global, technological, economic and increase of more than 75% over the past environment changes are occurring at 20 years.most expensive a rate that is arguably greater than ever Managing these costs is critical to before. It’s not enough to invest in the meeting budgets. People are a dynamic,component of skills that made businesses successful appreciating asset; making the right today. Are you investing in skills to investment decisions in respect of this asset is fundamental to achievingthe production drive success in tomorrow’s world? The phenomena of automation and current and future goals.process and the meteoric rise of the Chinese and Asian economies has had a seismic impact on UK organisations. In both Are you getting the besttechnology is manufacturing and service industries many routine, process-driven tasks are return on your spend?becoming the either migrating to those cheaper labour markets or have disappeared entirely. In 2009/10, a study commissioned by the Institute of Employment surveyedcheapest.’ This of course has a significant impact on the people within an organisation in 173 UK organisations employing more than two million people betweenMichael Dunkerley, terms of the skills they need to develop. them. It included representativesAuthor As Daniel Pink challenged in his from the private, public and ‘not for book – A Whole New Mind – Does profit’ sectors. More than 70% of the your job pass the three-part test? – can organisations surveyed believed that someone overseas do it cheaper, can a employee reward was either ‘very computer do it faster and am I offering important’ or ‘critical’ to their success. something that satisfies the non- Around 68% of the organisations material desires of an abundant age? had made material changes to their And people costs are one of the remuneration arrangements over a biggest overheads for most businesses. two-year period. These changes were A study of FTSE listed companies mainly to reward strategy, bonus/ in 2011 showed employee costs as a incentive plans and employee benefits percentage of the cost of sales was and allowances. More than half of 21.8%. ONS data for unit labour cost, these changes were due to either cost i.e. the amount needed to pay staff or financial pressures, to better reflect to make one unit of output paints a market practice or to address specific striking picture: in the final quarter of weaknesses or ineffectiveness. 2011 for the whole UK economy this When asked how effective they was £239.57, compared to £173.87 in believed their arrangements were the first quarter of 2002, or an increase against three criteria; alignment THE WAR FOR TALENT 13
  14. 14. ‘If you are planningfor one year, plant rice. If you are planning for 10 years, plant trees. If you are planning for 100 years, plant people.’ Indian proverb with business strategy, external their employee reward arrangements. How are organisations competitiveness for recruitment and Less than half (46%) had carried out maximising the return on retention, and level of pay versus a comprehensive review and 36% a their investment in people? performance and contribution only 2% partial review, while 18% had not felt that their arrangements were highly carried out any kind of review at all. Our experience shows that employee effective, while 71% responded that reward is a key issue for the vast they were only reasonably effective majority of the organisations we work or worse. with. These are some of the strategies However, this doesn’t seem to they are putting in place to ensure that have spurred the organisations to their investment in people is effective, have reviewed the effectiveness of efficient and generates the best return possible: • Find out what’s working in your current arrangements Evaluate the various elements of current programmes in terms of fit CASE STUDY with the organisation’s objectives, cost effectiveness of delivery and value generated. We recently reviewed our own arrangements • Review employee benefit plans When you factor in employee for the provision of employee private pension arrangements, benefit plans medical benefit. We know from our can represent a significant level of employee surveys that this benefit is valued expense. Yet it is not uncommon for employee benefit plans to evolve by our employees. Through the use of a over time rather than being part of medical benefit trust we were able reduce an overall strategy. Organisations the cost of our private medical insurance by can save significant costs, as well as several hundred thousand pounds without improve the value of their employee benefit plans, by taking the time having any impact on the level of cover to look at what employees actually or quality of service. We can now use the value, reviewing and renegotiating savings generated to reduce the level of arrangements with suppliers and restructuring how benefits are employee contribution. delivered. Grant Thornton 14 THE WAR FOR TALENT
  15. 15. Expert comment Charles Hutton-Potts, Audit Partner, Grant Thornton: It’s important to treat employees as an• Review the effectiveness of bonus and incentive arrangements investment. An organisation’s people How effective are your arrangements represent one of, if not the most in influencing employees and valuable of its assets. Like any other creating behaviour in line with organisational goals? An overly asset it requires proper investment complex or poorly executed and management to maximise its incentive plan can, at best, be a waste value to the organisation. Making sure of money. At worst, it can reward the organisation has the right people behaviours which are ultimately detrimental to the organisation. with the right skills, coupled with an• Broaden employee ownership in the effective and efficient employee reward organisation programme will be crucial to enabling Providing employees with a it to adapt and evolve to meet direct stake in the business can be a powerful driver for sustained its growth aspirations.” future growth. The ‘John Lewis’ model shows that what people own, they also value. Research shows a personal, financial stake encourages employees to take more responsibility and ownership. This, in turn, improves productivity, profitability and effective learning programme ensures it is communicated. If employees employee engagement also, with the that the right people are doing don’t understand the programme, inherent benefits this brings for an the right job and at the same time they won’t be motivated by it. organisation. they are developing skills for the Organisations can use employee future of the organisation. Learning surveys to identify any elements of• Reviewing the effectiveness programmes that aren’t backed up by the programmes that are not valued of learning and development on the job experience rarely deliver by employees, and either adjust or programmes the promised improvements in remove them, or improve how they From what we have seen, even business performance. are communicated. a relatively high-level review of learning and development • Evaluate the quality of the programmes will often result in employee communication material improvements along processes with cost savings. These savings One of the key elements in can be invested back into further the success or otherwise of a development programmes. An reward programme is how well THE WAR FOR TALENT 15
  16. 16. Contact usFor further information on any of the issues explored in this report contact:Justin Rix Sharon GilkesT 020 7728 2937 T 0121 232 5259E E Romanovitch Mike HerdmanT 020 7728 2355 T 0161 953 6489E E Flint Caroline HarwoodT 020 7728 3145 T 020 7728 3225E E Fathers Richard WebbT 020 7728 2632 T 0118 955 9176E E Hutton Potts Peter GomersallT 020 7728 2175 T 0113 200 1548E E GambleT 020 7728 2217E© 2012 Grant Thornton UK LLP. All rights reserved.‘Grant Thornton’ means Grant Thornton UK LLP, a limitedliability partnership.Grant Thornton is a member firm of Grant Thornton International Ltd(Grant Thornton International). References to ‘Grant Thornton’ are to thebrand under which the Grant Thornton member firms operate and referto one or more member firms, as the context requires. Grant ThorntonInternational and the member firms are not a worldwide partnership.Services are delivered independently by member firms, which are notresponsible for the services or activities of one another. Grant ThorntonInternational does not provide services to clients.This publication has been prepared only as a guide.No responsibility can be accepted by us for loss occasionedto any person acting or refraining from acting as a result ofany material in this publication. Multiple research sources have been used to compile this report, such as the Report and the Office for National Statistics. A full list is available on request.V21764