The Role of Reward in Retaining Key Talent

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Presented at WorldatWork 2012 by Hay Group's Tom McMullen and Dow Scott, Ph.D. of Loyola University Chicago

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The Role of Reward in Retaining Key Talent

  1. 1. The Role of Reward inRetaining Key TalentWorldatWork Conference (May, 2012)
  2. 2. Presenters Dow Scott, Ph.D. Loyola University Chicago dscott@luc.edu 312.915.6597 Tom McMullen Hay Group (Chicago) tom.mcmullen@haygroup.com 312.228.1848© 2012 Hay Group. All rights reserved 2
  3. 3. Agenda  Why this topic?  Research initiative  Findings and discussion  Recommendations© 2012 Hay Group. All rights reserved 3
  4. 4. Why this topic?  Economy starting to recover  Unemployment down to 8.2%; 4.3% for college graduates  An increasing number of Americans are quitting their jobs  20% of employees intend to quit in the next 2 years  Number of job changes are increasing; employees born between 1957 and 1964 have had an average of 11 jobs© 2012 Hay Group. All rights reserved 4
  5. 5. Scary talent shortages coming U.S. Talent Shortages 2010-2020 Categories Shortfall Engineers 50M – 250M Doctors 55M – 200M Scientists 100M – 200M Health Technicians 200M – 400M Nurses 340M - 1MM Information Technology 500M - 1MM Teachers 500M - 1MM Sources: Bureau of Labor Statistics & Professional Associations© 2012 Hay Group. All rights reserved 5
  6. 6. Serious skills shortages by sector Aerospace & Defense Life Sciences & Med. Devices Energy & Resources Industrial Products Consumer Products Other 0% 10% 20% 30% 40% 50% 60% 70% Source: Manufacturing Industry Survey by Deloitte, Oracle, & Manufacturing Institute© 2012 Hay Group. All rights reserved 6
  7. 7. Key predictors of employee retention Total Percent Favorable Employees Employees planning to planning to Gap (%) stay for > 2 leave within 2 years years Confidence in ability to achieve career objectives at company 64% 31% 33% Trust and confidence in company senior management 60% 35% 25% Opportunities for learning and development 71% 45% 25% Benefits that meet employee needs 68% 45% 23% Company demonstrates care and concern for employees 62% 39% 23% Company is effectively managed and well run 73% 51% 23% Adequate authority to do job 73% 51% 23% Employees paid fairly for the work they do 53% 31% 22% Supervisory coaching for development 67% 45% 22% Support for employee creativity and innovation 70% 48% 22% Cross-work unit collaboration and support 63% 41% 22% Direction and goals are the right ones for the company 73% 51% 22% Source: Hay Group Employee Opinion Norms (2012)© 2012 Hay Group. All rights reserved 7
  8. 8. Easy for key talent to leave  Key talent always scarce especially during economic recovery  You can’t hide key talent; Linked-in and social media promote their capabilities and accomplishments  Top talent can compare their “deal” with everyone elses on salary.com, vault.com, O’net.gov, etc.  Your company’s reputation is always on the line; a disgruntled employee has an audience of millions© 2012 Hay Group. All rights reserved 8
  9. 9. Cost of turnover  Replacing employees estimated to cost .5X to 2X salary  Key employees cost much more because they:  Are difficult to find  Often require special reward packages  Require special development efforts  Contribute at much higher level than everyone else© 2012 Hay Group. All rights reserved 9
  10. 10. Research Initiative
  11. 11. Research objectives  Our objectives were to find answer to these questions:  Is the economic recovery creating significant challenges in retaining key talent?  What are organizations doing to retain key employees?  How effective are these efforts?  Are counter-offers a viable strategy for retaining key talent?© 2012 Hay Group. All rights reserved 11
  12. 12. Research scope Perspective of reward professionals Organizations from diverse industries and sizes Focus on managerial and professional population Primarily respondents represent N. A. organizations© 2012 Hay Group. All rights reserved 12
  13. 13. Survey methodology Survey of 526 WorldatWork members  Methods of analysis:  Descriptive analysis (e.g., means and frequencies)  Quantitative and qualitative analysis  Organization size and sector of the economy considered© 2012 Hay Group. All rights reserved 13
  14. 14. Representative survey participants© 2012 Hay Group. All rights reserved 14
  15. 15. Participant demographics Number of Employees Economic Sector 13% 13% 0 to 999 1,000 to 9,999 12% 5,000 to 19,999 13% Publicly Traded 34% 20,000 to 39,999 28% 13% 48% Privately Held 40,000 or more Public Sector 26% Non-Profit© 2012 Hay Group. All rights reserved 15
  16. 16. Participant demographics Organizations Represented: Industry Affiliation Finance, Ins & Real Estate 16% Manufacturing 37% Healthcare & Social 13% Svcs Utilities, Oil & Gas 11% Consulting, Prof & 5% Tech Svcs 8% 10% Information© 2012 Hay Group. All rights reserved 16
  17. 17. Findings and Discussion
  18. 18. What do you think? - #1 I am confident that our organization can retain top talent as the economy improves? 1. Strongly disagree 2. Disagree 3. Neither agree nor disagree 4. Agree 5. Strongly Agree© 2012 Hay Group. All rights reserved 18
  19. 19. What do you think? - #2 I expect turnover among key talent to increase substantially as the economy improves? 1. Strongly disagree 2. Disagree 3. Neither agree nor disagree 4. Agree 5. Strongly Agree© 2012 Hay Group. All rights reserved 19
  20. 20. Is retaining key employees a significant challenge? Confident in my organization’s ability to retain key talent as the economy improves 51% Retention of key talent has become 56% more difficult in recent months I expect turnover of key talent to increase 61% substantially when the economy improves Employee retention of key talent is a major concern of senior management right now. 65% Turnover of key employees is very costly for our organization. 83% 0% 20% 40% 60% 80% 100% % Agree & Strongly Agree© 2012 Hay Group. All rights reserved 20
  21. 21. What do you think? - #3 My organization has a clear definition of key talent? 1. Strongly disagree 2. Disagree 3. Neither agree nor disagree 4. Agree 5. Strongly Agree© 2012 Hay Group. All rights reserved 21
  22. 22. What do you think? - #4 Our definition of key talent includes: 1. We don’t define key talent 2. Top performers 3. High potential 4. Critical job holders 5. Some combination of the above© 2012 Hay Group. All rights reserved 22
  23. 23. What do you think? - #5 We have identified key talent in our company? 1. Strongly disagree 2. Disagree 3. Neither agree nor disagree 4. Agree 5. Strongly Agree© 2012 Hay Group. All rights reserved 23
  24. 24. Identifying key talent We have a clear definition of key talent. 53% We have actually identified key talent 60%Key talent defined as top performers, high potentials, empl.s in critical jobs Approximately 80% for eachOur identification of key talent goes below 77% the executive level. Retention efforts focuses primarily on key talent versus all employee base 55% 0% 10% 20% 30% 40% 50% % Agree and Strongly Agree © 2012 Hay Group. All rights reserved 24
  25. 25. What do you think? - #6 Why does key talent quit?© 2012 Hay Group. All rights reserved 25
  26. 26. Most likely reasons why key talent quits Opportunity to earn more pay elsewhere Lack of promotional opportunities Pay levels perceived as unfair vs. others outside organization Dissatisfaction with job or work responsibilities Pay levels perceived as unfair vs. employees performance Workloads are too heavy Work-life balance issues -Conflicts or problems with immediate supervisorLack of training and developmental opportunities Lack of empowerment or influence on the job Inadequate use of employee’s skills and abilities 0 10 20 30 40 50 60 70 80 90 © 2012 Hay Group. All rights reserved 26
  27. 27. Least likely reasons why key talent quits Concerns about the direction of the organization Pay levels perceived as unfair vs. others within co. … Organization culture – e.g., team work, trust Retired Easier commute Non-job related factors/ life changes Job insecurity, fear of job lossOpportunity for a better retirement benefit package Opportunity for a better health-care package 0 5 10 15 20 25 30 35 40 45 50 © 2012 Hay Group. All rights reserved 27
  28. 28. Methods most often used to retain key talent % Effective or Very Effective Identified key employees who are 88% essential to the business 74% Discussed with key employees their 67% 84% future opportunities within the organizationPay key employees above the labor market 83% 73% Provided tuition reimbursement and 83% 53% other educational opportunities Created a succession plan to replace 67% individuals critical to success. 82% 0% 20% 40% 60% 80% 100% % Use these methods © 2012 Hay Group. All rights reserved 28
  29. 29. Least used methods to retain key talent % Effective or Very EffectiveProvided increased incentive or bonus 68% 68% opportunity to key employees Provided mentors for key employees 69% 59% Provided key employees with stock options or equity awards 71% 63% Provided a rich (i.e., extensive) benefit 74% 67% package Provided cash bonuses for retaining key employees 74% 64% 0% 20% 40% 60% 80% 100% % use these methods© 2012 Hay Group. All rights reserved 29
  30. 30. Counter-offers 1. Only 14% of organizations have a counter-offer policy; 3% had a documented policy 2. For those with a policy, it applied only to key employees (39%) or at the request of a manager (36%) 3. Respondents said counter-offers seldom create a problem (47%) or have created some problems (46%) 4. HR/compensation jointly decides counter-offer cases with management (47%) or provides input (38%) 5. Consistent with previous research (2005)© 2012 Hay Group. All rights reserved 30
  31. 31. What do you think? - #7 At the end of the day, what are the most effective key talent retention processes and programs in your organization?© 2012 Hay Group. All rights reserved 31
  32. 32. Recommendations
  33. 33. Top talent management  Develop clarity around what defines “top talent” and develop clarity around the definition of “high potential”, specifically “potential for what?”  e.g., achievement relative to current role?, Future role?, General competency profile?  Articulate a top talent communications strategy  Do we communicate status? Why? Why Not?  Identify the benefits and risks of communication  Identify messages, messengers and mediums of communications© 2012 Hay Group. All rights reserved 33
  34. 34. Top talent management (cont.)  Identify governance structure and roles of corporate, BU and function leadership as well as HR, manager and employee in top talent management processes  Ensure transparency in talent reviews and ensure a substantive role of functions to:  Minimize sense of talent ownership by business  Improve collaboration and calibration processes© 2012 Hay Group. All rights reserved 34
  35. 35. Critical jobs  Leverage the notion of a “critical job” or “accelerator experiences”  Clarify purpose, applications and process of the notion of a critical job  Align top talent management with management of critical job posts, including clarifying eligibility requirements on who can assume a critical job  Develop principles around job evaluation “lean forward” or “grandfather” situations (e.g., eligibility, decision rights, time windows, communications)© 2012 Hay Group. All rights reserved 35
  36. 36. Reward program management  Clarify reward strategy for top talent  Determine degree of variation, if any, vs. other employee groups  Include principles, design and communications  Common programs include more aggressive base salary positioning, off-cycle pay increases and restricted stock grants  Monitor performance and reward differentials for top talent vs. others to ensure appropriate differentiation  Differentials across all cash reward elements  Differentials in treatment across non-financial reward programs  On a current year and multi-year (i.e., career income) basis© 2012 Hay Group. All rights reserved 36
  37. 37. Counter-offers  Develop a counter-offer strategy that consists of clarifying:  The types of people/jobs that are eligible for counter-offers  The role HR, management and senior management play  The information to collect to formulate a counter-offer  How to structure and communicate the counter-offer  How to respond to other employees who may learn about the counter-offer  How to limit the need for making counter-offers in the future© 2012 Hay Group. All rights reserved 37
  38. 38. Counter-offers (cont.)  Recognize that work climate issues often trigger a search for a new job and employees often consider:  do I work for a winner?  is this job meaningful?  am I enabled to do a good job?  do I feel respected and valued?  do I like my boss?  is this job challenging?  am I developing new and valuable skills?  Nonetheless, many counter-offer and retention strategies focus on pay increases, retention bonuses, and stock options  Ensure you have a good understand of the real issues and take action on them© 2012 Hay Group. All rights reserved 38
  39. 39. Program effectiveness  Measure program effectiveness  Develop criteria for program effectiveness assessment  Involve top talent in developing the strategy, design and evaluation of top talent programs  Common measures include:  Velocity of key talent through the pipeline (e.g., # and % of talent who have been promoted)  Growing the amount of key talent in the organization  Retention rate of top talent  Active involvement of CEO and C-suite is viewed as key program enabler© 2012 Hay Group. All rights reserved 39
  40. 40. Your questions
  41. 41. Presenters Dow Scott, Ph.D. Loyola University Chicago dscott@luc.edu 312.915.6597 Tom McMullen Hay Group (Chicago) tom.mcmullen@haygroup.com 312.228.1848© 2012 Hay Group. All rights reserved 41

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