This document discusses research on talent management and the war for talent. It finds that talent matters greatly for company performance, yet most companies are ill-prepared for this war for talent. While past approaches to talent management worked in the past, new strategies are needed for the future. The best companies view talent management as a top priority, instill a talent mindset throughout the organization, develop talent through diverse jobs and feedback, and work to retain their top performers.

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2. Research We Are Drawing On Today1. War For Talent2. War For Technical Talent3. Client WorkFocused on “Top 200” Managers in large companies (“How to attract, develop, and retain executives”)Survey of over 5,000 Executives in 77 companies (44 top-quintile companies and 33 mid-quintile companies)“Gold Standard” case research at 20 top-quintile companies with terrific talent reputationsFocused on CS/EE talent in “new economy” (“Applying hard product/market tools to talent market”)Survey of over 5,000 alumni of 8 top-20 universitiesBest practice research (with professors, anthropologists, and journalists)Service to over 50 clients on talent management issues3

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4. Our ObservationsTalent matters

5. There is an escalating war for managerial talent

6. Most companies are ill-prepared

7. Past winning approaches not enough for the future5

8. Winners Know That Talent Matters“The scarce resource is talent.”– Keven Sharer of Amgen“It’s what allowed us to double our growth rate.”– Phil Humann of SunTrust“Winners make commitments; losers make excuses.”– John Schuerholz of Atlanta Braves6

9. Economics of Talent are CompellingModest improvement in talent doubles market capProfits 94% higher at plants managed by “A’s”Profits 67% higher at plants managed by “A’s”More talented Associates over twice as productiveSoftware servicesPaper plantsLinen plantsInvestment banking7

10. Talent Matters – a lot! Compared to competition, our talent pool is much or somewhat strongerPercentage of top 200 executivesReturn to shareholders 1986-95Average annual percentTop-quintile companiesMid-quintile companiesTop-quintile companiesMid-quintile companies8

11. Supply of Future Executives Will Actually Decline35- to 44-year-olds in the U.S.Index, 1970 = 100TodayX15% drop02000 Source: United Nations9

12. Companies Ill-preparedPercentage of top 200 executives who strongly agree it reflects their companyKnows who the high and low performers areDevelops people quickly and effectivelyRemoves low performers relatively quicklyRetains almost all high performersBrings in highly talented peopleSource: Top 20010

13. What Worked in the Past Not Enough for the FutureAverage American corporation(vast majority)Talent magnets(Most of our 20 case companies)Talent beehives(a few)11

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16. What Managers Are Looking forPercentage of top 200 managers rating factor absolutely essentialValues and cultureWell managedCompany has exciting challengesStrong performanceIndustry leaderMany talented people585038292120Freedom and autonomyJob has exciting challengesCareer advancement and growth565139Great company (brand)Great jobs (products)Competitive compensation (price)Differentiated compensationHigh total compensation282314

17. Development and Compensation Are Biggest GapsPercentage of Top 200 executivesValue/cultureFreedom/ autonomyWell managedCompany effectivenessMeets/exceeds expectationsHigh total compensationCareer advancementDifferentiated compensationDevelopment00Importance to executives Absolutely essential or very important15

18. Better Companies Pay MorePercentage of companies positioned above median compensation levelsTop-quintile companiesMid-quintile companiesBase salarySalary plus annual incentiveLong-term incentive16

19. Better Companies Differentiate MorePercentage of HR executivesTop-quintile companiesMid-quintile companiesTop performers make significantly more than average performers (strongly agree)We send strong messages about individual performance with our pay programs (strongly/somewhat agree)17

20. Another Research Effort Quantified the Large Pay DifferentialsTotal pay 33% higherAt-risk pay 50% higherHold over twice as much equityTotal pay 69% higherAt-risk pay 175% higherOutside directors hold over 3 times more equity*Executive teamBoard * McKinsey-sponsored paired comparison research conducted by Dr. Don Hambrick of Columbia Business SchoolSource: McKinsey-sponsored paired comparison research conducted by Dr. Rakesh Khurana of MIT and Dr. Brian Hall of HBS18

21. Executives Group Into 4 ClustersGo with a winnerEmphasis on growth and advancement in a strongly performing companyCompany mission and geographic location less important29% of respondentsBig risk, big rewardEmphasis on compensation and career advancement/ growthCompany mission and success not very important, nor is development24% of respondentsSave the worldLooking for a company with an inspiring mission and exciting challengesCompensation relatively less important23% of respondentsLifestylePut personal issues at the forefront – respect for lifestyle, geographic location, fit with bossCompany growth and excitement less important19% of respondents19

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23. Leaders Instill a Talent MindsetLeaders passionately believeTalent wins

24. Building the talent pool is a crucial part of their job

25. A talent gold standard must be establishedInstill a talent mindsetLeaders“Own” the top 200-500

26. Hold line managers accountable

27. Drive a simple but rigorous talent review processLeaders infuseCandor

28. Differentiation

29. Consequences managementHold line managers accountableInfuse the right behavior21

30. Instill a pervasive talent mindsetPercentage of corporate officers who strongly agree, unless otherwise notedTop-quintile companiesGold standard companiesMid-quintile companiesImproving the talent pool is a top-three priorityTime spent on people management by senior-line officers (percentage)Number of positions on which corporate officers exert significant influence 31 2413934261795935393 Source: Corporate Officers survey and/or Human Resource department22

31. Instill a Talent MindsetTalent wins“Talent is superordinate to strategy . . . A great strategy can go up in flames quickly . . . But talented people know how to respond.”Dick Vague, CEO First USA (BancOne)“I focus on talent management. We have systems and reports for everything else.”Bill George, CEO MedtronicIt’s my job“In our manufacturing managers, we want leaders, not micromanagers; empowerers, not administrators; real expertise and judgment, not technicians. Against this standard, we changed 50% of our 400 manufacturing managers.”AlliedSignal, senior executiveNeed a gold standard23

32. Infuse the Right BehaviorsPercentage of HR executives who strongly agreeMid-quintile companiesTop-quintile companiesGold standard companiesDiscussions in our people meetings are frank and openReal consequences result from assessments in people reviewsTop performers make significantly more than average performers24

33. Formality of the Process Not ImportantOf those companies that conduct a review, the percentage that do these thingsMid-quintile companiesTop-quintile companiesIdentify backupsAssign responsibility for taking actionArticulate action plans for each individualFormally review follow-up actions at next review meeting Source: McKinsey War for Talent HR executive survey25

34. Accountability for PeoplePercentage of corporate officers who strongly agreeShould line managers be accountable for the quality of their people?Believe this philosophyThink their companies actually do this26

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36. Know Who You Are Looking forProfile of high and low performers at Company XHigh performersLow performersPercent with honors or top 10% of class4014Personal attributes*Drive for results7060Encourage innovation and risk taking6013Attract talent and build strong organization5325Manage company’s resources carefully5375Like to know what is going on in my department2775 * Percentage of respondents who say they demonstrate attribute essentially “all the time”28

37. Choose a Primary Talent-sourcing StrategyCherry pick the best talent from acquisitions programAcquireBring in at all levels with intense development focus to augment/shapeMultiple channelsLet others provide the basics, you reap the dividendsOutsourceHome grow superior talent from entry level onwardInsource29

38. Be Creative About Talent SourcesEarlierTechnology company that provides summer internships and part-time jobs for hundreds of high school and college studentsBiotech company that hires entrepreneurial “refugees” from the R&D departments of big pharma companiesLaterGlobal industrial company that hired 650 military officers in 2 yearsDifferentOne company hired 50 of 300 graduating students from an elite Indian high school and brought them to the U.S.Outside U.S.30

39. Better companies reach outside morePercentage of respondentsTop-quintile companies 71316Level at which executives join the company (position)Top 2021-100101-300Mid-quintile companies 61216Gold standard companies152425 Source: Corporate Officers survey and/or Human Resource department31