The Most Pressing Global Benefit Themes for Multinationals in 2012 - Towers Watson

Global Benefit ThemesCurrent and Emerging

May 24, 2012

© 2012 Towers Watson. All rights reserved.

Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Iain JonesSenior ConsultantIrvine, CA

Michael BroomheadSenior ConsultantPhiladelphia, PA

Jon RandallSenior ConsultantSan Francisco, CA

Our presenters today

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Our discussion today

Highlights from our global employee benefits survey Why the Employee Value Proposition (EVP) and Total Rewards are of

growing importance to global companies A global total rewards checklist

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Today’s global environment

Key factors

Uncertainty

Euro instability

Business climate

Political change

Competitive landscape

Imperatives for MNCs

Balancing growth with engagement

Exploring markets

Functional transformation

Managing risk

Governance

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2012 survey of global benefits themes

Fewer than 5,00014%

5,000 to 9,99915%

10,000 to 19,99916%

20,000 to 49,99920%

50,000 to 99,99916%

100,000 or greater19%

Asia Pac4%

Europe36%

Latin America

2%

Middle East/Africa

0%

North America56%

Not specified2%

Global Employee Scale

Global Employee Scale

Corporate Location

Corporate Location

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52%

55%

55%

65%

68%

0% 20% 40% 60% 80%

Flexible rew ards

Working longer & benefitadequacy

Reaction to legislationchanges

Investment in a low interestrate environment

Rising healthcare costs

Common Themes Local Specifics

Common themes… and local specifics

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2012 current and emerging global themes

• Living with pensions financial risks

• Austerity/cost reduction • Oversight as a

discipline: Financial and non-financial risks

• Business-driven change: MA&D

• Living with pensions financial risks

• Austerity/cost reduction • Oversight as a

discipline: Financial and non-financial risks

• Business-driven change: MA&D

Current

• Global defined contribution

• Benefits management optimization

• Keeping sight of the “employee experience” through total rewards

• Global healthcare and wellbeing

• Global defined contribution

• Benefits management optimization

• Keeping sight of the “employee experience” through total rewards

• Global healthcare and wellbeing

Emerging

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Think of your employees as investors, not assets

Assets are passive: they are acquired and managed Investors make daily decisions

Where to invest How much to invest How long to invest

Investment decisions are driven by factors such as . . . Confidence in leadership Confidence in business model and strategy Expected return on investment

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To attract investors, you need to have a clear value proposition and evidence you can deliver.

The same is true for talent . . .

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Total Rewards is a key component of a company’s Employee Value Proposition (EVP) and stems directly from business strategy

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Attraction Drivers* Retention Drivers** Engagement Drivers**

Competitive base pay Career development Leadership

Vacation/paid time off Leadership Image

Competitive health care benefits Empowerment Career development

Convenient work location Supervision Empowerment

Flexible schedule Pay and rewards Customer focus

Career advancement opportunities Stress, balance and workload Values

Competitive retirement benefits Benefits Goals and objectives

Competitive benefits Organizational change Supervision

Challenging work Image Pay and rewards

Organization’s reputation as a good employer Customer focus Communication

Global Perspective: The leading drivers of retention and engagement are not monetary . . .

*Source: Towers Watson 2010 Global Workforce Study.**Source: Towers Watson Normative Database

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Total Rewards builds from strategic objectives and takes a portfolio approach to deliver desired results. . .

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Global

65%

49%

61%

45%

56%

45%

25%

21%

Asia

81%

75%

74%

70%

69%

67%

39%

42%

EMEA

62%

44%

67%

41%

58%

43%

19%

12%

U.S.

Globally, the war for (critical skill and top performing ) talent continues . . .

Critical-skill employees

Problems attracting

Problems retaining

Top-performing employees

Problems attracting

Problems retaining

High-potential employees

Problems attracting

Problems retaining

All employees

Problems attracting

Problems retaining

Source: Towers Watson 2010 Talent Management and Rewards Study

Attraction and Retention Difficulties

11%

15%

25%

40%

25%

45%

31%

52%

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Deliver a locally compelling EVP

At the same time . . . Embrace global platforms Leverage scale; pool resources Drive consistency in methods, decision

making Send cohesive and consistent messages Drive strategic resource allocation

Begin by establishing Clear guiding principles

The emerging focus on global total rewards is driven by business needs . . .

Key Imperatives

Business Scaling up of workforce in

markets outside home country Growth through acquisition Cost management & ROI

People Engagement & productivity Development Optimal deployment/mobility

HR Proactive vs. reactive Rigorous analytics;

fact-based decision-making

Implications

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1. Defining a common set of principles provides the basis for HR to play a proactive role in supporting the business . . .

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Considerations Are there particular groups, segments, etc., that impact our business differently? How do we ensure we attract, retain and engage our critical workforce segments? How different is our competition for talent within our various workforce segments? Do we know what segments might warrant a different “deal”? Why those groups? Are there particular groups that have particularly high turnover and/or are hard to attract?

Same deal (e.g., targeted market positioning, pay mix and leverage,

benefit programs, etc. )Customized deal for targeted groups, business units, etc.

Direction and magnitude of change

DC

All reward elements need to be competitive

The overall package needs to be competitive, but not necessarily

each element

Direction and magnitude of change

DC

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GLOBAL TOTAL REWARDS CHECKLIST


Total Rewards philosophy (illustration)

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Our Programs Are... What This Means for Cash Compensation

Market competitive Our cash compensation program is based on the relevant labor markets where we compete for talent. Base pay is targeted at the median, and incentives are targeted above the median. Superior individual and company performance results in superior pay.

Used to drive performance and engagement

We have a pay-for-performance culture where employees have a clear understanding of how their performance impacts company and their compensation. We differentiate pay based on organizational performance and further differentiate based on individual performance and other critical business factors. Incentives play a more significant role in the total compensation opportunity as job levels increase.

Globally consistent We have a consistent global framework that is flexible and sustainable across our organization and supports global talent management. We customize programs to reflect meaningful differences in local markets and lines of business, subject to transparent company-wide governance requirements. All pay programs adhere to the principles outlined in the global framework.

Balanced Our pay programs are balanced to support both short- and long-term performance and to manage risk. They also balance the impact that individual, business and overall company performance has on pay.

Communicated clearly We openly communicate and explain our pay programs and measures used to evaluate performance, so employees clearly understand the components of the program, the rationale for them and how they operate.

Aligned with our mission

Our pay program rewards employees whose behaviors are consistent with the company mission and values. Our incentive programs align the interests of employees with shareholders.

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2. Key facts are considered to drive strategic resource allocation

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PIVOTAL INSIGHTSIssues

OpportunitiesDirections for Change

Provides insight regarding workforce engagement, demographics and performance

Workforce Perspective

Provides insight regarding trends and industry process and program practices

External BenchmarkingProvides insight regarding current workforce programs and processes

Process and Program Diagnostics

Provides insight regarding future vision, business strategy, corporate culture and presenting issues

Leadership Perspective

Provides insight regarding current business plans, priorities and performance

Business Plan/ Performance

People ● Process ● Programs

Interventions ● Timing ● Measurement/ROI

Philosophy ● Guiding Principles ● Objectives STRATEGY

GAP ANALYSIS

CHANGE PLAN

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A company’s “presence” will influence how closely it needs to adhere to local market practices

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Local Market AdherenceLocal Market Adherence Company-Driven PracticesCompany-Driven Practices

Low Presence High Presence0 1 2 3 4

Low High

New Entrant Demand Leader

Uncertain Proven

Few & Stretched Top Employer

Lacking AAA

Limited Beyond Management

Unproven Well Regarded

Diverse Global Roles

Global Market ShareGlobal Market Share

Brand StrengthBrand Strength

Product CompetitivenessProduct Competitiveness

Local Workforce SizeLocal Workforce Size

Financial Strength & ResultsFinancial Strength & Results

Career OpportunitiesCareer Opportunities

Management StrengthManagement Strength

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The types of strategic allocation choices we see today

Percent of companies indicating a differentiated use of rewards (by reward type and workforce segment)

Program Not Differentiated

Critical-Skill Employees

High-Potentials

Top Performers

Base pay 34% 45% 39% 57%

Short-term incentives 47% 26% 27% 49%

Long-term incentives 53% 25% 29% 37%

Coaching or mentoring 42% 15% 55% 29%

Recognition programs 74% 9% 11% 24%

Recruiting and selection 50% 46% 23% 17%

Career pathing and planning 47% 19% 51% 32%

Employee learning and development 58% 21% 37% 27%

Leadership development 31% 16% 65% 40%

Succession management 30% 26% 65% 44%

Source: Towers Watson 2011 Talent Management and Rewards Survey

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3. Global architecture elements are needed to proactively manage risk and ROI across the countries in which MNCs operate

Architecture Examples . . .

Global inventory of total rewards programs and spend Global benefits governance framework Global job leveling Global incentive design frameworks Global total rewards scorecard

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ILLUSTRATIVE

Global architecture example: global job levelingprovides framework for pay decisions

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Indi

vidu

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ontr

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or R

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Man

agem

ent R

ole

Professional/Expert

Entry Intermed Career Specialist Master Expert

Business Support

Entry Intermed Senior Lead Supv

Management

Supv Mgr Sr Mgr Grp Mgr Sr Grp Mgr

Executive

VP SVP EVP CEO

Production

Entry Intermed Senior Lead

Indi

vidu

al C

ontr

ibut

or R

ole

Man

agem

ent R

ole

Professional/Expert


Professional/Expert


Business Support


Business Support

Entry Intermed Senior Lead SupvEntry Intermed Senior Lead Supv

Management


Management

Supv Mgr Sr Mgr Grp Mgr Sr Grp MgrSupv Mgr Sr Mgr Grp Mgr Sr Grp Mgr

Executive

VP SVP EVP CEO

Executive

VP SVP EVP CEO

Production


Production


Low High

10% 10% 10% 15% 20% 20% 25% 30% 40%

30% 35% 40% 50%

Salary Grade

STI Target

LTI Target

Spot Award Eligible

Annual Incentive Eligible

Long-term Incentive Eligible

Global Job Level

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Global architecture example: global levelingprovides framework for talent development . . .

Indi

vidu

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ontr

ibut

or R

ole

Man

agem

ent R

ole

Professional/Expert


Business Support


Management


Executive

VP SVP EVP CEO

Production


Indi

vidu

al C

ontr

ibut

or R

ole

Man

agem

ent R

ole

Professional/Expert


Professional/Expert


Business Support


Business Support

Entry Intermed Senior Lead SupvEntry Intermed Senior Lead Supv

Management


Management

Supv Mgr Sr Mgr Grp Mgr Sr Grp MgrSupv Mgr Sr Mgr Grp Mgr Sr Grp Mgr

Executive

VP SVP EVP CEO

Executive

VP SVP EVP CEO

Production


Production


Individual Development

Plans

Talent Reviewsand HiPo

Identification

Executive Development and

Reviews

Global Job Level

Assignment and Replacement

Planning

ILLUSTRATIVE

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Corporate HQ

Local

OperationalStrategic

Ensure value is derived from global strategies in execution and local adaptation, for example: Multi-country coordination, knowledge and

information flow Consistency in terms of methods, assumptions,

decision-making Multi-country financing optimization, cost reductions Multi-country market benchmarking Global metrics production

Setting global direction and framework Having cohesive leadership and messages Setting overall strategies Identifying key metrics Monitoring and insights Leveraging scale

Local country activity, for example: Local rules interpretation/compliance/change Local valuation and administration Single-country market practice benchmarking Local communications and support

Local strategic adaptation of global direction Specific country issues: strategic direction Local design Local leadership messages

3. Global architecture and governance are in place to proactively manage risk and ROI across the countries in which MNCs operate

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4. A consumer grade experience drives employee awareness, understanding and appreciation of the total rewards offering

Easy. Interactive. On demand.

eMags

Discussion ForumsApps/Games

QR codes

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Sound bite videos

Employee Networks



HR portals have the power to facilitate communication and engagement across boundaries . . .

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Integrated messaging to

align perceived value with actual value

Generate attention, create understanding, build engagement, align the experience with the EVP, inform decisions, drive action

Modeling tools Simplified online transactions Interactive media

Online content Personalized statements Whiteboard videos

Stories/testimonials Alerts/promos Message driven content style

Easy-to-use tools and resources to help employees

gain the most value from what the organization

provides

Easy access to general and personalized information about Total Rewards to ensure employees know what the organization provides and how to use/participate


5. We monitor global total rewards ROI

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Total Rewards

Optimization

Extent to whichtotal rewardssupport your

business objectives

Extent to which total rewardsare valued by

employees

Total investment and cost structure

Portfolio Mix and Design EffectivenessCommunication Effectiveness

Manager EffectivenessHR Service Delivery Effectiveness

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ROI example method: Total Rewards Optimization (TRO)

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Three Points on the Curve

1) To reduce total cost, the curve identifies which programs should be reduced to reallocate investments in other areas and maintain current levels of retention

2) To maintain current investment levels, the curve identifies how to reallocate investment across programs to increase retention without raising cost

3) To increase retention dramatically and make the most of each reward dollar, the curve indicates the best ways to invest additional rewards funds –$20mm 0 $10mm

Increase in Indicated Retention from Current Level

(Percentage)

–$10mm $20mm $30mm

Increase in investmentfrom current level

Decrease in investment from current level

2) Maintain current level of investment while increasing retention

1) Maintain current level of retention at lower investment

10%

20%

30%

40%

Current levels of retention and reward investment

3) Increase investment and increase retention

Each point along the curve represents the best allocation of the corresponding total investment:

ILLUSTRATIVE

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A global total rewards checklist — recap

Total rewards across the globe are aligned with a common set of principles that reflect our values and strategic choices

Key facts are considered to drive strategic resource allocationArchitecture and governance are in place to proactively manage risk

and ROI across the countries in which we operateWe utilize a consumer-grade experience to help drive employee

awareness, understanding and appreciation of the total rewards offering

We monitor global total rewards ROI

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