© Mercer 2011www.mercer.comOctober 19, 2012

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What’s inside employees’ minds: We’re not happy

Pay is top-ranked element of the deal, but satisfaction with it is down

Benefits more important to attraction and retention, but satisfaction with them slips

Retirement is valued part of the deal, but employees doubt their financial readiness

Employees see gains in talent development, but question fairness of promotions

Views of senior management rise, but just half say company is well-managed

Fewer employees happy with their work, but managers get improved marks

Most say work load is reasonable and work/life balance is possible

One in three US workers is seriously considering leaving

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Insights come from Mercer’s new What’s Working™ survey

� Proprietary research on employee views on work

� More than 100 survey questions covering pay, benefits, careers, leadership, performance, engagement, etc.

� Conducted over past two quarters among nearly 30,000 workers in 17 markets, including 2,400 US workers

� Reflects US workforce demographics (age, gender, job level)� Conjoint analysis to determine what employees value most� Results compared to 2005 US What’s Working™ survey

� Change of 3 points or more is statistically significant

� Change of 5 points or more represents meaningful shift in national view

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The state of engagement: Workforce issues behind the numbers

Eroding loyalty Widespread apathy Generational tension

Broad issues

Benefits dilemma Retirement readiness Talent challenges

Specific issues

Delivering the deal

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Disengaged workforce: Significant business consequences

Turnover problems

Talent pipeline gridlock

Increased absenteeism

Lost productivity

Misdirected workforce investments

Reduced growth andprofitability due to declines in:

� Innovation� Customer satisfaction� Operational efficiencies� Organizational

performance� Managerial

responsiveness

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How did we get here?

� An evolving employment deal that employees have viewed as a series of takeaways

� Career-long job security

� Regular pay increases/promotions

� Stable work environment

� Work-life balance

� Low- or no-cost health care benefits

� Defined benefit plans

“Old” deal

� Training and development

� Pay for performance

� Constant change, M&A activity

� Flexible work arrangements

� Higher-cost benefits, with push to wellness/health management

� 401(k)/Cash balance plans

“New” deal

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How did we get here?

� Further actions taken in response to the economic downturn

� The way employees see it now: Deal has been redefined, but employers aren’t delivering on new promises

Cuts, freezes in pay and benefits

Reduced training and promotion

opportunities

Layoffs, which affected

remaining employees

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Relationship with employees at a critical inflection point

The importance of gettingit right – now� Talent market heating up;

good workers have options

� Stakeholder performance expectations keep rising

� Ongoing cost pressures demand the right workforce investments

� More employers rely on “build” talent strategies

How to get started� Understand what’s inside

your employees’ minds

� Develop blueprint that combines existing approaches with innovative ideas to improve engagement, performance and productivity

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The engagement challenge: A closer look at the core issues

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The engagement challenge: A closer look at the core issues

Eroding loyalty Widespread apathy Generational tension

Broad issues

Benefits dilemma Retirement readiness Talent challenges

Specific issues

Delivering the deal

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Eroding loyalty: Workers less engaged and less committed

� Employers face loss of valued talent as economy and job market continue to improve� Workers ready to vote with their feet

� Top performers are most likely to secure new jobs

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are seriously considering leaving

In the US:

13

12

32%

44%40%

34%

27%24%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

All employees 16-24 years 25-34 years 35-44 years 45-54 years 55-64 years

Significant number seriously considering leaving at present

23% 20% 25% 23% 21% 19% 2005

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Engagement scores have declined consistently

60%

64%

67%

69%

72%

40% 45% 50% 55% 60% 65% 70% 75% 80%

I feel a strong sense of commitment to my organization

I would recommend my organization as a good place to work

I am proud to work for my organization

My work gives me a sense of personal accomplishment

I am willing to go beyond the requirements of my job to help my organization succeed -3%

-3%

-1%

-3%

-4%

20052010

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Widespread apathy: Serious hidden problem for employers

� Employers must be concerned with more than retention

� Equally critical issue is disengaged workers who stay, hurting morale and productivity

� 32% are seriously considering leaving and 47% say they are not, but 21% did not commit to either option

� Employers need plan for dealing with disaffected workers

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won’t commit to staying or leaving

In the US:

15

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Engagement scores for disaffected employees lowest of all

50%

48%

53%

58%

58%

56%

63%

68%

83%

82%

81%

81%

0% 20% 40% 60% 80% 100%

Personally, I feel that I amtreated fairly in my

organization

I am proud to work for myorganization

My work gives me a feelingof personal accomplishment

I am willing to go beyond therequirements of my job to

help my organizationsucceed

Not considering leaving

Considering leaving

"Neither"

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Engagement scores for disaffected employees lowest of all

46%

34%

40%

29%

53%

53%

49%

50%

80%

76%

74%

68%

0% 20% 40% 60% 80% 100%

I would recommend myorganization to others as a

good place to work

I feel a strong sense ofcommitment to my

organization

I believe that I have a long-term future with my

organization

I believe my organization asa whole is well-managed

Not considering leaving

Considering leaving

"Neither"

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Generational tension: A difficult balancing act for employers

� Employees age 24 and under are more positive about most aspects of work, but:

� Least likely to go beyond job requirements to help organization

� Less satisfied with their overall benefits package

� Much more likely to be seriously considering leaving now

� Employees 55 and older are much less positive about work, less likely to leave

� Benefits importance increases with age

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under age 35 are considering leaving

In the US:

25

18

Generation gap: Young employees have mixed views of work

+12%32%At the present time, I am seriously considering lea ving my organization

-9%68%My overall benefits program/package is good/very go od

Agree: All Employees

Difference: Employees age

16–24

Promotions are generally given to the most qualifie d employees in my organization

42% +14%

There is usually a sufficient number of employees i n my department/work group to handle the workload

60% +13%

I trust senior management in my organization to alw ays communicate honestly

50% +12%

My manager does a good job of setting work objectiv es 57% +8%

I believe that I have a long-term future with my or ganization 59% -7%

My organization gives me enough information to make informed benefit decisions

63% -8%

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Most valued elements of the ‘deal’ vary significantly by age

0

100

200

300

400

500

Base pay

Retirement savings or pension plan

Type of work

Low healthcare costs

Bonus or other incentives

Working for a respectable organization

Paid time off

Flexible work schedule

Career advancement

Training opportunities

Longer-term leave

Tuition reimbursement

Wellness programs

16–24 years

25–34 years

35–44 years

45–54 years

55-64 years

65 years +

Opportunities for career advancement and a flexible work

schedule are the second and third most important rewards for

16- to 24-year-old workers

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Benefits dilemma: Greater importance, less satisfaction

� Survey findings show growing concern with benefit costs and choices

� Low health care costs rank fourth among most valued elements of the “deal”

� Majority say their benefit package is competitive (57%) and current benefit choices meet their needs (60%)

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say benefit choices meet their needs

In the US:

35

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Benefits dilemma: Satisfaction with benefits is down…

59%

68%

66%

76%

0% 10% 20% 30% 40% 50% 60% 70% 80%

US employees who say theyare satisfied with their health

care benefits

US employees who ratetheir overall benefits

program as good or verygood

2005

2010

22

Yet benefits play more important role in employment decisions

22

53%

45%

48%

35%

0% 10% 20% 30% 40% 50% 60%

Benefits play a significantrole in my decision to

continue to work for myorganization

Benefits played a significantrole in my decision to join

my organization

2005

2010

23

Employees want more choice, but no more money out of pocket

23

36%

40%

48%

26%

0% 10% 20% 30% 40% 50% 60%

I would be willing to usesome of my own money topay for improved or new

benefits that are important tome

I would like to reduce thevalue of some benefits in

order to increase the valueof others

2005

2010

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Retirement readiness: Benefits valued, but readiness in doubt

� Perfect storm of factors is creating insecurity and increasing importance of retirement benefits� DB plan cuts/freezes/terminations

� Poor S&P performance (two major market drops within 10 years)

� More intense focus on retirement by Boomers, media

� Possible Social Security cuts on the horizon

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are satisfied with their 401(k) plan

In the US:

35

25

Retirement benefits valued highly today in the US

2. A good retirement savings/pension plan

3. The type of work I do

4. Low health care costs

1. Base pay/hourly wage

5. Opportunity for bonus or other incentive

Most valued elements of the value proposition (out of 13)

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Employees doubt financial readiness for retirement

41%

43%

38%

47%

0% 10% 20% 30% 40% 50%

I think my organization isdoing enough to help me

prepare for retirement

I am confident that I amdoing enough to preparefinancially for retirement

2005

2010

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Talent challenges: Progress noted but scores remain low

� Solid improvement seen in key areas:� Performance management� Leadership� Manager effectiveness� Career development� Training

� However, talent-related scores remain low compared to other survey findings

� Disconnect exists between pay and performance

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say they are rewarded for doing a good job

In the US:

25

28

Employees cite progress on careers, training

42%

50%

51%

56%

59%

29%

39%

37%

43%

52%

0% 10% 20% 30% 40% 50% 60% 70%

Promotions are generally given to the most qualifie demployees in my organization

My organization does a good job of developing its p eopleto their full potential

My organization does a good job of retaining its mo sttalented people

My organization provided good opportunities for me toreceive training to improve my employability

I'm provided with the information and assistance I requireto manage my career

2005

2010

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Leadership scores show improvement across the board

57%

56%

54%

51%

50%

30% 35% 40% 45% 50% 55% 60% 65% 70%

Senior management does a good job of establishings clear objectives

Senior management communicates a clear vision of the company's future

Management actions are consistent with organizational values

Senior management confronts issues before they become major problems

I trust senior management to always communicate honestly +10%

+12%

+7%

+7%

+5%

20052010

30

Base pay ranks most important, but satisfaction with it is down

2. A good retirement savings/pension plan

3. The type of work I do

4. Low health care costs

1. Base pay/hourly wage

5. Opportunity for bonus or other incentive

Most valued elements of the value proposition (out of 13)

Satisfaction with base pay has dropped

2005 2010

58%53%

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Key drivers of engagement for US workers today

The shift in the employment deal has also had an impact on what drives engagement for US employees right now

Understanding of how

performance is evaluated

Utilization of employees’skills and abilities

Satisfaction with total

compensation

Encouragement of teamwork and

cooperation

Engagement

Satisfaction with co-

workers

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Still some disconnect between performance and pay

67%

46%

40%

20% 30% 40% 50% 60% 70%

Our performance appraisal process adequately distinguishes poor, average and good performers

My organization does an adequate job of matching pay to performance

When I do a good job, my performance is rewarded

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Global Insights

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Valuing ‘the deal’: Conjoint analysis results

� Helps employers understand what different workforce segments value most

� Identified 13 key value proposition elements in each market

� Mostly the same across all markets, with some variation among benefit elements

� Using conjoint analysis, presented elements in sets of four, asked respondents to choose the most important and least importantelement in each set

� Multiple iterations created prioritized ranking of value proposition elements for each market

� Results can be viewed overall as well as by age, gender, tenure, job level and industry

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3535

Most important value proposition elements: Americas

35

3636

Most important value proposition elements: Asia-Pacific

36

3737

Most important value proposition elements: Europe

37

3838

Shifting views on key issues: Loyalty

At the present time, I am seriously considering leaving my organization

38

Prior data not available for Argentina, Hong Kong and Italy.

Change in prior versus current scores:All increased

3939

Shifting views on key issues: Pay

My organization does an adequate job of matching pay to performance

39

Change in prior versus current scores:Most increased

Prior data not available for Argentina, Hong Kong and Italy.

4040

Shifting views on key issues: Benefits

The benefits in my organization are as good as, or better than, those offered by other organizations in our industry

40

Change in prior versus current scores:Most decreased

Prior data not available for Argentina, Hong Kong and Italy.

4141

Shifting views on key issues: Careers

I believe that I have sufficient opportunity for growth and development in my organization

41

Change in prior versus current scores:Mixed results

Prior data not available for Argentina, Hong Kong and Italy.

4242

Addressing your issues

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What you need to know before taking action

Actions to consider Consequences of not taking action

� Long-term business plan and performance expectations

� Profile of workforce, now and in the future, needed to execute your business plan

� Total portfolio of existing value proposition elements

� Employee satisfaction with value proposition elements

� Understanding of employee usage patterns

� Understanding of behaviors encouraged by current value proposition

� Gauge employee satisfaction with current “deal”; measure engagement levels/drivers

� Model/forecast emerging workforce; assess alignment with business plan

� Identify program features that encourage behaviors at odds with business plan

� Evaluate/redesign plans to enhance alignment, choice

� Repackage elements to appeal to various segments/ generations

� Enhance communication to boost awareness, satisfaction

� Continued spend on elements that are not valued by employees – poor return on investment

� Unsustainable cost increases� Increased disengagement,

absenteeism, talent loss� Not able to operate effectively

or achieve business goals due to misalignment or underutilization of workforce

� Competitive disadvantage in attracting and retaining key employees

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