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1
Attracting and Retaining Top-Performing Technology Employees
IEEE-USA Careers Conference November 3, 2000
Rick Beal415-733-4310www.watsonwyatt.com
W A T S O N W Y A T T
2
“I was insufficiently appreciative of the human dimension. I’ve learned that’s critical.”
Michael Hammer,reflecting on the business reengineering movement
AgendaAgenda
Current Challenges Recent Research Results
The Human Capital Index™
Strategic Rewards®
Competitive Advantage of Top Performing Companies
4
4
Challenges in a Tight Labor MarketChallenges in a Tight Labor Market
Critical challenges today: Attracting the right people at all levels Retaining (and motivating) them Focusing on top performers needs Engaging employees
ResearchResearch
Human Capital IndexTM (HCI)
Strategic Rewards®
Survey of Top Performing Employees
6
The HCI Research Process:The HCI Research Process:
Key Linkages to Organizational Value
•Recruiting Excellence
•Clear Rewards and Accountability
•Collegial, Flexible Workplace
•Communications Integrity
•Prudent Use of Resources
7
7
Human Capital Practices Create More ValueHuman Capital Practices Create More Value
Source: Watson Wyatt’s Human Capital IndexTM (HCI) Research
Median 5-Year Total Return to Stakeholders
53%
88%
103%
Low HCI Companies
Medium HCI Companies
High HCI Companies
(1/1/94-1/1/99)
8
Linking Human Capital and Value CreationLinking Human Capital and Value Creation
Source: Watson Wyatt’s Human Capital IndexTM (HCI) Research
0.00%
-10.0% Prudent Use ofResources
4.0%Communications Integrity
Expected change in market value associated with a significant (1 SD) improvement in HCI dimension
10.1%Recruiting Excellence
7.8%Collegial, Flexible Workplace
9.2%Clear Rewards andAccountability
9
Linking Recruiting and Value CreationLinking Recruiting and Value Creation
Source: Watson Wyatt’s Human Capital IndexTM (HCI) Research
0.00%
2.3%Professional new hires are well-
equipped to perform duties
2.3%Recruiting efforts are specifically
designed to support business plan
1.8%Company has established reputation
as desirable place to work
1.7%Hourly new hires are well-
equipped to perform duties
0.6%Formal recruiting strategy
exists for hiring critical positions
1.4%Employees have input on
hiring decisions
Expected change in market value associated with a significant (1 SD) increase in HCI practice
10
Rewards and Accountability and Value CreationRewards and Accountability and Value Creation
Source: Watson Wyatt’s Human Capital IndexTM (HCI) Research
0.00%
1.8%
Employees are eligible for stock plan programs
1.8%
Company terminates employees
who perform unacceptably 1.8%Company does a good job of
helping poor performers improve
1.5%Top performers get significantly
more pay than average performers
0.8%Company positions pay
above market
0.4%Employee performance
appraisals used to set pay
0.4%Employees participate in
profit- sharing plan based on firm’s overall success
0.6%Pay is linked to
company’s business strategy
Expected change in market value associated with a significant (1 SD) improvement in HCI practice
11
Collegial, Flexible Workplace and Value CreationCollegial, Flexible Workplace and Value Creation
Source: Watson Wyatt’s Human Capital IndexTM (HCI) Research
0.00%
Flexible work arrangements 1.7%
Culture encourages teamwork and cooperation 1.5%
Perquisites do not varywith position
1.4%
High employee satisfaction 1.4%
Employees are on first namebasis with top management
1.3%
Titles are not designed todesignate authority 0.6%
Expected change in market value associated with a significant (1 SD) improvement in HCI practice
12
Communication Integrity and Value CreationCommunication Integrity and Value Creation
Source: Watson Wyatt’s Human Capital IndexTM (HCI) Research
Expected change in market value associated with a significant (1 SD) improvement in HCI dimension
1.8%Employees have easy access to
technologies for communicating
0.8%Employees have the
opportunity to give ideas and suggestions directly to senior
managers0.8%Financial information is shared
with employees
0.2%Business plans and goals are
shared with employees
0.4%Employees have input intohow the work gets done
0.00%
13
Prudent Use of Resources and Value CreationPrudent Use of Resources and Value Creation
Source: Watson Wyatt’s Human Capital IndexTM (HCI) Research
0.00%
Employees have input inevaluating managers
-3.9%
Employees have input in evaluating their peers
-2.5%
Training is provided to employeesfor attaining higher level positions
-1.9%
Employees participate in profit sharing based on business unit’s success
-0.8%
Training programs are maintained even in less than favorable economic circumstances
-1.0%
Expected change in market value associated with a significant (1 SD) improvement in HCI dimension
14
The Good News: A Virtuous Cycle ExistsThe Good News: A Virtuous Cycle Exists
What High Performing Organizations are Doing
is
What Top Performing Employees are Asking For
and it
Helps Reduce Turnover of Top Performers
and this
Leads to Better Performance
15
Strategic RewardsStrategic Rewards®®::
Annual survey of Strategic Rewards® practices
Attraction & retention - HR programs that make a difference
Employer practices survey among
400+ companies in North America
Survey of top performing
employees among 3,600 star
performers
BasePay
Benefits
Incentives IntangibleRewards
16
ALLALL Companies are Having Difficulty Companies are Having Difficulty Attracting and Retaining Attracting and Retaining ALL TALENTALL TALENT
83% have difficulty attracting critical skill employees
65% have difficulty in retaining critical skills - regardless of industry
But now significant increases have resulted in:
Over 50% of employers having difficulty attracting non-critical skills and
43% having difficulty retaining non-critical skills
and its now worse outside of high-tech
Source: Strategic Rewards® 2001
17
And the Trend Will ContinueAnd the Trend Will Continue
Source: Strategic Rewards® 1999/2000
* Demand for labor is increasing at 2 percent per year (or roughly 20 percent for ten years), which, combined with an almost 12 percent drop in the absolute number of workers age 25-44, yields a 30 percent shortfall.
-3.1%
55.1%
71.3%
22.3%-8.6%
25 - 34
35 - 44
Age of Worker
1970 - 1980
1980 - 1990
1990 - 2000
24.8%
Change in Labor Supply
30 Percent Shortfall* of Younger Workers Over the Next Decade
18
Top Performers Have Accepted the New Top Performers Have Accepted the New Employment Deal in a Major WayEmployment Deal in a Major Way
New Employment DealNew Employment Deal
From fixed pay to variable
based on performance
From lifetime employment
to an opportunity to
contribute
From a predictable career to
individual opportunity and
investment in self
Top Performers DemandTop Performers Demand
High levels of compensation
and ability to build wealth
Opportunities for advancement,
job redesign, and new skill
acquisition
Career development,
investments toward business
literacy
Source: Strategic Rewards® 1999/2000, Supplemental Survey of Top-Performing Employees
19
What Motivates Top Performers?What Motivates Top Performers?
Motivations
Desire to maintain good work reputation
Importance to the work
Appreciation of others
Opportunity to prove capability to others
Interesting work
Opportunity to prove capability to self
Enjoyable co-workers
Expectation of improved chances for promotion
Personal desire to please supervisor
Expectation of financial reward
Fear of negative consequences
Percentage responding“very significant”
76%
66%
81%
57%
51%
35%
31%
20%
15%
9%
51%
Source: Strategic Rewards® 1999/2000, Supplemental Survey of Top-Performing Employees
20
What Managers Don’t Know May Hurt ThemWhat Managers Don’t Know May Hurt Them
The Perception Gap in The Perception Gap in AttractingAttracting Pay Approaches Perceived as Very EffectivePay Approaches Perceived as Very Effective
6%
6%
21%
15%
31%
30%
33%
31%
35%
44%
47%
51%
53%
72%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Exempt overtime (cash)
Exempt overtime (timeoff)
Technical pay premiums
Group incentives
Sign-on bonuses
Stock grantprograms/stock options
Paying above market
Percentage of Respondents
Top Performing EmployeesEmployers
(Percent responding "very effective")
Source: Strategic Rewards® 1999/2000, Supplemental Survey of Top-Performing Employees
13%40%Project incentives
21
What Managers Don’t Know May Hurt ThemWhat Managers Don’t Know May Hurt Them
The Perception Gap in The Perception Gap in RetainingRetainingPay Approaches Perceived as Very EffectivePay Approaches Perceived as Very Effective
35%
5%
24%
20%
18%
29%
36%
38%
44%
46%
54%
69%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Retention/”stay bonus"
Exempt overtime (time off)
Project incentives
Group incentives
Spot bonuses
Paying above market
Percentage of Respondents
Top PerformingEmployees
Employers
(Percent responding "very effective")
Source: Strategic Rewards® 1999/2000, Supplemental Survey of Top-Performing Employees
32%51%Stock grant
programs/stock options
26%41%Technical pay premiums
9%26%Exempt overtime (cash)
22
Effectiveness of Non-Compensation Reward Effectiveness of Non-Compensation Reward Plans in Plans in AttractionAttraction and and RetentionRetention
Percentage Responding Percentage of Companies
Reward Plan “Very Effective” with Plan76%
68%
27%
45%
73%
43%
27%
8%
Employers’ OpinionsTop Performing Employees’ Opinions
Source: Strategic Rewards® 1999/2000 and 2001, Supplemental Survey of Top-Performing Employees
26%
16%
65%
53%
Learning new skills in current job
Use of competencies for career path/development
30%79%Opportunities for advancement
20%57%Career development (non-promotional)
29%56%Flexible work schedules
28%36%Work at home
30%Reduced work week 36%
26%Sabbaticals 29%
Significant Increase +10% Moderate Increase +5%
23
Do Technology Companies Do Anything Do Technology Companies Do Anything Different?Different?
Source: Strategic Rewards® 2001
Percentage Offering Compensation ProgramsHigh
Technology All OtherSign on bonus 80% 70%Broad-based stock options 65% 43%Spot Bonus 54% 40%Project Incentives 33% 29%Retention Stay Bonus 31% 33%Paying Above Market 30% 25%Exempt Overtime (cash) 27% 20%Exempt Overtime (time off) 25% 21%
Percentage OfferingNon-Compensation Programs
HighTechnology All Other
Opportunities for Advancement 82% 76%Opportunities to Learn New Skills 76% 67%Flexible Work Schedules 74% 74%Work at Home 53% 42%Career Development 52% 43%Use of Competencies for Career Development 29% 27%Reduced Work Week 28% 28%Sabbaticals 16% 7%
24
Top Performing High Technology EmployeesTop Performing High Technology Employees
Extremely Important Factors inAttraction and Retention
HighTechnology All Other
Compensation 53% 50%Opportunity to Develop Skills 47% 45%Benefits 44% 50%Type of Coworkers 40% 35%Freedom to Work Independently 40% 35%Job Location 31% 24%Job Security 30% 40%Vacation 29% 33%
Source: Strategic Rewards® 2001, Supplemental Survey of Top-Performing Employees
25
Top Performing Employees’ Responses VaryTop Performing Employees’ Responses Vary
All Secretarial/Clerical/Production
Professional/technical
Managers/Directors/Sr. Managers
Men
1. Compensation 1. Benefits 1. Opportunity todevelop skills
1. Compensation 1. Compensation
2. Benefits 2. Job security 2. Compensation 2. Benefits 2. Benefits
3. Opportunity todevelop skills
3. Compensation 3. Benefits 3. Type ofpeople/culture
3. Opportunity to developskills
4. Opportunity forpromotion
4. Vacation/PTO 4. Freedom to workindependently
4. Opportunity todevelop skills
4. Opportunity forpromotion
5. Vacation/PTO 5. Opportunity todevelop skills
5. Vacation/PTO 5. Opportunity forpromotion
5. Freedom to workindependently
Women Earn $100K+ Earn Under $30K Age 50+ Under Age 30
1. Benefits 1. Compensation 1. Job security 1. Benefits 1. Opportunity todevelop skills
2. Opportunity todevelop skills
2. Type ofpeople/culture
2. Benefits 2. Compensation 2. Opportunity forpromotion
3. Compensation 3. Benefits 3. Compensation 3. Freedom to workindependently
3. Compensation
4. Vacation/PTO 4. Opportunity todevelop skills
4. Opportunity todevelop skills
4. Job security 4. Vacation/PTO
5. Freedom to workindependently
5. Opportunity forpromotion
5. Vacation/PTO 5. Opportunity todevelop skills
5. Type ofpeople/culture
Source: Strategic Rewards® 2001, Supplemental Survey of Top-Performing Employees
26
Technology Companies are More Strategic!Technology Companies are More Strategic!
Despite the traditional view that technology companies place an inordinate premium on speed over thoughtfulness
65% of Technology companies have a formal recruitment strategy
Compared with only 47% of non-technology companies
But only 25% of Technology companies have a retention strategy
This still exceeds the 16% of non-technology companies with
a formal approach to retaining employees
Source: Strategic Rewards® 2001
27
Are High Performing Companies Different?Are High Performing Companies Different?
High performing companies are winning the war for talent
Turnover rates are decreasing
Recruiting costs between 70% and 200% of annual salaries
Resulting in a median 17.8% five year return
High performing company program designs are based on:
Performance Improvement
Communication
Flexibility
Involvement
Measurement
Source: Strategic Rewards® 2001
28
Performance ImprovementPerformance Improvement
Significantly more high performing organizations approach their reward programs as a means of engaging people in improving business performance
Starting from this clearly articulated premise helps prevent programmitis - ie. programs du jour that don’t drive results
Source: Strategic Rewards® 2001
Percent That View Rewards as Means to Engage People in Improving Business
Performance
84%
62%
0%20%40%60%80%
100%
Top PerformingFirms
All Others
29
Performance ImprovementPerformance Improvement
Performance measurement — measuring performance against a specified set of job-related competencies:
Providing tools for employee
development tied to rewards and geared
toward enhancing organization success Rapid identification of performance issues
Coaching and mentoring programs — providing non-direct report with contacts
within the company to assist employees with direction and career-planning
Inplacement/Redeployment Retrain to learn new skills Utilize systematic web-based staffing processes
Best Practice
Wal-Mart focuses intensively on how employees adapt during their first 90 days by assigning veteran employees as mentors. They go on to assess each new hire’s progress at 30-, 60-, and 90- day milestones. Results: reduced attrition rates by 25%.
Chevron’s IT unit provides efficient web-based staffing reallocation databases designed to match skills, growth opportunities and project team needs
30
CommunicationCommunication
The best reward strategies and programs will not achieve their full potential if they are not
Clearly articulated and Understood by employees
Source: Strategic Rewards® 2001
Communication of Reward Plans
74%69%
53%57%
0%10%20%30%40%50%60%70%80%
Reward systemdesign
communicated to allemployees
Employeesunderstand reward
plans
Top-performing firms
All other firms
31
CommunicationCommunication Communication — systematic strategy and
processes for keeping employees in the loop
Making sure they believe the value the company
places on them Making sure they understand the value of what
the company provides to them (benefits, opportunities, development, etc.)
Exit interviews — conducted by department managers, focus on underlying issues, find trends, implement recommendations
Best Practices
Scient appointed a Chief Morale Officer who is responsible for fostering a positive culture, bringing people issues to the top of the company’s agenda, leading morale-building efforts, organizing company rallies, roundtable luncheons, employee recognition and awards. Results: a low 11 percent turnover compared to the 35 percent industry standard and a great recruiting-oriented website.
.Toys ‘R Us identifies listening and acting upon their employees dissatisfiers in exit interviewers as one of the key reasons they were able to reduce turnover by 35 percent.
32
FlexibilityFlexibility
The most successful firms are more likely to report reward plan flexibility
The impact of the need to operate at internet speed requires a nimble response
Source: Strategic Rewards® 2001
Percent Reporting their Rewards are Flexible to Meet Changing Conditions
65%
48%
0%10%20%30%40%50%60%70%
Top PerformingFirms
All Others
33
Flexibility Flexibility
Multiple Incentives Its not just about options Adjust to evolving conditions through other forms of
incentive Vary short-term objectives vs. mid and long-term
Adjust to People Needs Flexible scheduling/ Job shares
Floating hours at either end of the business day, split
workday, shift, work week Address demographic changes
Virtual office/telecommuting Productivity generally remains the same or increases -
overcome hesitancy to provide
Rockwell instituted a new innovation program designed to celebrate and reward with stock options not only patents but business process improvements. A key goal is to harvest the innovations currently unidentified.
Silicon Valley Bank developed a concept of an full lifestyle portal for their employees on the company HR-intranet. Designed to address all life events - it acts as a concierge on the web for employees. The result is a closer relationship between the Bank and its employees, a better understanding across functions of many of the bank’s services and improved productivity due to reduced distractions and hassles in trying to resolve problems.
Best Practice
34
Employee InvolvementEmployee Involvement
Employee involvement in reward plan design is essential if programs are to be customized to target audiences
This approach is utilized by a
minority of organizations - but
it is much more common
among high performing
companies
Source: Strategic Rewards® 2001
Percent That Involve Employees in Reward Plan Design
19%
11%
0%
5%
10%
15%
20%
Top PerformingFirms
All Others
35
Employee InvolvementEmployee Involvement
Recognition and rewards usage and design Employee design of cash and non-cash awards given
to individuals or teams based on performance Implement innovative employee ideas Recognition motivates top performers
Social communities Encouraging the development of social ties among
key employees binds employees to a social network
at work Separate locations for technical/creative groups
Off-site, think tank environment
Harley-Davidson increased employee participation and challenged employees at the same time when it asked them to take an active part in building a better motorcycle. Through this effort, many innovative worker-designed items are now utilized throughout its plant.
Scitor, near the top of the Top 100 Best Places to Work, communicates its unique environment internally and externally. Scitor takes the position that all benefit and reward programs belong to the employees and should provide the best possible benefits. Scitor seeks thorough employee input in all proposed changes.
Best Practices
36
MeasurementMeasurement
High performing organizations are much more likely to measure their reward plan results
The old adage of what gets measured gets accomplished is directly relevant
Source: Strategic Rewards® 2001
Percent That Measure Reward Plan Effectiveness on an Ongoing Basis
48%
34%
0%10%20%30%40%50%60%
Top PerformingFirms
All Others
37
Measurement Measurement
Measurement - Asking early and often: Retention is a critical business measurement but it is
rarely a part of a manager’s performance metrics Company culture, people practices, policies
shape an employee’s commitment level and
retention Research consistently validates the significance
of management’s role in employee retention Find out what issues exist before the turnover
begins, make adjustments based on the feedback to
the work environment and to management style
Prudential established their “Building Management Capability” program, centered around a planning model that projects skill/talent needs and attrition rates. This program enables managers to develop targeted retention initiatives and more cost-effective succession plans for filling skill/talent gaps.
UPS identified their drivers as hot skill employees and expensive to bring on board due to the huge learning curve in getting familiar with their routes. After analyzing the reasons drivers left, it determined that the number one reason was the task of loading packages before each run. To reduce turnover, they eliminated the loading task from the driver’s job and hired a new group to load them. Driver turnover rate fell dramatically. Of course, turnover in this new position is astronomical, but it is fairly simple to learn and recruit for this position.
Best Practices
38
Key Key Strategic RewardsStrategic Rewards®® Messages Messages
Top performers are self-motivated and recognize their value as free agents.
Take money off the issues table by paying above market for top-performers - engage them through
their primary motivators.
They will leave for money but it isn’t the primary driver.
Competitive differentiation comes from understanding and capitalizing on individual
employee’s needs.
Non-Technology companies are closing the gap in the war for talent
The old advantages of stock and casual, non-bureaucratic work styles have been adopted across
industries
Technology companies lead by maintaining a strategic people vision
39
Key Key Strategic RewardsStrategic Rewards®® Messages Messages
Play to win
The future will be created by Human Capital
High performing companies have gained competitive advantage by insuring their compensation programs are:
Performance-Oriented
Well-Communicated
Flexible
Based on employee involvement and
Measured.
40
“The New Economy is heavy on intellectual capital. The sharing of knowledge is what really makes it go. Today, teamwork and empowerment are crucial to success.”
John ChambersChairman & CEOCisco Systems1995–Present
1995 Market Cap $9 billion1995–Present has created $480 billion in shareholder value