www.mercer.com leading through unprecedented times managing the 2010 workforce march 25, 2010
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2Mercer
Market and economic forces continue to create unprecedented challenges and uncertainty
Decreased rates of globalization
Decreased consumerism, credit
Access/cost of capital
Shrinking markets
Imbalances resulting from downsizing Short-term “bubbles” in labor supplies internally and
externally
Our degrees of freedom and levels of corporate responsibility will be greatly impacted
Trust and connection to the company have changed Attitudes toward success, rewards, work have shifted
The traditional “safety net” has been weakened
DEMAND WILL RETURN
but not like before
GROWTH WILL BE TOUGHER
many moving pieces
MANAGING EMPLOYEE DEMOGRAPHICS
more complex
NEW SOCIAL POLICY AGENDAS
strong impact
THE EMPLOYMENT DEAL
is being tested
3Mercer
Post-recession talent strategies will be placed under increasing scrutiny
Answer critical questions What markets and talent segments are critical to
short-term return and longer-term growth?
What new types of deals will restore trust and engage employees?
With talent flows experiencing choke points and bubbles, how can career paths be redefined and managed?
With less reward dollars available, who will be rewarded and for what levels of performance?
How will the need for employee financial security and increased social responsibility be balanced with new economic realities?
How can leaders and communication strategies be better positioned to connect with and inspire employees?
4Mercer
2010 requires a new way of planning
Take action now in the
face of uncertainty
Key principles to keep in mind
Use facts instead of perceptions
Be ready to make real-time decisions and turn on a dime
Segment and focus on key talent
Strike a new deal – that works for both
Be transparent and involve your employees
Engage the business in the conversation
6Mercer
TalentWorkforce reduction trends
Workforce Reductions
Plans for 2009 Workforce Levels
34% 33%
19%
13%
42% 41%
13%
5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Have already reduced staff in the lastsix months (October – April)
Likely to reduce staff in remainder of2009
None
Less than 5%
5-10%
More than 10%
12%
35%
37%
15%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Hire talent, expandingour overall workforce
Hire talent toreplacement levels only;no net changeHire key talent while atsame time reducingoverall workforceReduce our overallworkforce
Source: Mercer June2009 Unprecedented Times SurveySource: Mercer June2009 Unprecedented Times Survey
7Mercer
2010 workforce planning
Source: Mercer Human Capital Planning 2010 SurveySource: Mercer Human Capital Planning 2010 Survey
Primary driver for 2010 human capital decisions (N=155) Percent of participants
Continuing to contain/reduce costs 66 Responding to non-cost critical business needs (e.g., building key capabilities, focusing the workforce on key growth initiatives, etc.)
20
Matching external competitive practices 14
2010 human capital planning emphasis vs 2009
63
60
54
51
44
29
26
21
13
37
38
45
46
53
71
64
70
79
2
1
3
3
10
9
8
0 20 40 60 80 100
Workforce costs
Focus on high-potentialemployees
Focus on critical skills
Development of workforcecontingency plans
Focus on employee engagement
Use of internal analytics
Worklife balance
Use of external benchmarking
Use of workforce segmentation
Percent of organizations
More emphasis About the same Less emphasis
8Mercer
Market base pay increase trends In the past six months, 51% of organizations froze salaries at 2008 pay levels for at least part of their employee population; 30% of organizations overall
2009 actual 2010 projected
Employee category
Average base pay increase
budget (excluding 0’s)
Salary freezes
Average base pay increase
budget (including 0’s)
Average base pay increase
budget (excluding 0’s)
Salary freezes
Average base pay increase
budget (including 0’s)
All employees 3.2% 30% 2.1% 2.9% 11% 2.6%
Executive 3.5% 39% 1.9% 3.1% 14% 2.6%
Management 3.2% 31% 2.1% 3.0% 11% 2.6%
Professional (sales & non-sales)
3.2% 28% 2.2% 2.9% 10% 2.6%
Office / Clerical / Technician
3.1% 25% 2.2% 2.9% 10% 2.6%
Trades / Production / Service
3.0% 24% 2.2% 2.9% 10% 2.6%
Romania / All industries 9.8% 20% 6.7% 6.5% 15% 6%
9Mercer
Annual incentive trendsMany companies have made adjustments to their annual incentive programs in 2009, and many are considering changes for 2010
Annual Incentive Program Changes (n = 229)
10%
10%
10%
10%
16%
16%
17%
29%
3%
4%
7%
11%
10%
13%
14%
20%
0% 10% 20% 30% 40% 50%
Increase maximum payoutopportunity/leverage
Use of more absolute performancemeasures
Decrease maximum payoutopportunity / leverage
Use of more relative performancemeasures
Allow for increased discretion relatedto payouts
Change / introduce new non-financialperformance measures
Increase the range of performance forcorresponding payout levels
Change or introduce new financialperformance measures
Implemented in 2009 Considering for 2010
Percent of organizationsPercent of organizations
Source: Mercer July 2009 Weathering the Storm SurveySource: Mercer July 2009 Weathering the Storm Survey
10Mercer
Long-term incentives in 2009One-quarter of companies reduced LTI values, while the balance delivered a value consistent with 2008 grant levels; 11-30% reduction was most common
2009 Long-term Incentive Grant Levels Per Recipient (n = 233)
2009 Long-term Incentive Grant Level Reductions
Grant Reductions
Executives% of Orgs (N = 51)
Non-executive Participants
% of Orgs(N = 49)
Less than 10% 25% 20%
11 – 30% 51% 49%
31 – 50% 6% 14%
More than 50% 18% 16%
5% 5%
14%
77%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Percent of organizations
Reduced the value and applied alower reduction to executives thanother grant recipients
Reduced the value and applied agreater reduction to executivesthan other grant recipients
Reduced the value and appliedreduction equally for all long-termincentive recipients
Did not reduce the value of grants
Source: Mercer July 2009 Weathering the Storm SurveySource: Mercer July 2009 Weathering the Storm Survey
12Mercer
Myths and realities about human capital in a recession
Myths Realities
Employee Retention
We don’t have to worry about retention – no one is going anywhere
Challenge of retention has given way to challenge of engagement. Transparency fosters engagement, which will ensure retention of high performers when times improve
Talent Employees only care about pay increases
Career development enhances the employment relationship
Pay reductions We can cut across the board and worry about competitiveness later
When the economy improves, pent up demand for high performers will prevail
Performance We don’t have to be concerned about whether our pay programs work well because we’re not paying out that much anyway
Given limited resources, it is crucial that any salary increases and incentives are allocated to critical segments
Rewards: Market data
We don’t need market data this year given inevitable pay increase cut-backs
Falling too far behind increases the risk of losing key talent when the economy turns around
13Mercer
EMPLOYEEENGAGEMENT
Moving forward, action plans won’t wait
TALENT
REWARDS
Adapt workforce cost and capabilities to reflect uncertain business conditions and multiple planning scenarios
Create career development opportunities, particularly when monetary rewards may be limited
Manage performance, identify / differentiate top performers
Focus limited resources on engaging talent to drive performance and profits
Use communication effectively to quell fears, minimize distractions and increase productivity
Manage financial and brand risks of changing labor legislation and social policies
Redefine links between performance and payUtilize fact-based data to set compensation planning
agendas and re-tool reward program design
2010 priorities must be established now
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