1 attracting and retaining top-performing technology employees ieee-usa careers conference november...

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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

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“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

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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

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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

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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)

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Linking Human Capital and Value CreationLinking Human Capital and Value Creation


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

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Linking Recruiting and Value CreationLinking Recruiting and Value Creation


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

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Rewards and Accountability and Value CreationRewards and Accountability and Value Creation


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

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Collegial, Flexible Workplace and Value CreationCollegial, Flexible Workplace and Value Creation


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

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Communication Integrity and Value CreationCommunication Integrity and Value Creation



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%

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Prudent Use of Resources and Value CreationPrudent Use of Resources and Value Creation


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%


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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

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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

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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

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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

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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

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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%


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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")


13%40%Project incentives

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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")


32%51%Stock grant

programs/stock options

26%41%Technical pay premiums

9%26%Exempt overtime (cash)

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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%

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Do Technology Companies Do Anything Do Technology Companies Do Anything Different?Different?


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%

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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

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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



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. Type ofpeople/culture

2. Benefits 2. Compensation 2. Opportunity forpromotion

3. Compensation 3. Benefits 3. Compensation 3. Freedom to workindependently

3. Compensation



4. Job security 4. Vacation/PTO

5. Freedom to workindependently



5. Type ofpeople/culture

Source: Strategic Rewards® 2001, Supplemental Survey of Top-Performing Employees

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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


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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


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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


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

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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

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CommunicationCommunication

The best reward strategies and programs will not achieve their full potential if they are not

Clearly articulated and Understood by employees


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

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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.

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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


Percent Reporting their Rewards are Flexible to Meet Changing Conditions

65%

48%

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

Top PerformingFirms

All Others

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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

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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


Percent That Involve Employees in Reward Plan Design

19%

11%

0%

5%

10%

15%

20%

Top PerformingFirms

All Others

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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

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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


Percent That Measure Reward Plan Effectiveness on an Ongoing Basis

48%

34%

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

Top PerformingFirms

All Others

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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

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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

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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.

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“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

1 attracting and retaining top-performing technology employees ieee-usa careers conference november...

Documents

hci dimension slide

performing employees

hci practice slide

market value

value source

engaging employees

hci research process

accountability slide