New Era for Talent Management Today’s challenges and tomorrow’s opportunities Keith Caver, North America Practice Leader, Talent Management and Organizational Alignment, Towers Watson

Difficulty finding the right people and keeping the people you need Workforce Segment Problems Attracting Problems Retaining Critical skill employees 72% 56% High potential employees 60% 55% Top-performing employees 59% 50% All employees 31% 25% Source: Towers Watson 2012-2013 Global Talent Management and Rewards Study — Global.

Engagement is at risk. It’s not about ‘feeling good’…it’s about having the tools, colleagues, time, capacity to fully commit to work. “ - Towers Watson 2012 Global Workforce Study

The current state of sustainable engagement of the global workforce Source: Towers Watson 2012 Global Workforce Study — Global.

Further complicating these challenges are other talent realities Security Structural mismatches Friction points Skill gaps Unsustainability

The next critical skills global skills agile thinking relationship building In the study we conducted with Oxford Economics, we interviewed nearly 350 business leaders to learn what they believe are the most important skills in the future. We found that the most important skills for the future sit in four buckets. They are agile thinking: the ability to balance opposing views but be able to make trade-offs when necessary, the ability to innovate, the ability to see the big picture, understand the possible future scenarios and plan for them. Second is relationship building. Where communication skills are important. As is the ability to team and truly collaborate. Building and leveraging relationships outside the organization as well as inside the organization will be important. Next is digital business skills, which may be obvious to most of you. This category includes such things as deeper understanding of the cost and benefit of various tools, the ability to use social media, as well as the ability to operate virtually. Finally are global operating skills. Companies will be looking for people with an understanding of international markets, foreign language skills, the ability to manage diverse employees and sensitivity to different cultures. Does a typical business or engineering degree include training in these areas? Not really. digital business skills

A deeper look at the emerging skill sets Global skills Agile thinking Foreign language skills Dealing with complexity and ambiguity Ability to manage diverse employees Ability to consider and prepare for multiple scenarios Ability to work in multiple overseas locations Innovation Cultural sensitivity Managing paradoxes, balancing opposing views Understanding international markets Ability to see the “big picture” 10 20 30 40 50 60 10 20 30 40 50 60 % of respondents % of respondents Digital business skills Relationship building Relationship building (with customers, Digital business skills partners, government, etc.) Ability to work virtually Teaming (including virtual teaming) Understanding of corporate IT software and systems Collaboration Digital design skills Co-creativity and brainstorming Ability to use social media and “Web 2.0” Oral and written communication 10 20 30 40 50 60 10 20 30 40 50 60 70 % of respondents % of respondents Source: Global Talent 2021 Study conducted by Oxford Economics and Towers Watson, 2012.

Future talent friction points In aggregate, we find equilibrium in China, Argentina, Mexico. We expect to find surpluses in India, South Africa, Brazil, the Czech Republic, Egypt. And we expect to find some of the biggest deficits in Japan, Italy, South Korea, the U.S. and Canada. The picture would differ if we drew the map by industry. For example, we would find a deficit of talent in China in wholesale and retail trade and in India in the construction industry. In the US, we would find a slight surplus in the real estate and mining sectors. Given the severity of the mismatch in most sectors in so many countries, companies will need new solutions. Solutions that can serve companies well today as well as in the future. One of the first things to consider is the sources of labor. Are there nontraditional labor pools who could fill gaps? Able people who might be retiring or leaving the workforce to rear a family never to come back. Establishing value propositions that appeal to these groups of people today could help address the critical skills gap. Over time, it will help address the broader issues. Organizations could also consider moving jobs. This may not bring the same labor cost arbitrage that it has today. And it may be required for different types of jobs . To make it work, perhaps jobs will need to be disaggregated and reconstructed in a way that makes them doable from a remote location. Deficit countries At equilibrium Surplus countries Source: Global Talent 2021 Study conducted by Oxford Economics and Towers Watson, 2012.

Global forces and trends are changing demands on employers and employees Dramatic shifts in skill requirements for future growth, coupled with increasing misalignment between supply of/demand for talent worldwide GWS Talent 2021 Dispersed and diverse workforce, enabled by technology to work anywhere, anytime, across national/organizational boundaries in increasingly innovative work arrangements Ongoing cost pressures and continual belt-tightening in most markets, increasing employers’ focus on maximizing workforce productivity Transformative HR TM&R Pressured, stressed workforce, struggling to do more with less, looking for long-term security and stability in a world that isn’t offering much of either

What are the strategic implications? technology Re-skill Sustainability Up-skill WORK DISAGGREGATION Creative sourcing develop

Grow and develop Hire more from outside Retain key people How to respond Grow and develop Hire more from outside Retain key people But, as you all know, talent is a very broad concept. A talent challenge might mean something very different depending upon where you are in the world, the industry in which you operate and the strategy you are pursuing. So, business and HR leaders are employing different strategies to respond. Given the strength of evidence connecting employee engagement to business performance, many organizations are focused on sustaining high levels of engagement. For certain skills that are only gained through experience or for skills that are scarce in a particular market, companies are looking to grow and develop talent internally. For more mature businesses, productivity improvement is an important strategy. In fast growing sectors, companies are adding talent and hiring from the outside. For those roles where it takes many years to get to maximum productivity and where relationship and network capital are important, retention is the main priority. Raise engagement Improve performance

Savvy employers will need to think differently about their practices in the future Apply the same rigor, effort and sophistication to human capital planning as to business planning Think more broadly – and creatively – about where talent is sourced Embrace the virtual workplace and support a wide range of different work scenarios Invest more heavily in retraining and reskilling Rethink and restructure how certain work is accomplished With the commissioning of TW and other global organisations, Oxford Economics undertook an extensive, two-pronged study: a global survey of 352 HR professionals in the first quarter of 2012, across more than 25 industrial sectors. The intent was to examine how rapid globalization and the transformation of the business environment will affect workforce needs in the future, and the implications of these shifts for senior business executives and their HR leaders. And an extensive modeling exercise of 44 countries and 25 industry sectors to understand where the most significant shifts in the demand and supply of talent will occur over the next decade. To supplement the results of the quantitative research, series of in-depth interviews with HR executives across the globe was conducted. Adrian will now give us OE perspective on the profound shifts we will observe in the marketplace in the next 10 years and give us an overview of the study’s major findings, before we dig into a couple of these. Business rigor Talent sourcing Virtual workplace Re-skilling Rethinking work

Our latest research Sustainable engagement Engagement is at risk Pay continues to be major headline, but career advancement is the new retention risk Talent Paradigm – know the critical roles for future business success; know your critical talent ; focus your interventions on those holding critical roles, or your talent that shows critical potential – SEGMENTATION MIND THE GAP – about EE/ER differences and about growing engagement gap Finding and keeping employees isn’t enough. Employees who are engaged on a sustainable basis really make a difference in company performance.

Behind these numbers are gaps in areas particularly relevant in today’s environment Traditionally Engaged Enablement Energy Belief in company goals and objectives Emotional connection (pride, recommendation) Willingness to give extra effort to support success Freed from obstacles to succeed at work Have resources to perform well Can meet work challenges effectively Can sustain energy needed at work Have social supports in work environment Have sense of enthusiasm and accomplishment at work Ensuring people are capable of doing their jobs well Ensuring people have capacity to perform at their best

The payoff for closing gaps in the drivers of sustainable engagement is substantial 3x 6.5 operating margin fewer days lost High sustainable engagement companies’ operating margins are 3x higher than those with the lowest levels of engagement An average of 7.6 days of lost productivity per year for employees with high engagement vs. 14.1 days for the disengaged 41% lower retention risk Only 17% of employees with high engagement are high retention risks compared to 58% of disengaged employees Source: Towers Watson normative database.

Top Drivers of Sustainable Engagement The top drivers are influenced by an employer’s value proposition, EVP, and Total Rewards programs Top Drivers of Sustainable Engagement Leadership 1 Stress, Balance and Workload 2 Effective at growing the business Sincere interest in employees’ well-being Behave consistently with organization’s core values Trust and confidence in job being done Stress levels at work are manageable Healthy balance between work and personal life Work arrangements are flexible Enough employees in work group to get job done right Goals and Objectives 3 Supervision 4 Good understanding of organization’s business goals and steps needed to reach those goals Understanding of how job contributes to the organization achieving its business goals Treats me with respect Encourages new ideas and ways of doing things Acts in ways consistent with his or her words Effective career development conversations Sustainable Engagement is…The intensity of employees’ connection to their organization, marked by committed effort to achieve work goals (being engaged) in environments that support productivity (being enabled) and maintain personal well-being (feeling energized) The outcomes (employee productivity & retention) will suffer if any of the three components of sustainable engagement are lacking. So, if two employees have the same score on engagement but one has high energy & enablement, then the committed effort they give (as a result of engagement) will lead to greater productivity than the person with the same engagement score, giving the same level of committed effort but with low energy and enablement. This may cause their score on the engagement items to drop over time, but we would refer to that as them being less sustainably engaged (or becoming disengaged if they continue to score low on enablement & energy).   This is critical for two reasons: Energy & enablement are each just as important as engagement in their own right regardless of whether they ever have any impact on engagement. if poor performance management leads to lower enablement we have a problem to deal with whether people have a high score on engagement or not. Orgs that only measure engagement miss that and will lose out to those with this superior view because they won’t address these performance sapping issues in a timely way. Low scores in any of the sustainable engagement scores are effecting performance today, not in some distant future when someone finally becomes disengaged and quits trying or leaves the firm. So, I need to act now, not leave it and hope I get promoted to a different spot before the troubles appear or wait until I have more time and resources in a few years when the economy improves Image 5 Organization highly regarded by general public Organization conducts its business with honesty and integrity Source: Towers Watson 2012 Global Workforce Study — Global.

Differentiate to attract and retain Companies should consider what is important to employees and ensure their value propositions are compelling and clear to those people with critical skills who are high potential and top performing. When I say employment value proposition, I mean the whole deal. It’s what an employee gets from working at the organization and what is expected of him or her. It includes the purpose and values of your organization, the job, culture and people in your company, and total rewards . Total rewards includes foundational rewards like base pay, benefits, and time off, performance-based rewards and career/environmental rewards. Different elements of the employment value proposition will resonate at different career stages , regions, industries. We think it is valuable for companies to understand what will resonate when and where. And we think it’s important to hear directly from employees not just to make assumptions. Use the employee value proposition to drive the right behaviors and performance. Differentiate for key employee groups.

more likely to report their employees are highly engaged A formalized EVP helps organizations address critical challenges with attraction, retention and engagement of talent 5X more likely to report their employees are highly engaged 2X more likely to report achieving financial performance significantly above their peers Companies that have adopted an increasingly integrated approach to Total Rewards strategy, design and delivery decisions — supported by an overarching Employee Value Proposition — are:

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