1.  Managing Global Talent Challenges through Global Talent Management Randall Schuler, Rutgers University www.rci.rutgers.edu/~schuler/www.rci.rutgers.edu/~schuler/) For the IHRM Conference, Aston University, Birmingham, England, June 10, 2010 © Randall S. Schuler, 2010

2. Agenda  Global Talent Challenges (GTCs)  Ups and Downs of GTCs  Global Talent Management  Talent: Degree of Inclusiveness  HR Actions for GTM  Removing Roadblocks to GTM  Role of HR  Implications/Results/ Issues  Conclusions  References

3. Global Talent Challenges (GTCs) GTCs are significant human resource issues that focus on managing a firm to ensure just the right amount of the right talent and motivation, at the right place, and at the right price, during all economic and financial ups and downs in a very competitive world GTCs are significant human resource issues that focus on managing a firm to ensure just the right amount of the right talent and motivation, at the right place, and at the right price, during all economic and financial ups and downs in a very competitive world

4. GLOBAL TALENT CHALLENGES (cont’d) for the purposes of balancing the workforce with the needs of the firm in the short term, and positioning the firm to have the workforce needed in the longer term.

5. MAJOR CONTEXTUAL FORCES AND SHAPERS OF A FIRM’S GTCs MAJOR CONTEXTUAL FORCES AND SHAPERS OF A FIRM’S GTCs  GLOBALIZATION : TRADE, FDI, POLITICAL & ECONOMIC CONDITIONS, COMPETITION, CUSTOMERS, WORKERS  COMPETITIVE DYNAMICS : CONSOLIDATION, MERGERS, ACQUISITIONS, JOINT VENTURES, EXPANSION, RELOCATION  DEMOGRAPHICS : AGE, GENERATIONS, REGIONS  GLOBAL, REGIONAL AND LOCAL WORKFORCE CHARACTERISTICS : COMPETENCIES, MOTIVATION, COMPENSATION REQUIREMENTS, PRODUCTIVITY LEVELS, LEGAL CONDITIONS  CHANGING NATURE OF WORK : MORE KNOWLEDGE AND ENGAGEMENT REQUIRED/USEFUL AT ALL LEVELS

6. MAJOR FORCES AND SHAPERS OF GTCs (cont’d) MAJOR FORCES AND SHAPERS OF GTCs (cont’d) AS A CONSEQUENCE OF THESE MAJOR FORCES AND SHAPERS, STARTING IN THE LATE 1990s, THERE WAS A GREAT INCREASE IN GLOBAL ECONOMIC ACTIVITY, THAT CAUSED FIRMS AROUND THE WORLD TO THINK ABOUT…

8. PROMPTING FIRMS TO ASK QUESTIONS LIKE : WHERE ARE ALL THE WORKERS?  APPROXIMATELY 40% OF 37,000 COMPANIES ACROSS 27 COUNTRIES FACE CHALLENGING TIMES IN HIRING THE PEOPLE THEY NEED (MANPOWER, 2008)  FOR CEOs SEARCHING FOR INDUSTRY, TECHNICAL AND PARTICULARLY MANAGEMENT SKILLS TO SUPPORT GEOGRAPHIC EXPANSION, THEY RATED “INSUFFICIENT TALENT” AS THE TOP BARRIER TO GLOBAL INTEGRATION EVEN HIGHER THAN REGULATORY AND BUDGETARY HURDLES (IBM, 2008).

9. ESPECIALLY IN CHINA ACCORDING TO A RECENT SURVEY IN CHINA, “88% OF THE CHINESE EXECUTIVES SAID THEIR GLOBALIZATION EFFORTS WERE HINDERED BY THE SCARITY OF PEOPLE WITH REAL CROSS- CULTURAL KNOWLEDGE MANAGING FOREIGN TALENT. 93% SAID THAT CHINESE COMPANIES WOULD NOT ACHIEVE THEIR GLOBAL ASPIRATIONS UNLESS THEY DEVELOPED SUITABLE LEADERS MORE AGGRESSIVELY. (http://www.mckinseyquarterly.com/How_Chinese_companies_can_succeed_abroad_2131)http://www.mckinseyquarterly.com/How_Chinese_companies_can_succeed_abroad_2131

10. BUT VIRTUALLY ALL OVER: “ IF YOU TAKE INTO CONSIDERATION THE 70 MILLION BABY BOOMERS EXPECTED TO RETIRE OVER THE NEXT 15 YEARS (IN THE U.S.), AND ONLY 40 MILLION WORKERS EXPECTED TO ENTER THE WORKFORCE IN THE SAME PERIOD, YOU CAN PLAINLY SEE THAT A SHORTAGE OF WORKERS IS IMMINENT”(ADECCO, 2008). SAME IN EUROPE: (http://institute.adecco.com/FeatureArticles/Articles/Pages/2008_02_Europes_Looming.aspx)http://institute.adecco.com/FeatureArticles/Articles/Pages/2008_02_Europes_Looming.aspx AND THEN COMBINE THIS WITH THE LEVEL OF MOTIVATION THAT WAS BEING REPORTED:

11. A MAJORITY OF EMPLOYEES REPORTED TO BE ONLY MODESTLY ENGAGED: SO THE GLOBAL TALENT SHORTAGE SEEMED RATHER SIGNIFICANT, BUT http://www.mckinseyquarterly.com/Leaders_in_the_Crisis_Mckinsey_Global_Survey_Results_2422

12. BUT TODAY,  IN 2009 MORE THAN 50 MILLION JOBS WORLDWIDE WERE LOST, AND IN 2010…?  VIRTUALLY EVERY INDUSTRY AND SERVICE HAS ELIMINATED JOBS  U.S. AND EU UNEMPLOYMENT WILL AVERAGE 10% OR MORE, AND  WORLD GDP WILL GROW 0%, AT BEST, ALTHOUGH ASIA IS LIKELY TO SEE SIGNIFICANT GROWTH

13. So Now Different Conditions Today  There was a period of economic and financial boom from the late 1990s until late 2008  Economic and employment conditions have moderated  As a result, global talent challenges today are different  There is a growing concern for location, motivation, and cost  And a talent surplus is as much a reality as a talent shortage  Giving an opportunity to rebalance the workforce: but also pressure and opportunity to do more with less http://www.mckinseyquarterly.com/Making_talent_a_strategic_priority_2092

14. Thus There Are Many GTCs Including:  There is too much talent (or not the right talent) (www.mckinseyquarterly.com/Leaders_in_the_Crisis_Mckinsey_Global_Survey_Results_2422)www.mckinseyquarterly.com/Leaders_in_the_Crisis_Mckinsey_Global_Survey_Results_2422  There is too little talent  The talent is not motivated (engaged) enough  The talent is in the wrong place (country location)  The talent is at the wrong price, So http://www.mckinseyquarterly.com/Making_talent_a_strategic_priority_2092

15. the question today is: What can be to solve these several GTCs (Today and Tomorrow)? The answer is: A systematic use of HR polices and practices aka Global talent management

16. Global Talent Management (GTM)

17. Defining GTM(cont’d)  Global Talent Management is about systematically utilizing IHRM activities (complementary HRM policies and practices) to effectively manage an MNE’s global talent challenges consistent with the strategic directions of the multinational enterprise in a dynamic, highly competitive, and global environment (Tarique and Schuler, 2010)  More specifically, GTM is about…

18. Defining GTM (cont’d) “Planning for, obtaining, selecting, motivating, developing, retaining, reducing and removing individuals based on competencies and motivation levels consistent with strategic directions and degree of inclusiveness of the multinational enterprise in a dynamic highly competitive global environment.” (Schuler, Jackson and Tarique, 2011)

19. Does GTM Apply to Everyone? Some Say:  Companies, Line Managers, and HR should focus their efforts on “A” Players in “A” positions.  “B” Players with “A” potential should also be considered for development assignments.  Companies should focus only on “knowledge workers.”  “Today’s competitive environment requires a shift from treating everyone the same to treating everyone according to his or her contribution.” And some others say that:

20. All Inclusive Approach to Talent  Workforce is composed of multiple layers of talent each contributing to company’s strategic goals and objectives.  Talent Management initiatives should not be limited to only “top management” (“A” positions) or “top” talent (“A” players).  All employees should manage their career path and take advantage of opportunities to advance themselves.  Talent is at all layers of an organization and thus multiple initiatives should be crafted for the entire workforce...

21.  Multiple Layers of Talent http://www.mckinseyquarterly.com/Making_talent_a_strategic_priority_2092

22. HR Actions (Polices and Practices) for GTM  HR Planning and Forecasting  Location Planning  Job Analysis/Job Redesign  Attraction & Selection  Training & Development  Performance Management  Compensation  Retention  Reduction/Removal

23. Shortage of Talent Surplus of Talent Talent is at Wrong Place Talent is at Wrong Price HR Planning and Forecasting Location Planning Job Design/Redesign Attraction/Selection Training & Development Performance Management Compensation Retention Reduction/Removal Linking HR Actions to GTC’s

24. IMPLICATIONS FOR FIRMS Identify the current global talent challenges: e.g. excess, shortage, inappropriate location or price Forecast and scenario plan for the near term and intermediate term Evaluate potential new location choices Evaluate strategies, such as IM&As, to obtain needed talent Construct needed HR actions (policies and practices) systematically Build management and HR capabilities for GTM http://www.mckinseyquarterly.com/Making_talent_a_strategic_priority_2092

25. IMPLICATIONS FOR FIRMS (cont’d) Remove the obstacles to GTM by: -Building top management commitment to GTM -Obtain commitment to HR actions from front line managers -Improve HR’s impact and -Realize an effective HR Triad: managers, employees (and representatives) and HR in and for all HR actions http://www.mckinseyquarterly.com/Making_talent_a_strategic_priority_2092 http://findarticles.com/p/articles/mi_qu5427/is_200707/ai_n21286591

26. RESULTS GAIN/SUSTAIN GLOBAL COMPETITIVE ADVANTAGE DEVELOP MANAGEMENT LEADERSHIP DEVELOP HR LEADERSHIP HAVE THE RIGHT PEOPLE AT THE RIGHT PLACE AT THE RIGHT TIME WITH MOTIVATION (Balance) GAIN BENCH STRENGTH FOR FUTURE NEEDS AND UNCERTAINTIES (Positioning) ACHIEVE OPTIMAL STAFFING LEVELS. SHORT TERM, MEDIUM TERM AND LONG TERM

27. MAJOR ISSUES  Should GTM apply to all employees? How inclusive should you be or do you need to be?  Can you have multiple sets of HR actions for different groups of talent?  Will it cost too much?  What happens if we don’t do it?  Can managers and HR work together?  Do we have the desire to reduce barriers?  Is there an end to GTCs and need for GTM?

28. Conclusions  GTCs are significant human capital issues that focus on managing a firm to ensure just the right amount of the right talent and motivation, at the right place, at the right price, when at times there may be shortages and other time surpluses.  Talent is defined as the competencies and motivations of current and future employees in relation to the firm’s current and future strategic business goals.  GTM is about using HR policies and practices to systematically manage a MNE’s GTCs.

29. Conclusions (cont’d)  But still concern for talent, motivation, location and price  There are several HR Actions in response to managing the GTC  HR must determine and prioritize which HR Actions to take depending on the current state of the GTC  HR must determine if the company should include all layers of talent in HR Actions or differentiate based on position/performance

30. Differences between GTM and IHRM  IHRM includes more stakeholders.  IHRM addresses broader concerns and criteria. IHRM encompasses more HR actions.  IHRM encompasses more HR actions.  GTM is focused on GTCs, significant human capital issues associated with having the right amount of talent and motivation at the right place and the right time and the right price.  GTM systematically combines a sub-set of HR actions per the GTC.  GTM is more similar to other significant HR issues that require a systematic package of IHRM policies and practices such as IJVs, IM&As, KM 30

31. Similarities between GTM and IHRM  Both need to be based on and linked to the business strategy.  Both need to involve HR executives who know the business and have influence with top management.  Both need to have the input and support of top management and other line managers.  Both have application to all employees.  Both are necessary to the success of the firm.  Both are evolving in coverage and importance 31

32. TALENT DEFINED Talent is defined as the competencies of current and future employees in relation to the firm’s current and future strategic business goals. Having “talent” thus means that a firm has the employees who possess the desired position characteristics and requirements needed to achieve the business goals.

33. TALENT DEFINED ( cont’d) Talent is thus different from performance, and is related to the person and not the position. The terms “A” and “B” players refer to the performance of persons, who might perform better if they have more “talent.” In turn these terms are separate from “A” and “B” positions.

34. References “The Global Talent Management Challenge: Drivers and HR Actions for Dealing with Global Talent Challenges,” Randall Schuler, Susan Jackson, and Ibraiz Tarique, Chapter to appear in H. Scullion and D. Collings, Global Talent Management (London: Routledge) 2011. “Global Talent Management: Literature Review, Integrative Framework, and Suggestions for Further Research,” in Journal of World Business, April, 2010, Ibraiz Tarique and Randall Schuler “Global Talent Management at Novartis”- Harvard Business Review- Jordan Siegel; August 18, 2008 “Global Talent Management at HSBC,” Organizational Development Journal, Summer 2007, Anika Gakovic and Keith Yardley “Synergy from Diversity”- Pathways- The Novartis Journal. Michele Nayman; March 2003. “A Players or A Positions”- Harvard Business Review- http://www.bhbassociates.com/docs/articles/2005_Huselid-Beatty- Becker_HBR_Paper.pdfhttp://www.bhbassociates.com/docs/articles/2005_Huselid-Beatty- Becker_HBR_Paper.pdf McKinsey Quarterly: http://www.mckinsey.com/aboutus/mckinseynews/knowledge_economy.asp http://www.mckinseyquarterly.com/Making_talent_a_strategic_priority_2092 http://www.mckinseyquarterly.com/the_crisis_Mobilizing_boards_for_change_2300 http://www.mckinseyquarterly.com/fresh_look_at_strategy_under_uncertainty_2256 http://www.mckinseyquarterly.com/Upgrading_talent_2260

35. References (cont’d) BBC http://news.bbc.co.uk/2/hi/business/7833280.stm http://news.bbc.co.uk/2/hi/business/7859863.stm PBS http://www.pbs.org/newshour/bb/business/jan-june09/hanes_02-19.html http://www.pbs.org/nbr/site/research/learnmore/subdir/081223_partial_list_of_us_auto_plant_closings/ SHRM http://moss07.shrm.org/Publications/HRNews/Pages/CMS_023204.aspx http://moss07.shrm.org/hrdisciplines/businessleadership/articles/Pages/AlternativestoLayoffs.aspx

36. References (cont’d) Additional Websites http://www.management-issues.com/2008/4/23/research/is-hr-up-to-managing-global-talent-crisis.asp http://www.us.manpower.com/uscom/files?name=Manpower%20Annual%20Talent%20Shortage%20Surve y%20NEWS%20RELEASE.pdf-http://www.us.manpower.com/uscom/files?name=Manpower%20Annual%20Talent%20Shortage%20Surve y%20NEWS%20RELEASE.pdf- Manpower http://www.businessweek.com/magazine.content/08_b406803407237.htm?chan=magazine+channel_in+d epth+--+davos+special+report-http://www.businessweek.com/magazine.content/08_b406803407237.htm?chan=magazine+channel_in+d epth+--+davos+special+report- BusinessWeek www.eetimes.eu/205800046 http://www.nytimes.com/2009/03/06/business/06layoffs.html?pagewante d=2&_r=1&sq=IBM%20and%20layoffs&st=cse&scp=1-www.eetimes.eu/205800046 http://www.nytimes.com/2009/03/06/business/06layoffs.html?pagewante d=2&_r=1&sq=IBM%20and%20layoffs&st=cse&scp=1- New York Times http://www.cognos.com/products/planning_consolidation/enterprise_planning/ www.brandstorm.loreal.com/Cand/index.asp http://www.deloitte.com/dtt/press_release/0,1014,sid%253D2283%2526cid%253D229269,00.html http://www.pbs.org/nbr/site/research/learnmore/subdir/081223_partial_list_of_us_auto_plant_closings/ http://www.upi.com/Business_News/2009/02/03/GM_offers_workers_buyout_plan/UPI-78201233694242/

37. References http://www.deloitte.com/dtt/cda/doc/content/us_consulting_communicatingtogenerations_081007.pdf http://www.deloitte.com/dtt/cda/doc/content/us_consulting_hc_GenWorkplace_TalentMktSeriesVol1_170707.pdf http://www.ccifh.hu/fileadmin/template/hongrie/documents/DRH/HR_challenges_in_times_of_economic_recession.p df http://tinyurl.com/daktka http://video.nytimes.com/video/2008/11/13/world/1194832824307/out-of-work-in- china.html?scp=2&sq=workers&st=cse http://www.youtube.com/watch?v=8jI8XKJI5rU http://www.heidrick.com/IC/GTIVideo.htm Knowledge at Wharton http://knowledge.wharton.upenn.edu/article.cfm?articleid=1899http://knowledge.wharton.upenn.edu/article.cfm?articleid=1899

38. Part II: HR Policies and Practices for GTM The following slides offer specific examples of HR policies and practices for GTM that can be used by firm to manage their GTCs for short term balancing and long term positioning. These are left for perusing when time permits.

39. HR Planning and Forecasting During a recession, McKinsey found that 55% of companies surveyed are less able to make satisfactory forecasts about their sales due to an economic recession. If sales are not accurately forecasted, this makes forecasting talent much more difficult. http://www.mckinseyquarterly.com/the_crisis_Mobilizing_boards_for_change_2300

40. HR Planning and Forecasting  Hugh Courtney suggested that managers today face more uncertainty in their decision making than ever before. Past trends can no longer be used to forecast the future. Information from a few sources is no longer enough.  Consequently decision making today is much more challenging.  Companies need to use scenario-planning: making descriptions of possible future scenarios, the conditions under which each is likely to occur, and what companies need to do to confront these conditions. Need to do for HRP/F. http://www.mckinseyquarterly.com/Strategic_planning_Three_tips_for_2009_2340 htt http://www.nytimes.com/2009/04/28/books/28kaku.html?_r=1&pagewanted=print http://www.mckinseyquarterly.com/fresh_look_at_strategy_under_uncertainty_2256 http://knowledge.wharton.upenn.edu/article.cfm?articleid=2298 http://www.nytimes.com/2009/07/29/technology/companies/29ibm.html?_r=1&pagewanted=print

41. Location Planning Business Strategy Location Choices

42. Location Planning COUNTRY CHOICE ASSESSMENTS:  GENERAL FACTS OF THE COUNTRY (www.economist.com/countries)www.economist.com/countries  ATTRACTIVENESS OF COUNTRY TO BUSINESS (www.doingbusiness.org)www.doingbusiness.org  COMPETITIVENESS FACTORS (www.imd.ch/research/centers/wcc/index.cfm)www.imd.ch/research/centers/wcc/index.cfm  FLOWS/LEVELS (www.census.gov/foreign-trade/balance/)www.census.gov/foreign-trade/balance/  LABOUR MARKET CHARACTERISTICS (www.doingbusiness.org)www.doingbusiness.org  HR POLICIES AND PRACTICES (ACTUAL/LIKELY) www.ilo.org; www.bcg.com; www.ddiworld.com/pdf/ddi_theglobalizationofhrpractices_es.pdf) www.ilo.orgwww.bcg.com; www.ddiworld.com/pdf/ddi_theglobalizationofhrpractices_es.pdf )

43. Location Planning  Company Example: IBM  IBM’s American employment has been on a steady decline  US employment now makes up 29% of its worldwide payroll  Yet, IBM reported that it’s workforce in Brazil, Russia, India & China have risen significantly  These countries have faster growth markets and less expensive skilled labor than the US http://www.nytimes.com/2009/03/06/business/06layoffs.html?pagewanted=2&_r=1&sq=I BM%20and%20layoffs&st=cse&scp=1 http://www.ibm.com/us/

44. Location Planning Company Example: Hanes “Hanesbrands Relocates Manufacturing to Asia” http://www.pbs.org/newshour/bb/business/jan-june09/hanes_02-19.html

45. Job Design/Redesign  Research indicates when trying to increase efficiency by simplifying jobs it may actually lead to turnover and lower productivity  Autonomy in the job often leads to better performance  Cross-functional work leads to greater overall satisfaction http://moss07.shrm.org/Publications/HRNews/Pages/CMS_023204.aspx

46. Job Design/Redesign Company Example: Cisco Systems  In the 2001 recession, Cisco took a unique approach to downsizing  The company was forced to eliminate 8,500 jobs  Cisco redesigned roles and responsibilities to increase cross- functional alignment and reduce duplicate roles  A more collaborative environment increased employee satisfaction during turbulent times  Those employees who were laid off received severance packages, outplacement and were paid 1/3 of their salary if they opted to work for a local charity http://www.mckinseyquarterly.com/Upgrading_talent_2260

47. Job Design/Redesign OVERALL FINDINGS: EMPLOYEE ENGAGEMENT, RETENTION, AND PRODUCTIVITY (& LOWER COSTS) IMPACTED BY:  LEVEL OF RESPONSIBILITY  DEGREE OF AUTONOMY  SPAN OF CONTROL  CROSS-FUNCTIONAL RELATIONS  TEAM DIVERSITY AND TRAINING

48. Design/Redesign and Global Teams  Global Corporations must function as a transnational  Decisions and responsibilities should come from all of the locations  One method for accomplishing this need is through Global Teams (that are well trained)  Global Teams, work through time zones, geographical locations, and cultural affiliations, that is, they are diverse “Diverse teams are superior to mono-cultural ones in terms of business performance”- Martina Schwinger, Diversity Management & Mediation, Novartis www.culturalnavigator.com

49. Attraction & Generations http://www.strategy-business.com/li/leadingideas/li00113 http://www.fastcompany.com/magazine/16/mckinsey.html?page=0%2C1 http://institute.adecco.com/FeatureArticles/Articles/Pages/2008_02_Europes_Looming.aspx http://www.strategy-business.com/li/leadingideas/li00113 http://www.fastcompany.com/magazine/16/mckinsey.html?page=0%2C1 http://institute.adecco.com/FeatureArticles/Articles/Pages/2008_02_Europes_Looming.aspx GenerationMotivators VeteransValue Respect, part-time hours, temporary employment Baby BoomersFeel needed, be part of a team, training, flexible retirement options Generation XImmediate feedback, flexible work environments, results focused Generation YMentors, work with bright people, learning opportunities, work/life balance

50. Attraction and Generations http://www.fastcompany.com/magazine/16/mckinsey.html?page=0%2C1 http://www.fastcompany.com/magazine/16/mckinsey.html?page=0%2C1  Developing Value Propositions to Increase Attraction  Defining and explaining why talented workers might opt to work at Company X as opposed to Company Y  Having only one Value Proposition may not be enough anymore  Successful companies target varying generations using different methods and unique value propositions  For example, Tesco, breaks out its recruiting website based on stages in career- and tailors recruiting materials depending on the audience http://www.tesco-careers.com/home http://www.mckinseyquarterly.com/Making_talent_a_strategic_priority_2092

51. Selection Selection is a key activity to find the most appropriate candidate for the job/position. Without effective selection systems in place global talent management is impossible to do as effectively as required in today’s globally competitive environment. Once done, an effective process of on-boarding must begin. http://www.fastcompany.com/magazine/84/playbook.html http://www.nytimes.com/2009/07/19/business/19corner.html?_r=1&pagewanted=print

52. Selection

53. Training & Development Company Example: Novartis  As a global company, Novartis’ goal is to enhance sensitivity  Offer a program called “Leading Global Teams” that  Provides a generalization of national culture, and organizational culture of different business units  Utilizes a tool called Cultural Orientations Indicator (COI)  Includes 10 dimensions- each contain a cultural continuum measuring preferential styles of behavior and allows comparisions across country cultures www.culturalnavigator.com

54. Training & Development

55. Key In The Success Of Novartis’ Pay For Performance Management System and Talent Management Is Training Line Managers In:  Setting Objectives  Coaching Skills And Process  Managing For Performance Improvement http://www.novartis.com

56. Performance Management  Companies such as Novartis, view Performance Management as central to their Global Talent Management Activities  At the heart of their Performance Management is a system that:  Grades Employees and Matches their compensation to: 1. Business Results (“The What”) 2. Values & Behaviors (“The How”)

57. Performance Management  Each of the two performance dimensions (values & behaviors and results) are rated on a three-point scale.  1- poor performance  2- satisfactory performance  3- Superior Performance  Some of the Values & Behaviors consist of:  Results Driven  Exercising Leadership  Demonstrating Empowerment and Accountability

58. Performance Management  Employees/Managers urged to solicit “multi-rater” feedback  Performance Calibration Meetings are held annually  Ensure cross-functional equality  Review, Measure and differentiate performance of associates in a structured, thorough and consistent way  Foster trust in the organization by being open about employee’s performance

59. S UPERIOR R ESULTS, UNSATISFACTORY B EHAVIOUR S UPERIOR R ESULTS E XCEPTIONAL P ERFORMER E XCEEDED E XPECTATIONS Associate consistently contributes at a superior level of performance on all job objectives, however, performance falls below expectations on Novartis values/behaviours. Associate consistently contributes at a superior level of performance on all job objectives and also demonstrates the Novartis values/behaviours. Associate consistently contributes at an exceptional level of performance on all job objectives and the Novartis values/behaviors Recognized as a role model both Within their group and in a wider population. Few associates achieve this level of performance. G OOD R ESULTS, UNSATISFACTORY B EHAVIOUR S TRONG P ERFORMER S UPERIOR B EHAVIOUR F ULLY M ET E XPECTATIONS Associate fully meets expectations on all job objectives, however, performance falls below expectations on Novartis values/behaviours. Associate fully meets expectations on all job objectives and the Novartis values/behaviours. This is a positive and fully acceptable level of performance. Associate consistently demonstrates superior behavior and fully meets expectations on all job objectives. U NSATISFACTORY P ERFORMER G OOD B EHAVIOUR, U NSATISFACTORY R ESULTS S UPERIOR B EHAVIOUR, U NSATISFACTORY R ESULTS O BJECTIVES P ARTIALLY M ET E XPECTATIONS Associate performance falls considerably short in relation to job objectives and the Novartis values/behaviours despite repeated explanations /coaching. Associate fully meets expectations on Novartis values/behaviors, however, performance on job objectives falls below expectations. Associate consistently demonstrates superior behaviour, however, performance on job objectives falls below expectations. P ARTIALLY M ET E XPECTATIONS F ULLY M ET E XPECTATIONS E XCEEDED E XPECTATIONS N OVARTIS V ALUES /B EHAVIOURS 1.1 3.3 2.3 1.3 3.2 2.2 1.2 2.1 3.1 Associate fully meets on all objectives, over- achieves on key objectives, out-spoken role model on values and behaviors. Associate fully meets on all objectives, over- achieves on key objectives, demonstrates the majority of values and behaviors Associate fully meets on a majority of key objectives, demonstrates the majority of values and behaviors. Associate fully meets on all objectives, over- achieves on key objectives, does not demonstrate values and behaviors Associate fully meets on a majority of key job objectives, does not demonstrate values and behaviors Associate does not meet on a majority of key objectives, does not demonstrate values and behaviors Associate does not meet on a majority of key objectives, out- spoken role model on values and behaviors. Associate does not meet on a majority of key objectives, demonstrates the majority of values and behaviors. Associate fully meets on a majority of key objectives, out-spoken role model on values and behaviors. Novartis Case- Nine- Box Grid

60. Performance/Potential (OTR) High Professional/ Master Contributor Consistently produces exceptional results and high performance ratings. Knows current job extremely well. May not effectively adapt to new situations. Low Performer Not delivering on results as expected. Does not adapt to change well and may be a blocked personal learner. Inconsistent Performer Delivers results inconsistently. Knows the job, and may be a passive learner. May adapt to new situations if necessary. Adaptable Key Performer Consistently meets expectations. Knows current job well and enhances skills as appropriate. Can adapt to new situations as necessary. Adaptable High Performer/ High Professional Consistently produces exceptional results and high performance ratings. Knows the job well and continuously enhances skills. Adapts to new situations if necessary. Strategic Star Outstanding, clearest example of superior performance and potential. Has the ability to take on major stretch assignments in new areas. Will challenge the organization to provide growth opportunities fast enough. Rising Star Consistently meets expectations. Knows the job well and enhances skills as appropriate. Has the ability to take on new and different challenges on a consistent basis. Diamond in the Rough Delivers results erratically. Has demonstrated potential but is not living up to it. POTENTIAL PE RF O R M A N CE Less learning agility More learning agility Less than effective Highly effective Key Performer/Solid Professional Consistently meets expectations. Knows current job well. May not effectively adapt to new situations. 0 Not Classified

61.  Performance ratings (not OTR) have a large impact on associates’ compensation.  Initially employees’ base salary and target incentive are driven by market data  High performers (3,3) may be eligible for almost double their base salary in their annual bonus  Conversely, low performers do not receive a salary increase or a bonus Compensation- Pay for Performance

62. Annual Salary X Target Bonus % Indiv. Perf. Modifier 1 Global BU Modifier 2 = Payout XX Annual Base Salary $50,000 Target bonus 10% Individual rating 3.2 Individual Factor 120% Business Factor 110% Performance related:Job related: BONUS PAYOUT = $6,600 Company Example: Novartis Incentive Program

63. Strategic Plan Individual Objective Setting Year – end Performance Review Development Planning Mid-year Review Self- Assessment/ Initial Discussion BU OGSM OTR “Talking Talent” Business Performance Cycle Calibration “Talking Performance” “Talking Reward” Reward & Motivate to “Raise the bar” Career Discussion BU Objectives BU team set objectives for BU mgt team member BU Quarterly Review BU Quarterly Review BU Year end Review BU Quarterly Review

64. Retention  Retention remains important, but more difficult:  During recessions companies show decreased earnings and dropping stock prices which reduce the value of employees annual incentive and long-term incentive plans  As a result companies struggle to find alternate retention strategies to keep employees feeling valued and motivated  Deloitte survey revealed that companies are using alternate retention strategies to “improve employees’ financial picture and work experience”  59% implementing flexible work-arrangements  22% to create a stand-alone bonus pool for the plan year  34% to introduce compressed work weeks  14% adopted/changed severance package in response to recession http://www.deloitte.com/dtt/press_release/0,1014,sid%253D2283%2526cid%253D229269,00.html http://www.managesmarter.com/msg/content_display/incentive/e3iab3b217aa919c5ef2876a9be96859c60?imw=y

65. Retention Company Example: Novartis’ Challenge with Retention in China  Situation: Novartis was typically hiring talented young professionals in China who then started with low productivity  These employees underwent 12-18 months of training and ended with high productivity  But with the training and multinational experience they moved to another company for salary/career advancement  Novartis’ solution: to offer stock grant programs with multi-year vesting periods. Also to offer long-term educational support and flex-time for employees who remained with the company.  Result: Turnover decreased from 20.1% in 2006 to 17.6% in 2007

66. Reduction/Removal Alternatives To Removals (redundancies): 1. Reduce Workweek- Can Reduce Payroll Costs By 20%. 2. Extend Time Off/Defer Hiring/Work for Free Have Workers Take 3 Weeks Unpaid Vacation. 3. Mergers and acquisitions- e.g., Merck/SP reduced workforce by 15% of 100k: savings of $3.5b e.g., Merck/SP reduced workforce by 15% of 100k: savings of $3.5b 4. Shut down the business for a short period of time: Honda http://moss07.shrm.org/hrdisciplines/businessleadership/articles/Pages/AlternativestoLayoffs.aspx http://newsvote.bb.co.uk/mpapps/pagetools/print/news.bbc.co.uk/2/hi/business/8102862.stm?ad=1

67. Reduction/Removal  Company Example: Honda  UK Honda plant stops production for four months  Response to downturn in the UK car market- profits dropped 89%  Workers at the plant will receive 100% pay for the first two months  After that, workers will receive approximately 65% of their pay for the next two months  Workers will owe the time back when the plant re-opens  This affects 2,500 out of 3,700 employees at the plant  Competitors are also announcing production cuts

68. Reduction/Removal Unite Union officer Reactions http://news.bbc.co.uk/2/hi/business/7833 280.stm Workers Reactions http://news.bbc.co.uk/2/hi/business/7859 863.stm http://news.bbc.co.uk/2/hi/uk_news/engl and/wiltshire/8076430.stm Reactions to Honda Plant Closing

69. Reduction/Removal  Additional Alternatives to Removal 5. Hiring Freeze 6. Don’t renew contracts with Contingent workers 7. Two-tier flexibility: raises for some, but not others 8. Offer Early Retirement; reduce savings contributions 9. Offer Job Sharing 10. Reduce or Eliminate Overtime 11. Reduce/Freeze Salaries/Obtain government support (http://www.nytimes.com/2009/06/16/business/global/16labor.html?_r=1&pagewanted=print)http://www.nytimes.com/2009/06/16/business/global/16labor.html?_r=1&pagewanted=print 12. Retrain employees for new positions; change business model (http://www.nytimes.com/2009/07/12/business/global/12german.html?_r=1&pagewanted=print)http://www.nytimes.com/2009/07/12/business/global/12german.html?_r=1&pagewanted=print 13. Repatriate sooner than planned 14. Use global sourcing (http://whatmatters.mckinseydigital.com/globalization/global-sourcing-in-a- world-less-flat)http://whatmatters.mckinseydigital.com/globalization/global-sourcing-in-a- world-less-flat

70. MAJOR ISSUES  GLOBAL ECONOMIC SLOWDOWN: FOR HOW LONG?

71. HOW LONG? “The world GDP gap (between the possible and the actual) will continue to grow for the next 2-3 years.” Stephen Roach, Chairman Morgan Stanley Asia Before the Chinese American Committee on Economic and Security, 02.17.09 Also see, The Economist, July 4, 2009: 74: “Uncertainty over the size of the output gap complicates the task of central banks.”

72. “A” Players and “A” Positions “A” Positions  Have Strategic Impact  Variability of Performance  Critical impact on the formation of one or more of the strategic capabilities needed to execute the firms strategy  Can vary from call center to software engineer jobs depending on firm’s strategy “A” Players  Make disproportionate contribution to success of company strategy  Top performers in the company  Provide significant value to the company  Not easily replaceable

73. Knowledge Workers  Increasing amount of “knowledge work” requires increasing number of “knowledge workers”  Require special skills gained via extensive schooling and training and have a heavy impact on the success of the company  Responsible for “tacit interactions”  Rely on judgment, knowledge and context  60% of US labor force engaged in tacit interactions  But increasingly more jobs (positions) will require judgment and knowledge (“talent”), thus http://www.mckinsey.com/aboutus/mckinseynews/knowledge_economy.asp

74. Organizational Linkages Company Example: Nokia  Nokia relocated from Germany to Cluj, Romania  “Labor Costs are ten times less in Cluj, Romania”  Romanian labor force is both competent and knowledgeable; from local technical university for engineers http://www.eetimes.eu/205800046