Generational Characteristics of the Workforce

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Generational Characteristics of the Workforce

• Forum on Private Companies
• October 7 8, 2004Chicago, IL

Jane Paradiso Workforce Planning National
Practice Leader 202.715.7443
Daniel Ishac Retirement Office Practice Leader
312.525.2132
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Agenda

• Overview
• Changing demographics
• Global
• U.S.
• Implications
• Appealing to Different Demographics
• Workforce Planning Strategy
• Questions

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Can You Identify this Group of People?
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Vita Needle

• Thirty-five employees
• Average age 73 years
• Average service 14 years
• 100 sales growth over last five years
• Low overhead, never a borrowed dollar, minimizing
  waste and sharing profits

We were the beneficiary of the great downsizing
at major corporations around Boston in the late
1980s and early 90s, hiring experienced older
workers who had lost their jobs
Frederick Hartman, President,
Vita Needle
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ChangingDemographics
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Global Overview

• Growth of labor force will shrink significantly
  in developed economies
• Will lead to a decline in the labor supply of
  many other countries
• Consumer demand will not experience the same
  decline
• Developed economies will face labor shortages
• Will require more creative ways of attracting
  labor into the workforce

This will present major opportunities for
economic growth in the developing world
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Global Aging
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America at the Turn of the Century and Beyond
1900 2000 2012 2030
Life expectancy at birth 47 77 79 82
Median age 23 35 37 40
Elderly (aged 65) 4 of the population 13 of the population 15 of the population 20 of the population
Women in labor force 20 60 61 TBD
of workforce in manufacturing/ agriculture 90 20 11 TBD
Immigrants 90 from Europe 50 from Latin America 30 from Asia TBD TBD
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U.S. Workforce Demographics Age
The labor force is not shrinking, but it is aging

• Change by Age 2000-2010
• Over 55 29
• 45 - 54 9
• 35 - 44 - 19
• 25 - 34 - 5
• Under 25 3

Source Bureau of Labor Statistics SSA
A quarter of the population 75 million baby
boomers is inching toward retirement. At the
same time, fewer young workers are entering the
labor force.
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U.S. Demographic Trends Ethnicity

• More legal immigrants came to the U.S. in the
  1990s than any other decade except 1901-1910
• Since 1980, the number of Hispanics has grown 5
  times faster than the rest of the U.S. population
• Caucasians are now a minority in 48 of the
  largest 100 cities

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U.S. Demographic Trends Ethnicity

• The percentage of foreign-born has increased
  locally and nationally
• By 2050, the U.S. population is projected to grow
  to over 400 million
• Ethnic and racial minorities will make up more
  than 90 of the 130 million additional Americans

Region 1990 2000
Chicago 17 22
Illinois 8 12
U.S. 7 12
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U.S. Finance Demographics

• Changing environment
• More complex financial laws and regulations
• Increased scrutiny of organizations finances
• Continued concerns about finding and retaining
  qualified staff (MAP Committee of AICPA)
• Changing demographics
• Employment of accountants/auditors expected to
  grow 10 - 20 through 2012
• AICPA increasing marketing efforts
• 2004 U.S. accounting majors increased 11 over
  2003
• Sample statistics from 2002
• Females 57 of bachelors degrees
• Minorities 23 of bachelors degrees, 35 Ph.D.s

• Accountantsare now front and center to CEO
  survival.
• Andres Fortino, Marist College Management
  School Dean

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Implications
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Implications

• More retirements
• Escalating compensation and benefits costs
• Increased workplace safety risks
• Higher recruiting costs
• Workplace diversity/ language barriers
• Strain on Social Security and Medicare

• Reliance on
• Immigration
• Offshoring
• More female participation
• Extended retirement
• Increase worker productivity
• Substitute capital for workers
• Technology
• Use human capital more effectively

Addressing these challenges is necessary to
ensure the continuity of your business
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Total Compensation Costs
Cost Increases Due to Aging by Category
Source Watson Wyatt Diagnostic Tool
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Why Retention Matters

• Cash costs
• 1 reduction in turnover increases revenue 0.4
• One standard deviation improvement in turnover
  yields 1.5 increase in market value Watson
  Wyatt HCI
• Replacement costs money
• Other costs
• Loss of intellectual capital
• Loss of relationships

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Appealing to Different Demographics
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Population by Generation

• 52 million WWII Generation
• Born between 1922 -1945
• 74 million Baby Boomers
• Born between 1946 -1960
• 71 million Generation X
• Born between 1961 -1980
• 70 million Generation Y
• Born between 1981 -2000

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Retaining Your Employees

• Different generations are motivated by different
  factors
• Monetary and non-monetary rewards are important
• A balanced reward portfolio is necessary to meet
  the needs of a multi-generational workforce

Understanding your employees and their long-term
goals is necessary to reduce attrition
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One Size Doesnt Fit All Monetary
Top-Performing Preferences by Demographic Grouping
Male Female Under Age 30 Age 50 Clerical/ Hourly Professional/ Technical Senior Management
Cash-based LTI STI/bonuses Spot bonuses/ cash recognition Cash-based LTI Spot bonuses/ cash recognition STI/bonuses Cash-based LTI
STI/bonuses Cash-based LTI STI/bonuses Custom comp Cash-based LTI Cash-based LTI STI/bonuses
Stock options Spot bonuses/ cash recognition Cash-based LTI STI/bonuses Custom comp Spot bonuses/ cash recognition Stock options
Custom comp Custom comp Technical pay premiums Stock options STI/bonuses Technical pay premiums Custom comp
Stay bonuses Project incentives Project incentives Stay bonuses Stay bonuses Custom comp Restricted stock/RSUs
Source Watson Wyatts Top Performing Employees
Survey 2003/2004.
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One Size Doesnt Fit All Non-Monetary
Top-Performing Preferences by Demographic Grouping
Male Female Under Age 30 Age 50 Clerical/ Hourly Professional/ Technical Senior Management
Defined contribution plan Defined contribution plan Advancement opportunities Defined contribution plan Defined contribution plan Defined contribution plan Defined contribution plan
Advancement opportunities Flexible schedules Flexible schedules Defined benefit plan Flexible schedules Advancement opportunities Defined benefit plan
Defined benefit plan Advancement opportunities Career development Advancement opportunities Defined benefit plan Flexible schedules Advancement opportunities
Career development Defined benefit plan Defined contribution plan Flexible schedules Advancement opportunities Defined benefit plan Career development
Flexible schedules Career development Work at home Career development Career development Career development Non-qualified defined contribution plan
Source Watson Wyatts Top Performing Employees
Survey 2003/2004.
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Reasons People Leave
Besides retirement and promotions...
Reasons Top Performers Leave in Rank Order
Percent of Top Performers at Least Moderately
Likely to Leave Within a Year
1. Dissatisfaction with pay 2. Dissatisfaction
with management 3. Inadequate promotion
opportunities 4. Inadequate opportunities to
develop skills 5. Dissatisfaction with benefits
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Firms that Dont Differentiate Rewards
Firms that Differentiate Rewards
Why do your top performers leave?
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Areas to Consider

• Compensation
• Mix of variable and fixed pay
• Measurement period for incentives
• Pay for skills and competencies vs. job
• Non-traditional pay progression
• Benefits
• Phased retirement
• Part-time eligibility for benefits
• Health improvement programs
• Long-term care
• Training and development
• Tuition reimbursement
• Mentoring

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Areas to Consider

• Work schedules
• Flex-time
• Part-time and job-sharing
• Flexible time-off
• Sabbaticals
• Work environment
• Easier access for elderly
• Larger signage
• Multilingual communication
• Personal convenience services

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Strategies to Limit Cash Cost

• Accelerate new hire productivity
• Hire qualified candidates (reduce time to fill
  cycle)
• Train quickly
• Reduce replacement costs
• Recruiting processes and technology
• Understand best sources of talent
• Workforce model cost management
• Employees vs. outsourcing
• Technology investments vs. productivity gains
• Optimize mix of full-time, part-time and
  contingent resources

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Other Strategies

• Protect intellectual capital
• Knowledge database
• Mentoring, coaching, training
• Job redesign
• Phased retirement
• Pay to Stay incentives
• Protect relationships that lead to revenue
• Transition strategies for key positions
• Executives, sales force, etc.
• Phased retirement

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Workforce Planning Strategy
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Why Workforce Planning Matters
Todays workforce decisions will impact your
ability to run your organization in the future
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Workforce Planning

• A strategic response to changing demographics and
  their impact on the organizations success
• A workforce plan
• Translates the organizations mission and
  strategy into critical staffing requirements to
  proactively expand operations, consistently
  service patients, and provide differentiation
  from competitors
• Projects the staffing levels and skills required
  for key positions based on business assumptions
  and actual turnover experience
• Identifies and prioritizes solutions to address
  risks and challenges for recruiting and staffing

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Sample WFP Road Map
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Case Study Summaries

• Health care
• Issue
• Nursing and tech shortage
• Aging population
• Resolution
• Targeted pay
• Training and development (mentoring)
• Improved performance review

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Case Study Summaries

• Professional services firm
• Issue
• Overall aging population
• Recruiting needs at mid- and senior-level
• Resolution
• Modified retirement programs
• Altered pay practices to reflect demographics
• Manufacturing organization/executive workforce
• Issue
• Leadership team approaching retirement
• Retention and recruiting of senior management
• Resolution
• Targeted incentives
• Succession planning

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Questions
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AppendixCase Studies
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Health Care
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Increasing Demand for Health Care

• Aging population leading to higher demand for
  health care services and care workers
• Health care occupation growth rate is 29
• Increasingly diverse workforce
• Culture, language, skills, etc.

Source Bureau of Health Professionals
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Metropolitan Hospital

• Key Issues
• Metropolitan health care system
• Vision to be among the leading medical centers
• Need to determine appropriate staffing levels to
  sustain and expand health care services
• Need to develop strategies to address immediate
  and future staffing requirements in response to
  projected national health care professional
  shortage and growing need for health care
  services
• The Approach
• Watson Wyatt developed a workforce plan
  demographic data and turnover analysis, industry
  trends and best practices research, current and
  future states, gap and solution analysis
• Focus on critical positions by location and
  category
• Project staffing needs over 10-year horizon based
  on assumed growth
• Gathered employee and management feedback
• Conducted external research
• Developed multiple strategies to mitigate risks
  and improve staffing success
• Presented workforce plan with focus on recruiting
  changes and retention prioritized projects to
  Board
• Sample Strategies
• Standardized incremental and exit interviews
• Market salary adjustments
• Upgraded tuition assistance plan
• Mentor program
• Nurse manager assessment and training

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Projected RN Hiring Needs
7,836 RNs as of 1/1/2004
Only 40 of current RNs will still be on board in
6 years
7,481 new hires required over the next 6 years
to keep the current workforce levels stable
(4,724 2,757)
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Workforce Planning ROIRN 6-Year Savings
Opportunity
Employees Employees
Number Cost
Current Projected New Hire Requirements 7,481 262M
Applying a 20 Overall Turnover Rate Reduction 6,255 219M
Projected Savings Over 6 Years 43,000,000 43,000,000
Assumes 35K per hire
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Professional Services
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Professional Services Firm

• Situation/Key Issues
• Professional services provider to consortium
• Blend of consulting services and technical
  expertise
• Hire many mid-career employees for expertise
• Higher than typical average age
• Aging and pending retirements at VP level and
  above
• The Approach
• Analyzed critical employee groups SVPs, VPs,
  Directors and Managers, Account Managers as well
  as total population
• Conducted analyses of demographics, including
  age, service, ethnicity
• Analyzed hiring/sourcing trends and promotional
  patterns
• Analyzed termination patterns (voluntary,
  involuntary and retirement)
• Analyzed performance/success relative to
  retention and promotional patterns
• Projected staffing needs over 10-year horizon
  based on assumed growth
• Projected average age over 10 years
• Identified relative value of benefits as the
  workforce ages
• Conducted external research on benefit trends
• Developed new strategies to mitigate risks and
  ensure staffing success
• Presented total rewards strategy with focus on
  retention of key employees and ability to attract
  mid-career employees into key positions
• Sample Strategies

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Manufacturing Organization
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Manufacturing Organization

• Situation/Key Issues
• Significantly aging leadership population
• Inconsistent definition of high potentials
• Need to diversify leadership group
• Approach
• Demographic data analysis of leadership talent to
  understand current profile
• Overall and by business unit
• Included age, service, gender, ethnicity ,
  performance and pay/grade distribution
• Analyzed turnover patterns by age, service, and
  performance
• Conducted forecasting of leadership talent to
  understand risks of talent loss aging patterns
• Analyzed high potentials relative to
• Business unit distribution to fill critical
  talent losses
• Age and service distribution for long-term
  potential
• Filling the diversity gap
• Performance distribution and turnover
• Analyzed business metrics by business unit
  relative to leverage of human capital
• Researched demographic data for the industry

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Manufacturing Organization

• Key Findings
• Business groups had unique demographics and
  issues
• Approximately half of all executives will be gone
  in 5 years
• Current average age is approaching 50
• Turnover spikes at certain job levels
• Skill gaps at critical experience points for
  intellectual capital and building bench strength
• Sample Implications/Strategies
• Target reward programs to ages 40 50
• Develop individual retention strategies (e.g.,
  phased retirement)
• Develop better tools for identifying high
  potentials and tracking longitudinal data on them
• Build processes to encourage movement across BUs
• Develop better understanding of sources of
  successful executives
• Develop targeted programs for increasing
  diversity, particularly females

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Executive Workforce Planning
Operations Workforce

• RECRUIT

• INVEST

• RETAIN

• REWARD

• TRANSITION

Build vs. Buy
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Feeder Pool by Business Unit