United States
watsonwyatt.com
Playing to Win
in a Global Economy
2007/2008
Global Strategic Rewards® Report
and United States Findings
3 | Multinational Pension Governance Survey Report
2007/2008
Global Strategic Rewards® Report
and United States Findings
Table of Contents
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
About the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Attraction and Retention Challenges . . . . . . . . . . . . . . . . . . . . . . . 5
Reasons for Attraction and Retention . . . . . . . . . . . . . . . . . . . . . . 7
Design and Management of Total Rewards . . . . . . . . . . . . . . . . . 8
Improving the Effectiveness of Reward Programs . . . . . . . . . 10
Global Trends in Rewards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Performance Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
United States Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Featured Figures
Figure 3: Employers and Employees Have
Different Views on What Attracts and Retains . . . . . . . . . . . . . 7
Figure 4: Employee Satisfaction With Stress Levels
and Work/Life Balance Is Important to Retention . . . . . . . . . . 8
Figure 5: Employees Don’t Recognize
Increases in Reward Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Figure 8: Annual Incentive Eligibility and
Individual Targets Are Increasing Around the World . . . . . . . 12
Figure 15: Satisfaction Increases When the Company Actively
Communicates Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Figure 17: Highly Engaged Top Performers Understand the
Connection Between Pay and Performance . . . . . . . . . . . . . . 21
Executive Summary
The increasingly global market for talent
makes it critical for companies to understand
the factors that affect employee attraction
and retention everywhere they do business.
Organizations that do not balance financial
imperatives and employee reward preferences
risk losing their best talent.
The 2007/2008 Global Strategic Rewards
study examines how companies in AsiaPacific, Canada, Europe, Latin America and
the United States are tackling attraction and
retention issues and reward management.
Interestingly, the study found more similarities
among the regions than differences. Regardless of location, most companies do not fully
understand why employees choose to join and
leave their organizations. Most employers also
underestimate the importance of stress and
work/life balance as contributors to attrition.
The study also shows that to attract and retain
the best employees, organizations must clearly
communicate expectations about rewards and
then deliver as promised.
Key Findings
Regardless of region, the study found:
n The majority of employers have problems attracting critical-skill employees (70 percent)
and top-performing employees (67 percent).
n
n
Employers
have an incomplete understanding of why employees join and leave their
organizations. For example, employees rank
stress as a top reason they would leave, but
it is not even among the top five reasons
cited by employers.
hen employees are satisfied with stress
W
levels and work/life balance, they are more
inclined to stay with their company (86
percent versus 64 percent) and more likely
to recommend it as a place to work (88
percent versus 55 percent).
2 | Global Strategic Rewards® Report
n
inancially high-performing firms get perF
formance management right. For example,
their managers are much more likely to link
organizational performance to rewards (51
percent versus 38 percent of low-performing
organizations).
n
learly setting expectations and delivering
C
on the reward promise is a formula for a
more engaged workforce. Sixty-nine percent
of employees who say their employers succeed at both promise and delivery are highly
engaged, versus roughly 25 percent overall.
About the Study
For the first time, the 2007/2008 Strategic Rewards survey, conducted by Watson Wyatt and WorldatWork, represents a global
research effort. A total of 946 companies across 22 countries on
five continents participated in this year’s survey. Collectively, these
companies represent more than 100 million employees. Forty
percent of the firms are domestic, 26 percent are international (i.e.,
operate across an entire region or in several countries on two continents) and 35 percent are global (i.e., operate on three or more
continents). These organizations span all industry sectors and have
a minimum of 250 employees each.*
Employers by Region
23%
39%
10%
18%
10%
Asia-Pacific (Australia, Hong Kong,
India, Indonesia, Japan, Korea, Malaysia,
Philippines, Singapore, Taiwan and Thailand)
Canada
Europe (France, Germany,
Ireland, Italy, Spain and United Kingdom)
Latin America (Argentina, Brazil and Mexico)
United States
The employer research was conducted in conjunction with a survey
of more than 13,000 employees of mid-sized to large employers.
This sample captured employee opinions at all professional levels
and locations, ensuring comparability with employer responses.
Employer statistics presented in this report reflect company-weighted data. Likewise, employee statistics reflect individual incumbentweighted data. We present global and regional trends, noting significant regional differences. Intra-regional variations are discussed
in greater detail in the regional reports.
*U.S. employers in this study have a minimum of 1,000 employees.
watsonwyatt.com | 3
Key Terms
Commitment: Commitment reflects satisfaction
with the employment experience. Committed
employees are motivated to help the organization succeed, want to remain with their company
and become ambassadors for their organization
— recommending it to others as a good place to
work.
Line of sight: The focus and direction that enable employees to understand what to do to
make their organization succeed.
Engagement: Engagement results from the combination of commitment and line of sight. Employees who are committed and have a clear line of
sight want to help the organization succeed and
understand how their actions will help it do so.
Critical-skill employees: Employees with the
skills an organization needs to compete effectively.
Top-performing employees: Employees whose
performance was rated ”far exceeds expectations” (i.e., in the top 10 percent) by their supervisor in their most recent performance review.
4 | Global Strategic Rewards® Report
High-Performing
Organizations Versus
Low-Performing Organizations
This report differentiates high- and low-performing companies based on self-reported responses
to the question “How well did your organization
perform financially compared with other firms in
your industry over the past year?” Respondents
were given five choices, ranging from “substantially below peer group” to “substantially above
peer group.” In our analyses, we characterized
companies that identified themselves as “substantially above peer group” as high-performing
organizations and those that said their performance was below that of their peers as lowperforming.
Where possible, we have validated these responses by comparing them to publicly available
financial performance data.
Attraction and Retention Challenges
A large majority of organizations globally report difficulty attracting critical-skill (70 percent) and top-performing employees (67 percent), with little variation by region. More than one-third (36 percent) of companies have trouble attracting employees overall.
Similarly, although only one-third of companies report retention challenges for the workforce as a whole,
more than half have difficulty retaining critical-skill (56 percent), top-performing (52 percent) and highpotential employees (54 percent). In Asia-Pacific, where rapid economic growth is outstripping the supply
of skilled employees, companies report the greatest challenges, with two-thirds having difficulty retaining
these employees.
Financially high-performing companies appear to have greater success at attracting and retaining these key
employees than their low-performing counterparts (Figure 1). This advantage in hiring and “growing” top
performers ultimately leads to a competitive advantage. As discussed later in this report, high-performing
firms report more effective performance management practices, which improve employee line of sight and
commitment, and consequently reduce retention risk.
Figure 1 | Financially High-Performing Firms Have Less Difficulty Attracting and Retaining Key Talent*
a) Difficulty Attracting
35%
35%
36%
Employees overall
64%
Critical-skill employees
70%
76%
59%
Top-performing employees
67%
77%
b) Difficulty Retaining
31%
Employees overall
31%
51%
Critical-skill employees
56%
47%
Top-performing employees
High-performing companies
40%
52%
Low-performing companies
64%
64%
All companies
* Percentage reporting problems attracting or retaining key employee groups to a moderate or great extent
watsonwyatt.com | 5
Typical voluntary turnover rates, range from 5
percent in Latin America to 11 percent in the
United States, with a global median of 9 percent (Figure 2). The rates for top-performing,
critical-skill and high-potential employees range
from 2 to 5 percent globally, with Latin America
at 2 percent and the four other regions generally in the 4 to 5 percent range. On average,
financially poor-performing firms have 51
percent higher turnover among critical-skill
employees than their high-performing counterparts.
Most employers do not appear to measure the
effect that turnover has on their bottom line.
Only 18 percent of companies say they have
a formal method for calculating the costs of
turnover, ranging from a low of 9 percent in
Canada to a high of 22 percent in Asia-Pacific.
Additionally, less than half of companies are
conducting workforce planning – analyzing and
acting on the implications that demographics,
turnover, retirement or the changing business
environment have for their human capital programs – in any formal way.
To reduce turnover, companies are increasing both their efforts to survey employees (40
percent) and their responsiveness to the survey
findings (37 percent). Organizations have also
implemented off-cycle increases (32 percent),
improved work/life balance (29 percent) and
increased the use of recognition programs (29
percent). Companies are approaching turnover
among top-performing employees differently,
most often with accelerated career development opportunities (50 percent), off-cycle pay
increases (49 percent) and rotational assignments (37 percent).
In general, employers could better coordinate
their actions and align them with the reasons
for attraction and retention (Figure 3). Employers need to take a more holistic view of
their employee value proposition to increase
engagement and reduce turnover.
Figure 2 | Median Voluntary Turnover for Employees Overall Varies by Region
Asia-Pacific
10%
Canada
8%
Europe
Latin America
6%
5%
United States
All regions
6 | Global Strategic Rewards® Report
11%
9%
Reasons for Attraction and Retention
Our research shows that many companies do not fully understand employee priorities. According to employees, the top three reasons they join a company are the nature of the work, base pay
and job security. Although employers understand the importance of competitive base pay, they
overestimate the importance of career development opportunities and employer reputation. They
also underestimate the importance of job security and the work itself to employees (Figure 3).
Figure 3 | Employers and Employees Have Different Views on What Attracts and Retains*
Rank
Reasons to Join
Reasons to Leave
Employees
Employers
Employees
Employers
1
Nature of work
(44%)
Career development
opportunities
(47%)
Stress levels
(37%)
Base pay
(52%)
2
Base pay
(31%)
Base pay
(46%)
Base pay
(33%)
Career development
opportunities
(47%)
3
Job security
(30%)
Employer reputation
(44%)
Promotion opportunity
(26%)
Promotion opportunity
(45%)
4
Employer reputation
(23%)
Company culture
(34%)
Career development
opportunities
(23%)
Relationship with
supervisor/manager
(35%)
5
Length of commute
(23%)
Nature of work
(26%)
Work/life balance
(22%)
Work/life balance
(24%)
* Percentage reporting element as one of the top three reasons employees consider joining
or leaving an organization
The employee-employer disconnect is even more striking when it comes to turnover. Employees
emphasize the quality of the employment experience, ranking both stress levels and work/life
balance among the top five reasons they would leave their company. Stress was the single most
frequently cited turnover driver in Asia-Pacific, Canada, Europe and the United States — and a
close second in Latin America. Highly engaged employees and top performers cited stress as
frequently as the total employee population. By contrast, stress does not make the list of the top
five reasons cited by employers, and they ranked work/life balance only fifth.
Employers globally need to recognize the value of having satisfactory levels of stress and work/
life balance. When employees are satisfied with these, organizations will see a return in terms of
retention (Figure 4). For example, it would take a 25 percent greater pay increase to lure satisfied
employees to another organization than less satisfied employees. Satisfied employees are also
more likely to be advocates for their employer.
watsonwyatt.com | 7
Figure 4 | Employee Satisfaction With Stress Levels and Work/Life Balance Is Important to Retention*
I intend to stay with this company
for at least another year
86%
64%
I would prefer to remain with my
company even if a comparable job
were available in another company
78%
45%
Overall, I am satisfied with my
company
89%
47%
I would recommend my company to
others as a good place to work
Satisfied with stress levels and work/life balance
88%
55%
Other
* Percentage of employees reporting that agree with each statement versus those that disagree.
Design and Management
of Total Rewards
To address attraction and retention, companies
worldwide are moving toward a holistic, total
rewards approach to managing their compensation, benefits, and career and environmental
rewards. Indeed, many have developed an
organization-wide total rewards strategy (53
percent) and consider total spending across
all reward programs when making program
design decisions (50 percent). Additionally, 57
percent have adopted a company-wide jobleveling approach, commonly the foundation for
a globally consistent total rewards program.
Taking a total rewards approach suggests
that companies are selectively investing in
programs they think will have the greatest
combined effect, but they may not be achiev-
8 | Global Strategic Rewards® Report
ing the desired return on these investments. As
companies consider programmatic changes to
rewards, they must avoid two pitfalls:
n
isguided investments — Companies and
M
employees have divergent perceptions of the
reasons for attraction and retention, so the
changes that companies make may not align
with employee priorities.
n
oor execution/implementation — EmployP
ees may not understand the changes that
employers are making, only half (52 percent)
of employers say they actively communicate
reward plan designs (Figure 5). Performance
management (both in setting goals and in
evaluating results) is a key lever that companies should use to increase understanding of
their reward portfolio and the objectives it is
designed to support.
Figure 5 | Employees Don’t Recognize Increases in Reward Programs*
Learning and training (i.e., companyprovided opportunities to attend
internal and/or external training classes)
58%
26%
Career development (i.e., clarity of
career paths through the organization)
50%
21%
Quality of work environment (e.g.,
culture, physical workspace, relationship
with co-workers)
45%
24%
44%
Yearly or other cash incentive target
26%
43%
Annual merit increase budget
27%
42%
Recognition programs
21%
36%
Profit sharing
20%
Long-term incentive plans
Tuition reimbursement/continuing
education
Flexible work schedules (e.g., ability to
control start time, length of workday,
days in workweek)
Rotational assignments/opportunities
(e.g., international or cross-functional
assignments)
Employers
29%
15%
21%
13%
36%
20%
49%
18%
Employees
* Percentage of employers or employees reporting an increase in the program
watsonwyatt.com | 9
Improving the Effectiveness
of Reward Programs
To overcome the challenges of misalignment
and poor execution, we suggest that employers
consider the promise and delivery framework in
the design, communication and management of
their total rewards portfolios.
The reward promise comprises the full range of
intrinsic and extrinsic reward opportunities that
a company offers to its employees. To realize
the highest potential return on their reward
investments, companies must design their
reward portfolios to reflect both business strategy and employee priorities. Realizing actual
returns on these investments entails communicating and delivering on the reward promise.
Communicating the reward promise. Even
the best-designed programs are ineffective
without employee awareness and understanding. To harness the prospective power of
rewards, employers must articulate the reward
promise up front. This entails building understanding, setting expectations and providing
line of sight through performance management
and internal communications.
n
haring the design of the reward portfolio
S
and programs with employees helps them
understand the range of reward opportunities
available.
n
ommunicating expectations for company
C
performance, linking individual goals to organizational goals and providing employees with
performance objectives that help them prioritize their work helps employees understand
what to do to realize these opportunities.
10 | Global Strategic Rewards® Report
n
roviding regular updates on company
P
performance keeps employees’ facing wrong
way expectations aligned with actual business results.
Sixty-one percent of employees whose companies do all of these things report high line
of sight. In turn, they benefit from reduced
stress caused by uncertainty about their
roles, responsibilities and priorities, and their
employers are poised to realize high ROI on
their reward programs.
Delivering the reward promise. Translating
line of sight into commitment and engagement requires that reward outcomes align with
rewards promises and actual performance.
When employees see that organizational and
individual performance have a real impact on
rewards, that pay is differentiated according
to performance and that management follows
through, they understand that the company
is committed to standing behind its promise.
Senior management thus gains credibility, and
employees become more committed and more
confident about future opportunities with their
employer.
Sixty-nine percent of employees who say their
company succeeds at both communication and
delivery of the reward promise are highly engaged, versus roughly 25 percent overall. This
dramatically reduces turnover risk (95 percent
of highly engaged employees plan to remain at
their company another year, versus 71 percent
of all employees). Ultimately, this best practice
supports internal talent development and leads
to a competitive advantage.
Global Trends in Rewards
Merit budgets are not projected to change significantly in 2007 and 2008. Reflecting a cultural
practice of more frequent promotions and greater retention challenges, companies in Asia-Pacific are budgeting more for promotions than companies in the other regions and greater amounts
for market adjustments than companies in every other region except Latin America (Figure 6).
Figure 6 | 2007 Median Salary Increase Budgets Differ by Region*
Asia-Pacific
Canada
Europe
Latin America
United States
Merit
5.0
3.0
3.0
4.5
3.6
Promotion
2.3
0.7
1.0
1.6
1.0
Market
Adjustments
3.0
1.0
1.3
3.0
0.6
Total Budget (as
reported, not
calculated)
7.5
3.7
4.1
8.8
4.2
* Percentage of base payroll
Companies are holding back merit increases for employees whose performance was subpar and
granting greater increases for top performers (Figure 7). Companies in Asia-Pacific, Europe and
Latin America all report increases for top-performing employees (far exceeded expectations) that
are twice the increase for employees who merely met expectations.
Figure 7 | Employers Are Differentiating Merit Increases Based on Performance Ratings
Median merit increases as percentage of increase for met expectation
Did not meet expectations
Partially met expectations
0%
50%
Met expectations
Exceeded expectations
Far exceeded expectations
100%
5%
138%
175%
watsonwyatt.com | 11
Figure 8 | Annual Incentive Eligibility and Individual Targets Are Increasing Around the World
24%
34%
Asia-Pacific
7%
52%
50%
15%
Canada
41%
24%
17%
26%
Europe
40%
33%
18%
18%
Latin America
10%
22%
28%
22%
United States
48%
36%
17%
All regions
26%
39%
45%
Increased eligibility for employees
Increased individual incentive targets
Increased company financial performance targets
Increased individual performance expectations
Across all regions, companies are using incentive compensation to reduce their fixed cost
bases and align their employees’ financial interests with company financial performance. Annual incentive eligibility and individual targets
are trending upward over the last 12 months
across all regions (Figure 8). Meanwhile, goals
are getting harder to reach: 45 percent of companies have raised their financial targets in the
last year, and 51 percent anticipate doing so in
the next 12 months. Robust economic growth
supported fully funded incentive plans, with
median funding at 100 percent in all regions
except Europe (90 percent). High-performing
firms report average funding at 108 percent,
versus 83 percent at low-performing firms.
Higher funding gives high-performing firms a
greater ability to recognize and reward employee performance and puts low-performing
firms at a competitive disadvantage with regard
to retention.
12 | Global Strategic Rewards® Report
Companies worldwide are successfully using short-term incentives to reward their top
performers (Figure 9). By region, the United
States and Canada achieve the most differentiation for top-performing employees, with median bonuses at 135 percent of funded targets,
followed by Asia-Pacific at 133 percent, Latin
America at 130 percent and Europe at 130
percent. As shown in Figures 7 and 9, employers globally are differentiating merit increases
to a greater extent than bonuses.
Figure 9 | Organizations Are Achieving Differentiation in Annual Incentives Based on Performance (median data)
Award based on actual funding
Did not meet expectations
0%
Partially met expectations
50%
Met expectations
100%
Exceeded expectations
5%
120%
Far exceeded expectations
135%
As shown in Figure 10, the most common basis for determining incentive awards is achievement
of individual goals for annual bonuses and achievement of company goals for long-term awards.
This supports achievement of both short- and long-range goals by recognizing and rewarding annual individual performance and creating a retention tool that ties part of employees’ compensation to the company’s longer-term performance.
Figure 10 | Employers Use Different Performance Measures for Short- and Long-Term Incentive Awards
Individual objectives
Team/departmental objectives
63%
32%
Unit/division objectives
46%
47%
Company objectives
Short-term incentives
73%
45%
66%
84%
Long-term incentives
watsonwyatt.com | 13
Performance Management
Globally, about half of companies say their
managers do a good job at performance management (Figure 11). Managers in the United
States receive the lowest ratings on the five
aspects of performance management surveyed,
generally 10 to 14 percentage points below
the global averages, whereas Asia-Pacific
managers tend to receive the highest marks.
Managers in high-performing firms are seen as
more effective at performance management
than managers in low-performing companies.
Given the extent of changes being made to
reward plans, the lack of employee understanding and the potential returns on articulating
and delivering the reward promise, employers
should make improving the effectiveness of
performance management a priority.
Figure 11 | Financially High-Performing Firms Report More Effective Performance Management Practices
Managers do a good job of
Communicating expectations for
organizational financial performance
50%
55%
47%
Establishing goals for individual
performance that are linked to
business objectives
60%
53%
56%
49%
Providing direct feedback on individual
performance
Linking organizational performance
to rewards
14 | Global Strategic Rewards® Report
45%
39%
43%
52%
51%
38%
44%
40%
Linking individual performance
to rewards
High-performing companies
61%
44%
41%
Low-performing companies
All companies
56%
50%
Employees
Conclusion
Organizations around the world — regardless of region, industry or historical
performance — are struggling to attract and retain the top-flight talent they need
to survive and thrive in fast-changing markets. They are actively using and updating their intrinsic and extrinsic reward programs to respond to these challenges.
However, most companies have room to improve the effectiveness of these efforts
and better align them with the drivers that influence employees’ decisions to join
or leave a company.
The clear implication is that employers need to take a more holistic view of the
employee value proposition so they can improve talent acquisition, increase employee engagement and reduce turnover. Specific actions employers should take
include:
n
orkforce planning. Organizations should anticipate the nature and quantity of
W
talent they are likely to need given company growth, turnover and retirement projections. These projections, and knowledge of the supply and sources of such
talent, will help companies improve their recruitment efforts.
n
Understanding
employee reward preferences. Employers must understand
the reward preferences of their workforce. Without considering employee priorities in reward design, companies are unlikely to realize the desired returns on
their reward investments.
n
rticulating the reward promise. To harness the prospective power of reA
wards, employers must use the performance management process to communicate the reward opportunities available and set goals showing what employees
must do to realize these opportunities. This will build employee line of sight.
n
elivering on the promise. Rewarding outcomes that align with reward promD
ises and actual performance builds employee commitment and engagement. In
turn, companies must have effective ways to evaluate performance to deliver,
differentiate and communicate performance-based merit increases and shortterm incentive awards.
n
ddressing stress in the workplace. To lessen stress-related turnover, emA
ployers must ensure that organizational design, job design and performance
expectations are aggressive but realistic. Appropriate staffing levels, clearly
prioritized responsibilities, and effective training can mitigate employees’ stress
and improve their work/life balance.
Employers that succeed in these areas will maximize the return on their rewards
investments by reinforcing achievement of their business, financial and human
capital objective.
watsonwyatt.com | 15
United States
Executive Summary
Key Findings
Like other organizations around the world, U.S.
companies are increasingly squeezed between
the competing priorities of providing current
profits and investing in talent management for
long-term success.
n
Employers
report difficulty in attracting and
retaining employees — particularly, top-performing and critical-skill employees — for the
fourth year in a row. Almost two-thirds (64
percent) of employers are having difficulty
attracting critical-skill employees, while 60
percent are having difficulty attracting top
performers.
n
Consistent
with the global findings, U.S.
employers and employees have different
ideas about why employees join or leave.
As a result, some of the actions that employers are taking to attract and retain employees
may be counterproductive.
n
employers continue to manage their cost
As
structures, they are putting more money into
variable pay and raising the bar for performance. As in 2007, more than one in five
(21 percent) increased the size of individual
target awards for 2008.
n
erit-increase budgets for 2007 remained
M
relatively stable, at an average 3.6 percent,
and are expected to rise only slightly, to 3.7
percent, in 2008.
n
Highly
engaged employees are more than
twice as likely to be top performers than are
other employees.
Sustained economic growth and low unemployment, along with the looming retirement of
the baby boomers, have kept the pressure on
U.S. companies to attract, retain and develop
talent. Globalization and continued merger and
acquisition activity keep talent management
frameworks in flux, complicating companies’
efforts to assess, develop and deploy their
employees as effectively as possible across
markets.
Meanwhile, investor expectations and the
need to manage costs are contributing to the
increased importance of variable pay, but employee stress levels are increasing amid everrising expectations for individual and company
performance.
About the U.S. Study
A total of 214 U.S. organizations took part
in the 2007/2008 Global Strategic Rewards
survey. As in prior years, this sample reflects
companies with more than 1,000 employees
and represents all major industry sectors and
U.S. geographical regions. A complementary
survey of more than 1,300 U.S. employees also
was conducted.
16 | Global Strategic Rewards® Report
United States
Attraction and Retention Challenges
The U.S. economy’s continued growth is creating increasing demand for labor, while
demographic trends are causing labor supply growth to slow. The result has been
a historically low unemployment rate — 4.6 percent in August 2007. This tight labor
market has made it more difficult for companies to attract and retain key talent. Almost
two-thirds (64 percent) of employers report having difficulty attracting critical-skill
employees, while 60 percent are having difficulty attracting top-performing employees.
These numbers have continued to trend upward since 2004 (Figure 12).
Figure 12 | Employers Continue to Have Difficulty Attracting Employees*
70%
60%
50%
40%
30%
20%
10%
2004
2005
Critical-skill employees
2006
2007
Top-performing employees
All employees
* Percentage reporting problems attracting employees to a moderate or great extent
The same pattern holds true for retention. Nearly half of all employers (49 percent)
report having difficulty retaining critical-skill employees, compared with fewer than 40
percent in 2005 (Figure 13). So far, however, this has not translated into increased
turnover by critical-skill or top-performing employees. Turnover rates for these groups
at the typical firm average 5 percent, versus 11 percent for all employees.
Figure 13 | Employers Continue to Have Difficulty Retaining Employees*
60%
50%
40%
30%
20%
10%
2004
2005
Critical-skill employees
2006
2007
Top-performing employees
All employees
* Percentage reporting problems retaining employees to a moderate or great extent
watsonwyatt.com | 17
Reasons for Attraction
and Retention
ees leave, employees cite stress and work/life
balance more often than employers do.
Consistent with findings from the global study,
U.S. employers and employees differ on why
employees choose to join or leave an organization (Figure 14).
While both groups acknowledge the importance of base pay in attraction, employers focus
more on intrinsic rewards and employees focus
on extrinsic ones. With regard to why employ-
Employers tend to overestimate the importance
of culture or supervision as reasons that employees join or leave a company. They underestimate the value of job security and health care
in attracting employees and the role of stress
and confidence in senior management in retaining them.
Figure 14 | Employers and Employees Have Different Views on What Attracts and Retains*
Reasons to Leave
Rank
Reasons to Join
Top-Performing
Employees
Employees
Employers*
Top-Performing
Employees
Employees
Employers*
1
Nature of work
(46 percent)
Nature of work
(41 percent)
Employer
reputation
(37 percent)
Stress levels
(42 percent)
Stress levels
(40 percent)
Base pay
(53 percent)
2
Base pay
(28 percent)
Base pay
(33 percent)
Company
culture
(35 percent)
Work/life
balance
(32 percent)
Base pay
(28 percent)
Career
development
opportunities
(49 percent)
3
Health care
benefits
(22 percent)
Employer
reputation
(29 percent)
Base pay
(34 percent)
Promotion
opportunities
(29 percent)
Promotion
opportunities
(26 percent)
Promotion
opportunities
(43 percent)
4
Job security
(20 percent)
Health care
benefits
(26 percent)
Career
development
opportunities
(32 percent)
Career
development
opportunities
(25 percent)
Work
balance
(25 percent)
Relationship with
supervisor
/manager
(41 percent)
Job security
(23 percent)
Nature of work
(29 percent)
Incentive pay
opportunity
(20 percent)
Trust/confidence
in senior
management
(23 percent)
5
Employer
reputation
(19 percent)
Retirement
benefits
(19 percent)
* Percentage reporting element as one of the top three reasons employees consider joining
or leaving an organization
18 | Global Strategic Rewards® Report
Work/life balance
(23 percent)
United States
U.S. Reward Programs
While the majority of organizations say their reward program offerings have remained stable over
the last three years, some companies are boosting their investments. Nearly half have increased
career development and learning and training opportunities. Between one-quarter and one-third
of organizations have increased their cash programs (e.g., merit-increase budgets, annual cash
incentive targets) and improved their work setting (e.g., flexible work schedules, the quality of the
work environment). By contrast, about two in 10 companies have decreased long-term incentive
opportunities, employee stock purchase plans, company-provided pension plans and health care
benefits. Overall, employers are making net investments in their rewards portfolios; within their
portfolios, they are also reallocating dollars from long-term programs to more tangible, short-term
programs.
Employees who say their employer has increased its monetary rewards have markedly higher
satisfaction with rewards and more resistance to competing job offers. Highly engaged employees whose company has increased monetary rewards say it would take a significantly larger pay
increase (a 25 percent increase) to lure them away than would be required for their counterparts
at organizations that have not been increasing rewards (a 15 percent increase).
Satisfaction with rewards is also higher for employees whose company actively communicates
how its reward plans are designed (Figure 15). When organizations actively communicate reward
programs, employees understand expectations better, know what to do to earn rewards, are
more satisfied with the programs (if delivery aligns with promise), become more engaged and are
harder for other companies to bid away.
Figure 15 | Satisfaction Increases When the Company Actively Communicates Design
Base pay
Satisfaction with
Incentive pay opportunity
Career development opportunities
42%
61%
45%
32%
65%
40%
Stress levels
Employees that report active communication
71%
36%
21%
Work/life balance
Trust/confidence in senior management
53%
35%
29%
53%
74%
43%
55%
44%
Employees that report less communication
67%
All employees
watsonwyatt.com | 19
Base Pay
Merit-increase budgets for 2007 remained
relatively stable, at an average 3.6 percent of
payroll, and are expected to rise only slightly, to
3.7 percent, in 2008. There is no appreciable
difference between high- and low-performing
companies’ merit budgets in 2007; however,
high-performing firms are doing more to ensure
that their pay remains competitive by budgeting
1.5 percent of base payroll for market adjustments (versus 0.5 percent at low-performing
firms) and 2.0 percent for promotions (as compared to 1.3 percent at low-performing firms).
Companies are differentiating base pay
increases based on performance, particularly
those of poor-performing employees (Figure
16). But this pay differentiation has not been
well-communicated: 27 percent of employees
do not know whether base pay increases are
higher for top performers, and more than half
(53 percent) think the increases are the same
as or only slightly higher than those for poor
performers.
As in the past, employee pay increases are
most frequently based on meeting goals and
demonstrating knowledge and skills. But only
57 percent of employees say they understand
the basis for base pay decisions, and even
fewer (50 percent) understand the basis for incentive pay decisions. Although 64 percent of
employers assess whether employees demonstrate the company’s values when determining
base pay increases, only 27 percent of employees realize this is a factor. Employees who say
their company actively communicates reward
plan designs are twice as likely to report understanding how pay decisions are made (82
percent versus 41 percent).
Highly engaged and top-performing employees
see the connection between pay and performance. As Figure 17 shows, these groups
are much more likely to make the link between
pay and individual skills and performance, as
well as the link to company performance. In
the case of individual goals and objectives,
engagement increases the comprehension of
the goals for all employees.
Figure 16 | Employers Differentiate Merit Increases by Performance Rating
Did not meet expectations
0.4
Partially met expectations
1.4
12%
42%
Met expectations
3.3
Exceeded expectations
4.6
Far exceeded expectations
5.6
Average merit increases
20 | Global Strategic Rewards® Report
100%
As percentage of increase for met expectations
140%
170%
United States
Annual pay raise based on
Figure 17 | Highly Engaged Top Performers Understand the Connection Between Pay and Performance
Demonstration of my knowledge
and skills
81%
56%
52%
47%
Achievement of my individual
goals/objectives
63%
58%
Achievement of overall company
goals/objectives
45%
45%
Highly engaged, top-performing employees
Other highly engaged employees
Less engaged, top-performing employees
Other less engaged employees
52%
73%
74%
71%
Short-Term Incentives
Continuing a multiyear trend, short-term incentive plans are increasingly important in delivering
compensation and creating line of sight between employees and business goals and success. As
companies tightly manage their fixed cost base (i.e., base pay increases), the emphasis on cash
compensation has shifted to annual incentives. Companies continue to increase both eligibility for
short-term incentives (15 percent) and the size of individual target awards for 2008 (21 percent).
This trend is reinforced by the changes in accounting for stock options, which have pushed companies to reduce long-term incentive eligibility and award values for broad-based employees.
Organizations continue to raise the performance bar, making it more difficult to achieve goals. A
large number of companies are raising both individual performance expectations and company
financial targets (Figure 18).
Figure 18 | Employers Are Increasing Annual Incentives While
Raising Performance Expectations
60%
50%
40%
30%
20%
10%
0%
2005
2006
2007
2008
(anticipated)
Increased eligibility
Increased individual incentive targets
Increased company financial targets
Increased individual performance expectations
watsonwyatt.com | 21
Employee Stock Purchase
Plans (ESPP) and Long-Term
Incentives
The trend of eliminating or decreasing the use
of employee stock purchase plans, in part,
because of accounting changes continues.
More than a fifth of companies (22 percent) are
decreasing their ESPP offerings. Long-term
incentive trends are more varied: 52 percent
of employers are maintaining their existing
plans, 28 percent are decreasing their program
offerings, and 20 percent have increased their
programs in the last three years.
Performance Management
Employees who are both highly engaged and
top performers make connections between
performance and rewards. To a much greater
degree than the other groups, these employees perceive that their performance is accurately evaluated, that goals are motivating
and realistic and that their supervisor provides
good direction and feedback (Figure 19). Highperforming firms are much more likely to report
that their managers excel in these areas.
Figure 19 | Highly Engaged Top Performers Understand the Connection Between the Goal Setting Process
and Performance*
87%
82%
80%
Performance was accurately evaluated
53%
Performance objectives are motivating
67%
36%
37%
Performance goals are realistic
and achievable
51%
Immediate supervisor does a good
job of providing direct feedback on
my individual performance
43%
Highly engaged, top-performing employees
Other highly engaged employees
Less engaged, top-performing employees
Other less engaged employees
* Percentage of employees reporting that agree with each statement
22 | Global Strategic Rewards® Report
65%
61%
75%
98%
76%
73%
89%
United States
Improving Commitment and Line of Sight
to Boost Employee Performance
Designing, implementing and communicating programs that improve employee engagement helps
employers maximize the return on their investments by improving employee performance. Nearly 26
percent of employees with high commitment and high line of sight are top performers, compared
with less than 11 percent of employees with low commitment and line of sight — a ratio of almost
2.5-to-1 (Figure 20).
Of the two variables, line of sight appears to be more important to improving employee performance.
Employees with high line of sight are more than twice as likely to be top performers as other employees (23 percent versus 11 percent). In contrast, employees with high commitment are only about 60
percent more likely (19 percent versus 12 percent) to be top performers. This suggests that for the
typical employee, improving performance depends more on having clear direction than on commitment to the organization.
Figure 20 | Highly Engaged Employees Are More Likely to Be Top Performers*
Commitment
Line of Sight
High
Low
11%
11%
All employees
High
26%
17%
Low
23%
13%
12%
19%
14%
All employees
*Percentage of employees who are top performers by level of commitment and line of sight
watsonwyatt.com | 23
About Watson Wyatt Worldwide
Watson Wyatt is the trusted business partner to the world’s leading
organizations on people and financial issues.
Our client relationships, many spanning decades, define who we
are. They are shaped by a deep understanding of our clients’ needs,
a collaborative working style and a firm-wide commitment to service
excellence.
Our consultants bring fresh thinking to client issues, along with the
experience and research to know what really works. They deliver
practical, evidence-based solutions that are tailored to your organization’s culture and goals.
With 7,000 associates in 31 countries, our global services include:
n Managing the cost and effectiveness of employee benefit
programs
n Developing attraction, retention and reward strategies that help
create competitive advantage
n Advising pension plan sponsors and other institutions on optimal
investment strategies
n Providing strategic and financial advice to insurance and financial
services companies
n Delivering related technology, outsourcing and data services
About WorldatWork ®
The Total Rewards Association
WorldatWork (www.worldatwork.org) is an international association
of human resource professionals and business leaders focused on
attracting, motivating and retaining employees. Founded in 1955,
WorldatWork provides practitioners with knowledge leadership to
effectively design and implement strategies and practices in total rewards – compensation, benefits, work-life, performance and recognition, development and career opportunities. WorldatWork supports
its 30,000 members and customers in 75 countries with thought
leadership, education, publications, research and certification.
24 | Global Strategic Rewards® Report
Region-specific findings from the 2007/2008
Global Strategic Rewards study are also
available to supplement this report:
Asia-Pacific
Canada
n Europe
n Latin America
n
n
For more information visit watsonwyatt.com
or contact your local Watson Wyatt consultant.
watsonwyatt.com | 25
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