Total Rewards Trends for the Coming Years

1. Total Rewards Trendsfor the Coming Years Jennifer C. Loftus, MBA, SPHR-CA, GPHR, CCP, CBP, GRP National Director, Astron Solutions April 27, 2011

2. Today’s Agenda • Setting the Stage – Talent Management Financial Challenges • Setting the Stage – Talent Management People Challenges • Scanning the Horizon • Discussion / Q&A

3. Today’s Agenda • Setting the Stage – Talent Management Financial Challenges • Setting the Stage – Talent Management People Challenges • Scanning the Horizon • Discussion / Q&A

4. The Economy’s Pulse According to the USA Today / IHS Global Insight Economic Outlook Index, as of late February 2011… But will slow to 3.4% in July 2011 Real GDP is growing at 3.6%

5. We’re Not Out of the Woods Yet… • Source: Bureau of Labor Statistics, US Department of Labor

6. Impact on Individuals: February 2011 • The Good News: • Unemployment has dropped to 8.9%. • Private sector payroll employment increased by 192,000. • Manufacturing, construction, professional & business services, health care, and transportation &warehousing are adding the most jobs. • The Bad News: • Unemployment is 8.9%. • Employment is declining in state and local government. • The long-term unemployed (more than 26 weeks) dropped to 6.0 million. • Source: Bureau of Labor Statistics, US Department of Labor

7. The Paradox of Scarcity Among Plenty

9. National Outlook for Average Base Pay Increase BudgetsWorldatWork 37th Annual Salary Budget Survey While organizations may use more than one of these programs, not every organization provides every type of increase listed above. In 2010, 13.2% of organizations used COLAs, 91.3% used merit increases, and 21.4% used other increase delivery systems.

10. National Outlook for Base Pay Increase BudgetsMercer 2010 / 2011 US Compensation Planning Survey Although some organizations continue to freeze pay in 2011, these same organizations will find money – even if not formally budgeted – to fund at least some pay increases.

11. Hot Off the PressesUpdates to 2011 Merit Increase Budget Projections

12. Today’s Agenda • Setting the Stage – Talent Management Financial Challenges • Setting the Stage – Talent Management People Challenges • Scanning the Horizon • Discussion / Q&A

13. Turnover is Low… Source: Towers Watson

14. The Changing Demographics of the Workforce • Intellectual capital loss • Source: Bureau of Labor Statistics, US Department of Labor • Can people afford to retire? • Time • Money

15. The State of Employment Fastest decline since the 1974 recession Source: The Conference Board

16. Roosevelt’s New Deal Revisited • Security and stability are #1. • Employees • Are staying put, but are frustrated about advancement. • See themselves as responsible for their futures, but worry about their ability to handle it. • Want leaders who are competent and inspiring, but question the incumbents’ current abilities. • Desire more work freedom and flexibility, but lack the necessary tools and support. Source: Towers Watson 2010 Global Workforce Study

17. Today’s Agenda • Setting the Stage – Talent Management Financial Challenges • Setting the Stage – Talent Management People Challenges • Scanning the Horizon • Discussion / Q&A

18. The recession is not a retention strategy.

19. Customize Your Rewards Offerings to Reflect “WIIFM” Tailor your rewards package to meet employees’ needs

20. Customize Your Rewards Offerings to Targeted Groups • Primary focus Hard to fill positions High turnover positions High flight risk areas(“Hi-Pos,” critical skills, & top performers) High strategic impact roles (“mission critical”)

21. Communication is Essential • Opinion surveys • Focus groups • Town meetings • “First Impressions” • Non-hired recruits • “Poached” or transferred employees • Ask your “Stars” now

22. Not Sure What to Say? • Why do you stay at this organization? • What would make you leave? • What is your next professional career move? • What motivates you to excel? • What three things is this organization doing to retain you? • What really ticks you off about working here? • What three things should the organization stop doing to keep you here? • What three things should the organization start doing to ensure you will stay? • What one benefit do we need to change and why? • What new benefit offering should the organization offer to keep you? Source: “Igniting Passion in Employees,” Workspan, February 2001, P. 36.

23. The Era of Total Rewards Everything you offer employees – tangible and intangible – is part of your total rewards package.

24. The Five Key Elements of Total Rewards

25. As Organizations Change, So Do Their Total Rewards Programs Total Rewards Strategy Organization Culture & Stage Fiscal Sensitivity Employee Population Customer Expectations Mission Critical

26. Making Merit Pay Multi-Dimensional • The current approach: • Looks backward rather than forward • Costly over time • Moving forward: • Use of multi-dimensional merit matrices • Long-term potential • Consistent, sustained performance • Specific skill sets • Increased emphasis on variable compensation and new success measures • Variable compensation opportunities throughout the organization

27. Why Variable Compensation? • What it offers: • True pay for performance • Results-based • Profitability focus • Effective at creating alignment • Unifies an organization when broadly inclusive • What it avoids: • Additional fixed costs • The baggage of merit pay • Traditions, expectations, and entitlement • Cutting edge designs: • Include both group and individual components • Have payouts linked to individual base pay or other total reward opportunities

28. Outlook for Short-Term Incentive Utilization and PayoutsMercer 2010 / 2011 US Compensation Planning Survey According to Mercer, 90% of for-profit organizations, and 85% of all organizations, utilize incentives for at least one segment of their employee population. 28

29. Rewards and Recognition: Back to Basics • In the new economy, fewer employees are doing more. • Do they know we care? • “Thank you” • Share accomplishments with senior management • Specific, immediate, and genuine feedback

30. Today’s Agenda • Setting the Stage – Talent Management Financial Challenges • Setting the Stage – Talent Management People Challenges • Scanning the Horizon • Discussion / Q&A

31. Key Takeaways • The economy is slowly improving as the US moves into a new economic reality. • The workforce is undergoing demographic change. • Proactive organizations are increasing efforts to engage talent to prevent undesired turnover as the economy improves. • In the new economy, successful employee retention is a three step process. • Identify • Communicate • Recognize • Successful organizations maintain a broader, total rewards perspective on customized packages offered to employees. • Increased focus on the non-cash elements of total rewards. • Merit pay is a smaller piece of the rewards puzzle.

32. Calculating Turnover Costs • Each employee who leaves your organization generates a cost: • Cost to terminate + • Cost per replacement hire + • Vacancy cost + • Learning curve loss • Conservatively, estimate 50% of annual pay

33. Calculating Total Rewards Return on Investment • FICA savings on increased retirement plan participation • Selection of morerelevant benefits • Life change • Plan level • Reduction in requests for large and / or out of cycle pay increases • Reduction in time spent reviewing pay increase requests based on unverifiable internet data or magazine articles • Productivity gains from increased morale • Decrease in turnover

34. About Jennifer Loftus and Astron Solutions Jennifer C. Loftus, MBA, SPHR-CA, GPHR, CCP, CBP, GRP, is a National Director for Astron Solutions. Her primary areas of expertise are total rewards, customized market surveys, employee opinion surveys, and technology-based HR solutions. Jennifer has fifteen years of experience garnered at organizations including the Hay Group, Parsons Brinckerhoff, Eagle Electric Manufacturing Company, and Harcourt General. Jennifer is President of HR/NY (New York City’s SHRM chapter) and a volunteer article reviewer for WorldatWork and SHRM. She is a subject matter expert to the SHRM Learning System, an alumna of SHRM’s Total Rewards Special Expertise Panel, and a member of SHRM’s Workplace Flexibility Advisory Committee. Jennifer is a sought-after HR speaker, appearing on local and national television, radio, and conferences. She has also been published in local and national periodicals. Jennifer has an MBA in Human Resource Management with highest honors from Pace University and a BS in Accounting summa cum laude from Rutgers University. Jennifer is an Adjunct Professor in Human Resources at Pace University. Jennifer can be reached at Email: jcloftus@astronsolutions.com Facebook User ID: 1050838080Twitter Page: @AstronSolutionsConnect with Jennifer on LinkedInTelephone: 212-792-8885 Astron Solutions is a Human Resource consulting firm dedicated to the specialties of compensation and total rewards, employee surveys, and Flare™ web-based talent management. Organizations throughout the United States and abroad turn to Astron Solutions for effective, efficient, and cost sensitive solutions to questions on base pay and incentives, FLSA and executive compensation compliance, and talent management technology solutions. Please visit www.astronsolutions.com to learn more about Astron’s services, clients, and senior team.