Assessing the impact of an aging workforce across global organizations

1. Assessing the impact of an aging workforce across global organizations

2. Today’s discussion • Assessing the aging world and aging workforce • Ernst & Young’s study: 2007 Aging U.S. Workforce Survey: Challenges and Responses – An Ongoing Review • Survey methodology • Common themes • Key findings • Putting the pieces together • Facing key issues on a global level • Talent management and succession planning • Retirement • Discussion: Understanding your global workforce • Moving forward

3. Under 5% 5% to 12.4% 12.5% to 20% An aging world – 2000 Percent of Population Age 60+: Above 20% Source: U.S. Census Bureau

4. Under 5% 5% to 12.4% 12.5% to 20% Above 20% An aging world – 2025 Percent of Population Age 60+: Source: U.S. Census Bureau

5. Assessing the global aging workforce • How we got here… • Declining global fertility rate over the past 4 decades • Significant population declines in developed countries • Population surpluses in less developed countries with unskilled and uneducated labor • US Baby Boomer generation starting to retire • 43% of today’s workforce will be eligible to retire by 2018 • World’s population today 1 in 10 over 60…1 in 5 in 2050

6. Understanding financial implications of aging workforce • By 2030, four Federal programs will consume all U.S. tax revenue without any spending: • Retirement of Federal employees, Medicaid, Medicare, and Social Security (MW) • By 2050, Medicare and Social Security will be 21% of GDP (4.3% in 2000) (CBO) • Global Economies facing impending financial challenges in areas of talent management, retirement, healthcare and compensation costs • Source: Ernst & Young LLP’s 2007 Aging U.S. Workforce Survey: Challenges and Responses – An Ongoing Review

7. E&Y’s 2007 Aging Workforce Study • Follow-up to Ernst & Young’s 2006 aging workforce study • Surveyed Human Resources (HR) executives from Fortune 1000 companies • Focused on financial and operational issues of the aging workforce

8. Common themes • The aging workforce is a critical business risk, not just an HR risk, impacting all key business risk areas • Organizations have been primarily reactive when it comes to managing the challenges brought on by this changing demographic • Company-wide accountability exists when meeting the challenges of an aging workforce (Boards, C-suite executives, HR executives) • Organizations that understand these concepts and start acting now will significantly benefit financially and non-financially in the future

9. Key findings • Potential loss of intellectual capital is imminent among survey respondents • 62% of respondents forecast retiring employees will cause a talent gap in critical functions • Middle management will be where organizations feel the gap the most • Employees are seeking opportunities to reduce work schedules as they age, but do not necessarily stop work completely • Re-careering • Flexible work arrangements • Changing employers

10. Key findings • 40% of surveyed employers desire for senior management to stay at least 2 years beyond their normal retirement age but with no formal program to address this issue • Few employers have formal programs established to retain older workers • Rules and administrative requirements for phased retirement programs are so complex many organizations do not view them as a viable option • Only 9% of respondents allowed employees to receive pension benefits while still working for the organization

11. Putting the pieces together • Aging population will lead to businesses competing more for younger workers • 37% of surveyed organizations considering changes to benefits and compensation packages to attract and retain older workers • 20% considering increasing compensation • 29% considering a phased retirement program • 33% considering implementing more “Baby Boomer Benefits” such as financial education, retirement planning and long-term care benefits • Employers must gain clear understanding of workforce demographics and employee needs to attract new and retain key employees

12. Facing talent management on a global level • Global executives see HR risk as being among the top business risks facing an organization today • Talent management is the #1 HR risk overall • Source: Ernst & Young LLP’s 2008 Global HR Risk Survey • Effective global talent management programs are effective enterprise risk management programs • Developing the right person, with the right skills and competencies, in the right job and the right time. • Alignment to company business strategy • Identification of positions, skills, competencies, experiences, etc. to drive business strategy • Understanding of global and local country resources (needs and supply) • Established performance metrics and expected returns (financial and nonfinancial) developed and monitored • Previous financial analysis conducted • Legal and regulatory issues addressed and monitored • Communications and change management processes put in place

13. “Must Haves” for talent management and succession planning • Follow steps to ensure effective talent and succession planning program is put in place • Be strategic, not reactive • Connect talent management to business strategy • Understand employee demographics, needs, issues • Focus on middle management • Understand issues that drive retention and facilitate transition of traditional employment • Ensure you have effective, comprehensive governance with clear accountability and measurement • Effective talent management is at the core of enterprise risk management

14. Facing retirement programming on a global level • Retirement is no longer the main event—it is a process • Employers must help employees bridge the gap between their final years on the job and the start of retirement • For two years in a row, more than 60% of executives admit retirement will cause a “brain drain” or talent gap • Source: Ernst & Young LLP’s 2007 Aging U.S. Workforce Survey: Challenges and Responses – An Ongoing Review • Components of an effective retirement program that meets the needs of aging employees must consist of plans which allow employees to be “phased” into the retirement process • Employers do not appear to be implementing programs that will help bridge employees into this next phase of their life • Absence of phased retirement plans and enticing compensation options may lead to lack of desire to stay within a corporation at high level-positions

15. “Must Haves” for developing global retirement programs • Follow steps to ensure effective retirement programs are put in place that meet the needs of your employee demographics • Once again, be strategic, not reactive • Connect retirement programs to the business strategy • Align with talent management plans to ensure the effective transfer of knowledgeacross levels • Increase dialogue across company divisions • This will help to foster an understanding of the technical issues surrounding an aging workforce and how retirement is seen among this demographic • Understand employee demographics, needs, issues • Review anticipated retirement projections within own company

16. Discussion: Understanding Your Global Workforce • What pressures are you feeling from the operational, financial, strategic and compliance areas of your organization? • If you could change one item in your current retirement program, what would that be and what impact do you think it would have on the organization? • How well do you know your employee demographics (i.e. % retiring in the next 5-10 years) and what do you do with that information?

17. Moving forward in your organization • Identify the human capital needs of your organization in 5 to 10 years • Project population shifts with current workforce and culture and identify gaps • Assess the needs and interests of the older workers • Assess the ability to employ older workers in a variety of positions • Assess the organization’s talent management and employee development programs and processes • Perform cost analyses of retaining older workers vs. attracting new workers