The huge demographic shift facing developed countries poses an enormous challenge to employers over the next decade, if recent Australian research is a guide. In fact, you only need to look five years out from now to realise the degree of change set to impact the global workforce landscape.
Rather than improving, recent research by Mercer in Australia has revealed that the skills shortage in some industry sectors will be even more acute by the year 2012. Workforce participation rates are set to decrease by 0.7 per cent in the four years to 2012. By contrast, it grew by 0.5 per cent in the four years to 2008.
As well, the composition of the workforce is expected to change: a higher proportion of workers will be aged 55 and older, and there will be an increasing ratio of females versus males in the workforce, while in the US our research suggests there will be a greater temporary or contingent workforce.
For companies this means the way we think about attraction, retention and engagement of staff needs to change. Companies need to get smarter in their approach to workforce planning, reward, flexibility and career development to keep winning the war for talent.
Get set for the changing workforce ahead
Mercer commissioned research by Econtech to forecast how the workforce would look four years from now.
The Workplace 2012 research revealed that the composition of the labour force will change significantly in the next four years:
- the proportion of workers aged over 55 is set to increase by 14 per cent, compared with a 5 per cent increase in workers aged between 25 and 54 years of age
- the number of women in the workforce aged over 45 will increase by 12 per cent, while the number of men in the same group will increase by only 6 per cent.
With a greater proportion of the workforce nearing retirement, and increasing diversity of employee lifestyle needs, the relationship between employer and employee is set to change.
For the employer this will inevitably bring new challenges in how to attract and retain key talent, but we believe the battle can be won if companies start putting in place the right strategies now.
Can’t we just throw more money at the problem?
Mercer’s latest remuneration data from the Market Issues Survey has shown that wages not only continue to grow in Australia, but do so at an increasing rate. In the past 12 months wages have risen by 4.7 per cent (for same incumbents, that’s the same person in the same job) – the largest rise in three years.
But our data tells us that continuing to increase wages isn’t having the desired effect. Our survey indicates that the attraction and retention of key talent ranks as a very important issue among 93 per cent of employers (it only ranks as ‘important’ for the other 7 per cent), and while salaries keep going up, baby boomers continue to exit the workforce. Throwing more and more money at the problem is not a sustainable solution for business, despite the survey findings which suggest business confidence remains high - and so there’s a real business imperative for companies to start thinking differently about remuneration and job design over the next 4-5 years.
What could employers be doing better?
Employers need to consider taking a more sophisticated approach to remuneration and reward. They need to consider rewards in a broader context. According to Mercer’s 2006 global snapshot survey, Measuring the Return on Total Rewards, this paradigm shift has occurred globally, with approximately two-thirds of companies in AsiaPacific, Europe, and North America now taking a comprehensive view of rewards as a blend of pay, benefits, careers and other intrinsic factors (such as working conditions).
Figure 2: Definitions of Total Rewards across the globe
This means going beyond just money and pay structures to include benefits, such as flexible hours, the ability to work from home, training and development opportunities, and the quality of the work environment.
When considered in this context, how employees are rewarded can take on different forms such as:
alternative and flexible employment arrangements – adapting to the workforce demands of 2012 will require organisations to adopt an expanded range of work arrangements, from long-term to contingent, from full-time to part-time, from onsite to telecommuting. Providing employees with greater autonomy for how they schedule and deliver work will be critical to competing for talent in the global market.
Health & Wellness focus – while alignment, motivational and commitment focused rewards will remain keys to success, companies will increasingly focus on healthcare and wellness initiatives. Providing physical examinations, healthy eating opportunities and encouraging exercise will all be more common programs in 2012 as employers seek to retain older workers.
A common realisation is that various segments of the workforce actually have similar needs, but for varying reasons - put simply, the term ‘flexibility’ may take on multiple meanings within the same workforce.
For example, both baby boomers and Gen Y will value work/life balance programs but for different reasons, cognisant with their life stage.
But that doesn’t mean a blanket approach is the answer - not every employee is going to care about having access to a workplace wellness program; there are others who may be more interested in exploring further training or career opportunities within the organisation.
Perhaps it’s time for employers to get up close and personal with their employees and pin point exactly what it is that will appeal to their workforce. As employers continue to be stretched to their limits on employment costs, becoming more attuned to the type of people that will make up your workforce in 2012 and beyond, whether it be heavily female dominated or inclusive of contract workers, will help determine what is the most appropriate Total Rewards offer.
As part of this, employers need to consider different reward approaches for different segments of the workforce.
If companies are to achieve their profit targets for 2012, it is critical to ensure that the Total Rewards approach is delivering sustainable employment costs and not growing at a disproportionate rate to overall company revenue. Greater discipline around the management of the reward costs and an assessment of the return on reward spend will be vital to business success in 2012.
Increasingly reward strategies will not be ‘one size fits all’, but will instead aim to maximise the return on the reward spend through embracing differences in business groups, employee generations, staffing models and geography.
In the most recent Market Issues Survey 71 per cent of employers said they are adopting a segmented approach to reward. However, 40 per cent of employers are currently differentiating employees on the basis of job level or rank within the organisation where, typically, seniority is rewarded more favourably.
In light of demographic shifts, gender imbalances and a larger contingent workforce, Mercer believes there is room for more innovative approaches which look beyond the parameters of a person’s job level as a basis for segmentation.
Companies need to conduct analysis in order to identify the critical talent and key value drivers within the business and focus on how to better reward those roles. This doesn’t necessarily mean rewarding on the basis of rank or role, but looking at where the critical knowledge and cultural drivers lie within the organisation.
Employers need to ask themselves, “Who’s really important to this business and what is it that appeals to them?”
Differentiating reward outcomes so that more of the reward spend is directed towards those who drive the greatest value for the business will be critical in managing employment costs into the future.
Ultimately, a ‘total reward’ approach requires lateral thinking around pay structures, benefits, careers and flexibility – and to a degree this needs to be tailored to various segments of the workforce. Those who can achieve this will be able to maximise return on their remuneration spend.
Although challenging, employers who don’t shift their attitudes towards Total Rewards may well be the big losers in 2012’s employment market.
