2012 2013 Talent Management

and Rewards Survey

U.S. Report
2012 2013 Talent Management and
Rewards Survey
U.S. Report

Table of Contents

Introduction
Ensuring Workers Get What They Need, While
Organizations Realize Stronger Outcomes 2

Career Advancement Opportunities 4

Merit Increases and Bonus Funding 4

Performance Management 5

Leadership Development 6

Succession Management 6

Sustainable Engagement 7

Promoting Sustainable Engagement:

Actions Organizations Can Take 9

Conclusion 10

2012 2013 Talent Management and Rewards Study U.S. Report 1

 Introduction
Ensuring Workers Get What They Need, difficulty attracting or retaining recent university
While Organizations Realize Stronger graduates, a reflection of todays labor market
Outcomes conditions.

As
the global economy
has become more
complex and exerted
more pressure on
organizations, employees
have felt the added
burden.
The level of volatility in the U.S. and global
economies, and changes in workforce demand
and availability combined with the financial
issues now confronting employers have created
a new set of challenges for American companies.
In the U.S., economic growth has slowed to about
1.5% annually; unemployment remains around 8%,
and the rate of job growth (roughly 150,000 jobs
per month for the last year and a half) is barely
sufficient to absorb new job entrants. As such,
many organizations have continued to focus on cost
management and improving the productivity of the
existing workforce without increasing fixed costs
by bringing in more workers.
These conditions, and the high ratio of unemployed
and underemployed people to job openings, result
in U.S. organizations having little difficulty attracting
and retaining employees in general (Figure 1). For
example, a recent study showed only one-third of
recent graduates say they have a job that provides
what they want: one that will lead to a career and
is secure.* Only one in 10 U.S. employers reports
When it comes to attracting employees with
critical skills and other top talent, however, more
than 60% of our 2012 Talent Management and
Rewards Survey respondents report significant
difficulty a similar percentage to 2005 and 2006,
when U.S. economic growth was stronger and the
unemployment rate was much lower. Factoring in
growing global competition, the situation has created
higher employer demand for the right talent, and has
driven the stakes for attracting and engaging that
critical-skill talent even higher.
Moreover, related research has shown us that
employees are experiencing high levels of stress
at work. As the global economy has become
more complex and exerted more pressure on
organizations, employees have felt the added
burden. In fact, according to the U.S. Department
of Labor, the use of overtime for eligible employees
increased significantly over the past few years as
organizations extended employee hours to increase
productivity.

Figure 1. U.S. organizations are having difficulty attracting and retaining employees with critical skills
2004 2005 2006 2007 2008 2009 2010 2011 2012
Problems attracting
Critical-skill employees 46% 58% 63% 64% 66% 28% 52% 59% 61%
All employees 18% 22% 29% 34% 28% 8% 15% 13% 13%
Problems retaining
Critical-skill employees 30% 39% 43% 49% 47% 16% 31% 36% 40%
All employees 17% 20% 20% 27% 19% 5% 11% 11% 11%

*Chasing the American Dream: Recent College Graduates and the Great Recession, Stone, Charley, Carl van
Horn and Cliff Zukin, John J. Heidrich Center for Workforce Development

2 towerswatson.com
So why are companies having difficulty attracting top Figure 2. U.S. employer and employee views differ on key drivers of attraction
talent? One reason may be the mismatch that often All employees High-potential employees
exists between what an organization offers and what Reasons
employees are looking for (Figure 2). Employees Employer Employee Employer Employee
to join
from recent college graduates to top talent in Career
high-potential programs are focused more now Challenging Base pay/ Challenging
1 advancement
work Salary work
on security issues and the broader employment opportunities
deal. Many employers, on the other hand, continue Base pay/ Ability to impact Base pay/
2 Job security
to emphasize nonmonetary rewards such as Salary performance Salary
challenging work and the organizations mission, Career Career Career
vision and values. 3 advancement advancement advancement Job security
opportunities opportunities opportunities
A decline in employee job mobility between organi- Health care
zations and an increased desire for security make Organizations Base pay/ Challenging
4 and wellness
reputation Salary work
it easier for organizations to retain employees of all benefits
types. In addition, there is close alignment between Organizations Convenient Organizations Organizations
5
the way employers and employees view retention values work location values reputation
drivers (Figure 3). Under these conditions, employer Learning and Organizations Learning and
Organizations
misperceptions about what attracts employees are 6 development financial development
reputation
a significant problem. With quit rates and voluntary opportunities performance opportunities
turnover generally low, organizations that dont offer Organizations Health care
Convenient
what employees want have a harder time attracting 7 financial and wellness Job autonomy
work location
performance benefits
the high-potential and critical-skill employees they
need to more effectively compete in the current
business environment. Figure 3. U.S. employer and employee views are more aligned on key
drivers of retention
All employees High-potential employees
Reasons
Employer Employee Employer Employee
to leave
Career Career
Base pay/ Base pay/
1 advancement advancement
Salary Salary
opportunities opportunities
Career Career
Base pay/ Base pay/
2 advancement advancement
Salary Salary
opportunities opportunities
Trust/ Trust/
Relationship Confidence Relationship Confidence
3
with manager in senior with manager in senior
leadership leadership
Work-related Work-related Work-related
4 Job security
stress stress stress
Learning and
Flexible work Work-related Convenient
5 development
arrangements stress work location
opportunities
Learning and
Convenient Ability to impact Relationship
6 development
work location performance with manager
opportunities
Trust/
Confidence Relationship Flexible work Long-term
7
in senior with manager arrangements incentives
leadership

2012 2013 Talent Management and Rewards Study U.S. Report 3

 Career Advancement Opportunities
Opportunities for career advancement are of critical
importance to attracting and retaining employees.
During the recession of 2008 2009, most U.S.
organizations laid off staff, restructured, and
cut back on investments in training and career
development programs. And many older employees
delayed their retirement due to the decline in the
value of their homes and retirement assets. As a
result, career advancement opportunities narrowed.
In
this years survey,
In 2010, employers were somewhat more likely
employers say they to say career advancement opportunities had
continue to provide 3% improved, while employees, overall, were neutral.
pay increases and project In 2011, employers were quite positive nearly a
third (31%) said career advancement opportunities
the same for next year. As
had improved, and only 9% said they had worsened
long as inflation remains
while employees were more pessimistic about
under 2%, these levels their opportunities. This year, however, both
represent real-wage employees and employers are more likely to believe
opportunities have improved (Figure 4).
increases for most
employees.
Merit Increases and Bonus Funding
Base pay continues to be a top driver of attraction
and retention for U.S. employees; in fact, employees
tend to be willing to trade other rewards for larger
salary increases. Nevertheless, in the relatively soft
labor markets of the past few years, companies
have contained median merit budget increases,
keeping them below prerecession levels
(Figure 5). In this years survey, employers say
they continue to provide 3% pay increases and
project the same for next year. As long as inflation
remains under 2%, these levels represent real-wage
increases for most employees.
To strengthen the relationship between pay and
performance, as well as to take pressure off
year-over-year increases in payroll, organizations
supplement merit increases with short-term
incentives. Bonus-pool funding usually tracks fairly
closely with profit growth. In 2010, when corporate
profits were strong, coming on the heels of a very
difficult year, the average funding level was more
than 115% of target. In the past two years, however,
when profits grew at a much slower rate, average
bonus-pool funding has dropped below 100%
(Figure 6).

Figure 4. U.S. employers continue to have a more positive view about changes in career advancement
opportunities than employees do
2010 2011 2012
Employer Employee Employer Employee Employer Employee
Worsened 17% 18% 9% 22% 8% 13%
Remained the same 59% 65% 60% 65% 62% 63%
Improved 24% 17% 31% 13% 31% 24%

Figure 5. U.S. merit budget increases have been reduced since 2007
Nonexempt
Executive Management Exempt salaried Nonexempt hourly
2008 3.7% 3.5% 3.5% 3.5% 3.4%
2009 3.3% 2.9% 2.8% 2.8% 2.8%
2010 3.0% 2.8% 2.8% 2.7% 2.7%
2011 3.0% 3.0% 3.0% 2.9% 2.8%
2012 3.0% 3.0% 3.0% 3.0% 3.0%
2013
3.0% 3.0% 3.0% 3.0% 3.0%
(projected)
Source: Towers Watson Data Services Figures reflect medians inclusive of zeros.

Figure 6. U.S. companies continue to fund bonuses below target levels

2005 2006 2007 2008 2009 2010 2011 2012
90.5% 100.7% 78.3% 82.3% 85.2% 115.5% 95.4% 92.9%

4 towerswatson.com
This practice has allowed companies to continue Figure 7. U.S. organizations are rated less effective at performance
managing costs without making cuts to other management than the global norm
programs or to head count. In five of the last six Effectiveness of performance management process
years and six of the last eight U.S. bonus- in the following areas Global U.S.
pool funding has been below target levels. At the
Linking bonus payouts to individual performance results 65% 44%
same time, organizations have been ratcheting up
Linking salary increases to individual performance results 62% 51%
expectations and asking employees to do more with
less. Continuing to do this can lead employees to Differentiating pay based on performance, even for
44% 32%
employees who receive the same performance rating
devalue bonus plans relative to other programs.
Incorporating competencies into the performance
42% 35%
management process
Performance Management
Incorporating career development into the performance
37% 25%
Assessing their performance management process management process
in a number of areas, U.S. organizations see
themselves as significantly less effective overall
than the global norm (Figure 7). The areas in Figure 8. Managers in U.S. organizations are rated less effective at
which U.S. companies see themselves behind the performance management than the global norm
curve include linking salary and bonus increases
to individual results, differentiating pay based on Effectiveness of managers in performance management Global U.S.
performance, and integrating competencies and Fairly reflecting overall performance in the employees
54% 44%
career development into the process. final performance rating
Differentiating performance between high and low
When we asked U.S. employers to rate the effec- 54% 40%
performers
tiveness of their managers in the performance Fairly reflecting performance in pay decisions 54% 39%
management process, they gave lower ratings than
Acting with authenticity and building trust 52% 49%
other organizations surveyed. U.S. companies see
Working with employees to set appropriate performance
their managers as significantly less effective at 52% 37%
goals for individual performance
essentially all aspects of performance management
Giving employees regular coaching and feedback on their
(Figure 8). 39% 24%
performance
Only one-third (34%) of U.S. companies agree they Utilizing performance results to determine development
38% 22%
measure the effectiveness of their performance plans
management process. Those that do are more likely Conducting career development discussions as part of
33% 19%
than other organizations to report that they measure the performance management process
differentiation in performance ratings and merit Explaining possible career opportunities or available
27% 13%
or bonus payouts, and they are also more likely to career paths
conduct an after-the-fact review of the correlation
between performance ratings and pay decisions.
However, this group is still less likely than other Figure 9. More U.S. companies could benefit from measuring performance
organizations to assess whether feedback and management effectiveness
coaching occur throughout the performance cycle Of those companies that do measure the effectiveness
(Figure 9). of their performance management process Global U.S.
Managers complete annual reviews on time 63% 72%
Employees complete the process on time 59% 54%
Extent of differentiation in performance ratings (e.g.,
55% 80%
differentiation of merit or bonus payouts)
Extent of differentiation in merit or bonus payouts 51% 63%
After-the-fact review of correlation between performance
44% 57%
ratings and pay decisions
Assessment of whether feedback and coaching happen
35% 27%
throughout the performance cycle

2012 2013 Talent Management and Rewards Study U.S. Report 5

 With the implementation of performance management
technology and strong measurement capabilities
in place at most U.S. organizations, we might
expect higher success ratings in the performance
Succession
management management process than reported. Many
employees report that their managers or supervisors
is vitally important in
do not have enough time for the people aspects of
ensuring that employees
their jobs, and managers are integral to executing
with critical skills and
performance management well. Building manager
other top talent are capabilities in this area and reinforcing the value
of the performance management process are critical
not only placed in
to increasing effectiveness.
the right roles but are
being groomed for
Leadership Development
advancement.
Consistent with our global results, a high percentage
of U.S. companies believe their leadership
development programs support the desired culture
of the organization (95% of U.S. respondents, 84%
of global respondents).
In the U.S., leadership development programs offer
blended learning solutions. Organizations are moving
away from university executive education programs
and relying much more on assessment, coaching
and experiential learning as key program elements
(Figure 10). Additionally, 62% of U.S. respondents
report that HR has primary responsibility for the
delivery of leadership development programs.
Figure 10. Assessment, coaching and experiential learning are key program
elements in U.S. organizations
Which of the following activities or programs are included in the Percentage of
leadership development programs at your organization? respondents
360-degree evaluation 84%
Assessment using formal instruments 71%
External coaching 71%
Action learning (a learning process for individuals or teams working on
70%
real business problems learning by doing)
Internal coaching 70%
Project assignments 68%
Mentoring 64%
Leaders teaching leaders 61%
Simulations (learning tools that replicate real business situations,
enabling companies to develop leadership, decision-making and other 48%
capabilities in a risk-free environment)
University executive education 47%
Rotational assignments 35%
6 towerswatson.com
Succession Management
Succession management is vitally important in
ensuring that employees with critical skills and
other top talent are not only placed in the right
roles but are being groomed for advancement.
Most respondents report that the fundamentals
of succession management are in place in their
organizations. Specifically, three-quarters (76%) have
implemented a process for identifying high-potential
employees, and 84% are holding formal discussions
about talent at the top levels of the organization.
More than half (52%) of respondents have aligned
development plans for their succession candidates
with the knowledge, skills and abilities of their
competency models. However, for the nearly four in
10 that have not implemented scaled competency
models as part of succession management, further
progress on the fundamentals should be a short-
term goal.
Beyond the fundamentals, six in 10 U.S.
organizations (61%) have expanded the depth
of their succession planning by including pivotal
or critical roles below top leadership levels. In
addition, four in 10 U.S. companies (41%) also
hold formal discussions about talent at all levels of
the organization. However, room for improvement
remains, as only 38% of respondents use talent
pooling for key roles below the top executive team.
More than half (56%) of respondents report that
they look outside their own organization in order to
identify and consider talent, and a similar number
(52%) use succession management to promote
cross-business and cross-functional talent sharing.
Yet further progress can be made if companies
reward leaders for exporting talent across the
organization only one in 10 organizations (11%)
do this today. In addition, as only about a quarter
of respondents have instituted a formalized
assignment management process, companies need
to ensure that their succession candidates get
job experience that builds their capabilities for
high-level roles.
Six in 10 respondents continue to report that they
still do not communicate succession status to
individuals identified as successors. Nearly three-
quarters of companies promote employees who
were not identified as potential successors. Despite
the fact that nearly half of respondents (47%) have
made progress in aligning succession management
with other talent programs, it is disconcerting to find
that when replacement decisions must be made,
many companies are not using their own succession
and talent review processes, but rather are working
outside established succession processes.
Sustainable Engagement
A key element for employers seeking to improve
results is building employees sustainable
engagement levels. Sustainable engagement
includes the following three aspects:
Traditional engagement. The extent of employees
discretionary effort committed to achieving work
goals
Enablement. An environment that supports
productivity in multiple ways, e.g., having the tools
and resources needed to perform productively
Energy. Work experience that promotes well-being
so employees feel energized
Employees who are engaged, enabled and energized
i.e., highly engaged are more productive, have
fewer unscheduled absences and are lower retention
risks. Our survey findings show that organizations
with highly engaged employees tend to be more
profitable as well. Companies can improve their
return on reward and talent management programs
by focusing on the top drivers of sustainable engage-
ment. For more information on our Sustainable
Engagement Model, see the Towers Watson 2012
Global Workforce Study (GWS) report, Engagement
at Risk: Driving Strong Performance in a Volatile
Global Economy.
The top drivers of sustainable engagement among
U.S. workers are:
Leadership
Stress, balance and workload
Goals and objectives
Supervision
Organizations image
Companies
can improve their return on
reward and talent management programs
by focusing on the top drivers of
sustainable engagement.
2012 2013 Talent Management and Rewards Study U.S. Report 7
 In Figure 11, we outline the current assessment by
U.S. employers and employees of U.S. company
performance on each of the five top drivers of
sustainable engagement. In the following section,
Figure 11. U.S. employers performance on drivers of sustainable engagement
Driver Employer view
Leadership 64% of organizations have leadership development
programs targeted to high-potential employees.
65% of all respondents have formal leadership
development programs.
86% of these organizations say their leadership
development programs support their long-term
business strategy and goals.
Stress, balance Organizations are placing greater stress on employees:
and workload 71% of organizations say employees have been
working more hours over the past three years.
63% expect that employees will continue to work more
hours over the next three years.
61% of organizations say that employees at their
organization often experience excessive pressure on
the job.
Goals and Organizations think their performance management
objectives process is moderately effective:
55% rate it as effective in communicating performance
expectations to employees.
43% believe it has helped create a high-performance
work culture.
Half (53%) of organizations are effectively
communicating how employee actions affect
customers.
Supervision Fewer than half of organizations think their managers are
effective at:
Differentiating performance between high and low
performers (40%)
Holding helpful career discussions (19%)
Fairly reflecting performance in pay decisions (39%)
Image Building an effective employee value proposition (EVP)
is a key to promoting the companys image. Most
organizations are struggling to:
Align their EVP with their brand in the marketplace
(34% are effective)
Do a good job delivering on their EVP (26%)
Differentiate their EVP from others (21%)
8 towerswatson.com
we offer a series of recommendations to
address the issues that have emerged from
our Talent Management and Rewards Study,
and GWS, related to each of the key drivers.
Employee view
Only three out of 10 U.S. employees in middle
management or above agree their organization does
a good job explaining how they can advance in their
career.
Only 38% of these employees believe senior leaders
are doing a good job developing future leaders.
51% of employees say they have been working more
hours over the past three years.
46% expect to work more hours over the next three
years.
30% often feel excessive pressure on the job.
68% of employees have a good understanding of the
organizations business goals.
72% understand how their job contributes to the
organization achieving its business goals.
Fewer than half of employees think their managers are
effective at:
Differentiating performance between high and low
performers (49%)
Holding career development discussions in the past
year that furthered employee development (45%)
Making fair decisions about how employee
performance links to pay decisions (49%)
Align their EVP with their brand in the marketplace
(38% are effective)
Do a good job delivering on their EVP (37%)
Promoting Sustainable Engagement:
Actions Organizations Can Take
The good news is that organizations can take
actions to improve sustainable engagement
that dont require large hard-dollar investments.
Below, we offer a set of recommendations that
can be implemented to help drive higher levels
of sustainable engagement. Some focus on plan
design changes, but many rely on better execution of
existing programs within the total rewards portfolio.
1. Take action for better leadership. Although
organizations believe they are doing a good
job of developing future leaders, employees in
mid-career positions have a significantly less
favorable view of their organizations leadership
development programs and opportunities.
Update your leadership competency model to
ensure it is aligned to your business strategy,
3. Clarify goals and objectives. Employees need to
while focusing leaders on the right behaviors.
Segment your population, and ensure that
you target high potentials for leadership
development programs.
In your talent review and succession planning
processes, identify high potentials, and create
and monitor specific development plans to build
leadership capabilities for the future.
2. Deal with employee stress, workload and work/
life balance. Organizations have raised the bar on
both hours worked and performance expectations
at the same time the work environment has
eroded, causing employees to feel excessive
pressure at work. Organizations
have
Pay attention to the stress levels of your
raised the bar on
employees. Top performers and critical-skill
employees are hard to find and difficult to both hours worked
replace. When employees are under excessive and performance
stress, try to rebalance workloads or extend expectations at the
timelines for deliverables when possible.
same time the work
Leaders and managers need to prioritize those
things that must get done and eliminate those environment has
things with little value added. eroded, causing
Reexamine work processes to determine if employees to feel
there are ways to streamline steps and reduce
excessive pressure
handoffs.
at work.
have a clear understanding of the organizations
goals and how their job affects overall
performance.
Align your performance management programs
to organizational goals and objectives.
Provide frequent communication on how well the
organization is achieving its goals.
Help employees understand how their
contributions affect the achievement of
organizational goals, customer satisfaction
and retention levels, and how organizational
success in these areas will benefit them.
2012 2013 Talent Management and Rewards Study U.S. Report 9
 4. Improve management and supervision. Survey
Organizations
have an
excellent opportunity to
differentiate themselves
in the areas of design,
delivery and execution of
total rewards programs.
10 towerswatson.com
Emphasize that developing employees is a
respondents are particularly critical of their critical role for managers, along with meeting
managers and supervisors in areas related to financial goals: Hold them accountable for
effectively evaluating and rewarding performance, development.
and explaining career advancement opportunities
5. Enhance the organizations image. The EVP and
to employees.
corporate brand often play a dominant role in
Create clear criteria for different levels
shaping employees perception of their companys
of performance, and have supervisors
image.
communicate this to employees during the
Build and clearly articulate an EVP that is linked
annual performance management cycle.
to your customer brand and what the company
Make these criteria easy to find and accessible
stands for.
by all employees on company intranet sites.
Ensure your EVP is considered in the design
Conduct performance calibration sessions
and execution of talent and reward programs.
to ensure that performance ratings are as
Integrate your EVP into all phases of the talent
consistent as possible across the organization.
life cycle, from recruiting and selection, through
Review pay decisions before they are final
to development and rewards.
to ensure they reflect the companys pay-
Educate employees on the EVP and
for-performance philosophy and that high
its relevance to them using different
performers are rewarded appropriately.
communication tools such as social networking,
Teach leaders and managers how to hold
web tools, print and face-to-face meetings.
effective career discussions, and reward those
that do.
Conclusion
An Employment Deal That Works for Employees and Employers Alike
As U.S. employers remain focused on cost management and improving productivity, and continue
to seek profitable growth in a period of economic volatility, they need to craft an EVP aligned with
what top talent and critical-skill workers are looking for. Differentiating the EVP for important
workforce segments, aligning total rewards programs accordingly and driving higher levels of
sustainable engagement can yield returns to organizations in terms of better attraction and
retention outcomes, more focused and productive employees, and higher levels of financial
performance.
Organizations have an excellent opportunity to differentiate themselves in the areas of design,
delivery and execution of total rewards programs. Organizations willing to drive design, delivery
and differentiation of their EVP forward can create a successful future for both the organization
and its employees.
About the Study
The Talent Management and Rewards Study was
fielded between the end of April and the first week of Organization type Percentage
June 2012. In total, 1,605 respondents participated Domestic 44%
in the survey, including 278 in the U.S. As in the International 20%
GWS, these responses were weighted to reflect the Global 36%
economic impact of each country based on the size
of its gross domestic product.
Number of employees Percentage
In order to be included in the survey sample,
organizations had to meet a size threshold based Greater than 10,000 39%
on the number of employees or be part of a global Between 5,000 and 9,999 26%
organization. Two-thirds of the responses came from Between 2,000 and 4,999 21%
multinational organizations, and the remaining one- Fewer than 2,000 15%
third were from domestic organizations. The average
size was approximately 19,000 employees; median Industry sector Percentage
size was almost 4,000 employees. U.S. employers Energy and Utilities 7%
were somewhat larger, with an average of almost
Financial Services 17%
24,000 employees and a median size of 7,700
General Services 8%
employees.
Health Care 14%
The survey responses came from a broad cross IT and Telecom 10%
section of industries, with the largest number of
Manufacturing 30%
responses concentrated in the manufacturing sector,
Public Sector and Education 5%
followed by financial services, health care, and IT
and telecom. Wholesale and Retail 9%

About the 2012 GWS

The 2012 Towers Watson GWS, the latest in a decade-long series of global employee studies, was fielded in 29 markets
around the world. It elicited responses from more than 32,000 full-time workers globally, including 3,606 responses in
the U.S., across a range of industries and functions.

About WorldatWork
The Total Rewards Association

WorldatWork (worldatwork.org) is a global HR association focused on compensation, benefits, work/life and integrated
total rewards to attract, motivate and retain a talented workforce. Founded in 1955, WorldatWork provides a network of
nearly 30,000 members in more than 100 countries with training, certification, research, conferences and community.
It has offices in Scottsdale, Arizona, and Washington, D.C.

2012 2013 Talent Management and Rewards Study U.S. Report 11

About Towers Watson
Towers Watson is a leading global professional services
company that helps organizations improve performance through
effective people, risk and financial management. With 14,000
associates around the world, we offer solutions in the areas
of employee benefits, talent management, rewards, and risk and
capital management.

Copyright 2012 Towers Watson. All rights reserved.

TW-NA-2012-24420

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