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2009 Towers Perrin
Optimizing Rewards for Business Results and Greater Employee Engagement
Lois Grubb, Vice President, Human Resources Elmhurst Memorial Hospital
Eric Parmenter, PrincipalTowers Perrin
August 4, 2009
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Presenters: Lois Grubb
Lois Grubb is Vice President, Human Resources for a 400+ bed community hospital with more than 500 physicians and 3,000 employees. She reports to the CEO and manages a group of 17 HR professionals
Prior to that, Lois was Senior Vice President, Human Resources for a $1.2 billion wholly owned subsidiary of AmerisourceBergen,a Fortune 24 pharmaceutical supply chain management company. Previously, she held HR leadership roles at Gundersen Lutheran Medical Center in La Crosse, WI; CNA Insurance; GD Searle and Co; and Mohr Development
Lois has an M.A. in psychology from Temple University, a B.A. in psychology from Immaculate College and is an award recipient from the Academy of Women Achievers, YWCA, City of New York. Other credentials include the Executive Education Program in Finance, Wharton School of the University of Pennsylvania, and Executive Education in Strategy and Marketing, Tuck School of Business, Dartmouth
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Presenters: Eric Parmenter
Eric Parmenter is a Principal in Towers Perrins Health and Welfare practice. Located in the firms Chicago office, he has over 23 yearsexperience helping employers develop innovative total reward strategies that align with their business objectives
Eric is a recognized national leader in health care benefit design and delivery. He is a frequent moderator of panel discussions and speaker at seminars across the country. Eric is also an award-winning author of articles on human resource and employee benefit topics
Prior to joining Towers Perrin, Eric was Midwest practice leader for compensation and benefit consulting at Grant Thornton LLP. He also owned his own benefit consulting, outsourcing and administration firm
Eric holds a bachelor of arts degree in psychology from the University of Illinois, as well as multiple professional designations in underwriting, finance and human resources. Eric also holds an M.B.A. degree from the University of Chicagos Graduate School of Business
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Todays discussion
Setting the Stage Managing Talent in
Challenging Economic Times
Addressing Elmhurst Memorials Issues:
Total Rewards Optimization
Key Learnings
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Signs that the global downturn is abating
U.S. Consumer Confidence Index improved in March and April and rose to an eight-month high in May
Although unemployment reached 9.4% in the U.S. in May, the rate of job losses decreased relative to prior months
DJIA and S&P 500 have advanced significantly since early March January February losses were nearly offset
Housing sales were up 11% in June
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havent eased corporate concerns and caution
Most U.S. organizations in a recent Towers Perrin survey project 2009 revenue declines 52% expect decreases of more than 5% 33% anticipate a drop of 11% or more
A Q1 Business Roundtable survey of 100 CEOs revealed pessimism 67% expect sales to decline in the next six months 66% plan to shrink capital spending 71% expect more job losses
Health care providers are concerned about the economy and the implications of health reform both as an employer and as a provider
Source: Towers Perrin Cost-Cutting Strategies in the Downturn, May 2009; Business Roundtables Q1 2009 CEO Economic Outlook Survey
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Rising costs in a sinking economy mean employers and employees take a double hit
Shrinking income and purchasing power Trade-offs between health care and
other necessities
Job stress Unemployment Capital losses Delayed retirement
Employees/Retirees Face
Unbudgeted cost increases due to increased utilization of medical
and disability plans increasing numbers of covered
dependents due to widespread layoffs increased COBRA exposure postponed retirements
Lower employee engagement Lower productivity New concerns about health reform
Employers Face
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As a result of the economic crisis, employers are accelerating reward changes and/or moving in new directions
53% are trying or considering benefit strategies they would not have considered otherwise
47% have closed their DB plans to new participants Although less than 10% have suspended their 401(k) match,
another 20% are considering it
52% are increasing employees share of health care program costs 62% are tightening prescription drug coverage 38% of organizations are focusing more on cost reduction
than talent management
Most are holding the line on salaries by cutting merit budgets, freezing salaries or delaying planned merit increases (in that order)
Source: Towers Perrin Compensation in Crisis Pulse Survey, January 2009; Towers Perrin Benefits in Crisis Pulse Survey, March 2009
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and reacting to changes in the economy
North American employers tell us employees are
Postponing retirement (68%) Requesting financial education or retirement
planning (40%)
Using employee assistance programs (35%)
Source: Towers Perrin Benefits in Crisis Pulse Survey, March 2009
Moving to fixed-income investments (55%) Increasing loans and withdrawals from
retirement savings plans (50%) or reducing participation in these plans (44%)
In the U.S. specifically, employers tell us employees are
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The outlook for health care and hospitals
Health care and education have been hit less than other U.S. industries with fewer job losses some hospitals are performing well given the economy others hospitals are experiencing flat or decreasing revenues
Fewer dollars are being spent on elective procedures Accounts receivable are growing, with more defaults on outstanding bills Patients skip important screenings and tests due to insurance worries Charitable care is increasing Impending health care reform legislation creates significant
uncertainties for the future
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Today, hospitals face unprecedented demands and new challenges
Employer Challenges Sustainable growth and improved performance Operating cost and risk pressures Innovation and quality improvement Employee engagement and patient satisfaction Flexible, on demand workforce to address talent
shortages and gaps Public relations and network contracting New competition for labor
Employee Needs
Financial security Inspiring leadership Challenging work Involvement and control Information and knowledge Work/life balance Physician experience and engagement
Demographic Forces
Aging workforce Increasingly diverse workforce Changing patterns of retirement Increased job mobility Talent shortages Anticipated dearth of leadership
Market Forces/Financial Pressures
Ballooning accounts receivables Reduction in elective care and some needed care Intense competition and shrinking reimbursement Governance pressures and regulatory oversight Mounting regulatory pressures and opportunities Transforming technologies and outsourcing Collective bargaining activities Consumerism payment strategies Transparency and quality Aging infrastructure and need to replace facilities
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Labor and related costs accounted for 62% of the expense growth for hospitals (from 2001 to 2006)
Labor is now the single largest operating cost item typically equal to more than 40% of revenue
Intensity and other 8%
Change in number of services provided
30%Costs of goods and services purchased62%
All other12%
Prescription drugs4%
Professional liability insurance2%
Professional fees3%
Wages, salaries and employee benefits41%
Source: AHA analysis of 2001-2006 expense growth rates by category
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The drivers of attraction, retention and engagement for employees in health care
Competitive retirement benefits
Reputation of the organization as a good employer
Caliber of coworkers
Reasonable workload
Career advancement opportunities
Convenient work location
Flexible schedule
Vacation/paid time off
Competitive health care benefits
Competitive base pay
Top Attraction Drivers
Senior management acts to ensure organizations long-term success
People in my unit work well together as a team
Unit has skills needed to succeed
Organization quickly resolves customer concerns
Fairly compensated compared to others doing similar work in my organization
Can impact customer satisfaction
Good relationship with supervisor
Understand potential career track within organization
Ability to balance my work/personal life
Satisfaction with the organizations business decisions
Top Retention Drivers
Competitive career development
Unit has skills needed to succeed
Improved my skills and capabilities over the last year
Can impact quality of work/product/service
Input into decision making in my department
Organization rewards outstanding customer service
Organization quickly resolves customer concerns
Seek opportunities to develop new knowledge/skills
Organizations reputation for social responsibility
Senior management sincerely interested in employee well-being
Top Engagement Drivers
Source: Towers Perrin 2007 2008 Global Workforce Study, U.S. Hospital Cut, October 2007
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Todays discussion
Setting the Stage Attraction and Retention in
Challenging Economic Times
Addressing Elmhurst Memorials Issues:
Total Rewards Optimization
Key Learnings
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Elmhurst Memorial Healthcare (EMHC): Key issues
Community hospital located in western suburbs of Chicago Three components to our business acute care not-for-profit hospital Elmhurst Clinic home health/hospice
Compete in a crowded marketplace Challenge of building a new hospital
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Employee Engagement Measuring engagement Understanding drivers of
engagement Understanding linkage between
engagement and financial results
Begin with an integrated strategy framework
Business Context
Performance Management
Rewards and Recognition Ensuring consequences for
performance and behavior Understanding what different
segments value Setting principles to guide decisions
Training and Development
Recruitment
Strategic WorkforcePlanning
Talent Management
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Positioning for business results: Its really about alignment
EMHCS Mission, Vision
and Values
HRStrategy
Monetary Total Rewards Pay (base and incentives) BenefitsNonmonetary Total Rewards Communication Performance ManagementWork Environment/Culture Recognition Leadership Career Development
The Employment Deal
High levels of trust, commitment and loyalty
Employer-of-choice status
Outside recognition/awards
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The first step in EMHCs journey: Focus on rewards benchmarking and optimization
Human Capital Optimization
Reduce expenditures and growth rate for fixed-cost rewards
Eliminate programs with low perceived value Streamline reward practices for greater efficiency
Cost/Risk Reduction
Increase the variable component of rewards Redirect the overall reward spend toward
pivotal roles Ensure transparency of reward system practices Strengthen manager effectiveness and support
system
Performance EnhancementRewards
Optimization
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The chosen reward changes and implementation plan will be based in part on the answers to a series of questions
How will reward changes impact employee engagement? Given key engagement drivers, can we navigate change to minimize disruption?
Can the reward portfolio be restructured to balance cost and employee perceived value?
What workforce disruption risks are acceptable?
Are metrics underlying incentives consistent with goals for growth and profitability?
Do employees have a clear line of sight to what drives business performance, and do rewards reinforce the right behaviors and decisions?
Is the distribution of reward spend across roles reflective of their pivotal nature?
Do rewards align with desired business performance?
How competitive are EMHCs rewards versus the market?
Is the reward mix appropriate for employees and the company?
Considerations Is EMHCs current emphasis on fixed-cost rewards hampering business
performance and flexibility? Do employees appreciate the level of security provided? Would greater emphasis on variable pay better attract critical skills?
Are employees behind the curve in preparing for retirement and taking responsibility for their health?
What is the desired competitive position for rewards overall, and by component? Are there reward trends that could help attract and retain critical talent? Is EMHC within acceptable cost levels versus competition for customers?
Framing the Issues
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Understanding what attracts employees and the key elements of the work experience that motivateemployees will be critical to success
Note: Percentages represent percentage of respondents including item in their top 5.Source: Towers Perrin 2007-2008 Global Workforce Study, U.S. and U.S. Hospital Cut, October 2007
4
3
2
8
1
Age Under 25
574Career advancement opportunities
8443Flexible schedule
1225Competitive health care benefits
38Competitive retirement benefits
6332Vacation/paid time off
2111Competitive base pay
Age 55 or Older
Ages 45 to 54
Ages 35 to 44
Ages 25 to 34Attraction Drivers
Source: Towers Perrin 2007 Global Workforce Study U.S. Hospital Industry
Maximizing earnings (47%)
Doing exciting, challenging work (49%)
Having adequate benefit protection (58%)
Having a secure position for the long term (61%)
Having good work/life balance (69%)
Top Motivation for Work Overall Top Motivation for Work Hospitals
Having good work/life balance (70%)
Having a secure position for the long term (63%)
Having adequate benefit protection (63%)
Doing exciting, challenging work (50%)
Maximizing earnings (48%)
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The challenge is to build people programs that create competitive advantage
Optimal reward programs will attract, retain and engage employees and drive quality and operational performance
Operational Performance
Improved productivity Improved financial and
clinical performance benchmarks
Reduced costs Competitive advantage
EmployeeBehaviors
Attracting the right talent
Engaging talent in the right behaviors aligned with a desired culture
Motivating talent to be healthy and productive
Retaining the right talent
Loyal Informed consumer Effective decision
making/compliance with care
Consistent with the hospitals clinical and quality initiatives (quality, safety and cost-effectiveness)
Patient Satisfaction/Quality of Care
People Programs and Processes
Pay Benefits
Learningand
Development
WorkEnvironment
2009 Focus Relational Rewards
2008 Focus Transactional Rewards
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The rewards landscape: The evolution
Pay Benefits
Learning andDevelopment
WorkEnvironment
Transactional Rewards Short-term focus Critical to attracting top talent
Relational Rewards Long-term focus Critical to retaining top talent
Investment in Transactional Rewards Pay and Benefits
Investment in Relational Rewards Work Environment and Learning and Development
Maximizing Return on Reward Investments% ROI
In the long run, relational rewards provide a higher ROI
$ InvestmentAdditional Investment
Fair/Reasonable Investment
Superior Returns
Competitive Returns
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Getting started at EMHC: Employee engagement survey findings
Input from the employee engagement survey provided focus to the strategy and implementation
For EMHC input about pay and benefits led us to conduct an analysis of EMHCs base-pay practices
Towers Perrin conducted a review of EMHCs benefits and their market competitiveness
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What are the engagement mindsets at EMHC?
Fully Engaged25%
Complacent59%
Disengaged16%
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On the pay front, how does EMHC compare with other local health care organizations?
Base Pay
Source: Metropolitan Chicago Healthcare Council (MCHC)
Of the 50 EMHC Positions Surveyed, the Majority Were Either at Market or at the High End of Market
Lower end of market
At market
Higher end of market
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All EMHC benefit programs were benchmarked against the market
Source: Towers Perrin Competitive Benefits Review, 2008
Medical
Dental
Vision
Short-Term Disability
Long-Term Disability
Basic Life/AD&D
Voluntary Life/AD&D
Pension
403(b) Savings
EAP
Paid Time Off
At marketLower end of market Higher end of market
Benefits
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EMHC tactics/program changes reflect the strategy, employee input and program performance assessment
PayPay Benefits
Learning and
Development
WorkEnvironment
The Deal
Pay and Benefits Transactional Rewards focus for 2008 and early 2009
Learning and Development and Work Environment Relational Rewards focus for the balance of 2009 and 2010
Early results of engagement pulse survey are promising
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Early results of engagement pulse survey are promising
My supervisor used the feedback to make changes 59% favorable EMHC 57% favorable healthcare norm
All in all, Im satisfied with my job 80% EMHC 2009 69% EMHC 2007 73% healthcare norm
I understand how my benefits compare 64% favorable 62% healthcare norm
I understand how my wages compare 61% favorable
I understand how my performance impacts the organizations performance 91% favorable
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Introduce a new employer-employee partnership
Hold employees accountable
to perform, based on company values
In return, providea comprehensive
total rewards program
Together, we will deliver stellar results
Partnership Respect Integrity Determination Excellence
Outstanding clinical quality/outcomes
Exceptional patient satisfaction
Strong financial performance
Significant market growth
Safety at the core of all we do
Benefits
Learning and
Development
WorkEnvironment
Pay
You
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Todays discussion
Setting the Stage Attraction and Retention in
Challenging Economic Times
Addressing Elmhurst Memorials Issues:
Total Rewards Optimization
Key Learnings
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Key learnings: Managing the partnership and moving forward together
Create a comprehensive strategyDevelop a total rewards strategy that supports business needs, and align programs accordingly
Communicate and manage changeCommit to regular dialogue about total rewards and what it means for employees
Provide transparencyProvide information about pay and benefit levels, and how they correlate with employee performance
Move from transactional rewards to relational rewardsPay and benefits must be competitive; you must pay to play, but you win through exceptional learning and development and work environment gains
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Thank you
Questions?
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Our contact information
Lois GrubbVice President, Human ResourcesElmhurst Memorial [email protected]
Eric ParmenterPrincipalTowers PerrinChicago Office71 South Wacker DriveSuite 2600Chicago, IL [email protected]