Expert Perspective by Grahall’s OmniMedia Editorial Board
The Editorial Board took up a discussion around the article Reuters by Ross Kerber published on October 22, 2009 (More Americans plan to delay retirement). Of no surprise to anyone who hoped to retire on their 401(k) investments, Kerber shares: “More Americans plan to delay retirement following steep drops in the value of their savings accounts, data from several new surveys show.”
Grahall agrees that anecdotally this observation is certainly true, but more important than the fact are its implications for a company’s workforce. Let’s take health care, for example. As Grahall’s Robert Cirkiel says: “if a company thinks covering a 65 year old retiree’s health care is expensive, wait until they see what it costs to cover a 65 year old worker, since the company’s plan picks up the costs, not Medicare.”
But the issue is not only one of workforce cost. Demographics impact workforce strategies. Grahall’s Michael Graham shares that it is increasingly important to understand how demographic changes impact Total Rewards Strategies. For example, a 65 year old thinks about compensation far differently than a 40 or 50 year old. Analyzing future workforce needs demands that employers incorporate potential resource requirements and consider employee terminations, retirements, and mortality. An actuarial modeling of current and future workforce needs, such as the kind of modeling performed by Grahall, can help employers to understand where gaps will occur and to determine where and how to fill them.
The demographic issue is not isolated to certain firms or even US firms. It is a global issue. Companies fill open staff positions in one of three ways: with new or younger people (except when last wave was the “baby bust”), through immigration (which, despite the country’s apparent disfavor with immigration, has historically helped US companies to import expertise), or by keeping current employees alive, well and employed.
But let’s get back to the impacts of demographic changes on Total Reward Strategy (TRS). Demographics have shifted greatly in the past five years, and we anticipate they will continue to shift in the next five.
Interestingly, the typical “shelf life” of a TRS is also about five years. Over 80% of companies that have Total Rewards Strategies have not updated them in over five years. This means that most companies are operating with outdated strategies that don’t recognize any of the recent trends such as high unemployment, changes to immigration and the availability of older workers. This is a problem that must be addressed, but it also presents a great opportunity for companies to reestablish, reconnect and reattach their rewards strategies to their goals and incorporate current demographic changes and expected trends.
A final question to consider is what exactly is a workforce? The definition of a workforce has changed over the years. From brick and mortar buildings housing employees on a “9 to 5” schedule, we now have global and virtual work environments where technology facilitates communication and transactions and supports the delivery of projects. No longer should a company assume it is practical or appropriate to address the needs of every employee with the same contract or compact. In order to compete more effectively, companies will need to use a surgical approach to determining compensation.
In Grahall blog Apparently Avarice is Not Always Poor: Sorry Samuel Johnson we explain that “…companies need to carefully identify the key individuals in their organizations – and view importance, performance and potential with a longer lens”. Then in Grahall’s blog It’s Better to be on the Bus than Under Itwe share that “Surgical approaches to compensation can help a company to select, retain and mobilize not just its best people but the people best suited to drive success in the future. Grahall has been at the forefront of designing surgical compensation strategies around appropriate market attachments that create true incentives to drive desirable and risk-appropriate behavior.”
Much like the definition of workforce, the retirement paradigm has changed drastically from the days when Social Security retirement age was set at 65 and life expectancy was 63 years of age. Things have shifted since then. Today, older employees expect to never really retire, but rather continue to apply their skills and wisdom for financial gain. No longer do Americans anticipate that their retirement will be funded solely by the “three legged stool” of Social Security, employer plans and personal savings. Nor is a fourth leg, whatever that might be, necessarily the answer for everyone. Future “retirement” scenarios will continue to vary – from here to eternity.
Workforce considerations and rewards strategies are complex. We recommend you hire an experienced and independent professional services firm, like Grahall, to help you figure it all out.
Contact Grahall’s OmniMedia Editorial Board at firstname.lastname@example.org