© 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 Perrin’s Health and Welfare practice. Located in the firm’s Chicago office, he has over 23 years’experience 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 Chicago’s Graduate School of Business
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Today’s discussion
Setting the Stage —Managing Talent in
Challenging Economic Times
Addressing Elmhurst Memorial’s 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 MarchJanuary – February losses were nearly offset
Housing sales were up 11% in June
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…haven’t 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 pessimism67% expect sales to decline in the next six months66% plan to shrink capital spending71% 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 Roundtable’s 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 toincreased utilization of medical and disability plans increasing numbers of covered dependents due to widespread layoffsincreased 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 economyothers 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 ChallengesSustainable growth and improved performance Operating cost and risk pressuresInnovation and quality improvement Employee engagement and patient satisfactionFlexible, “on demand” workforce to address talent shortages and gapsPublic relations and network contractingNew competition for labor
Employee Needs
Financial securityInspiring leadershipChallenging workInvolvement and controlInformation and knowledgeWork/life balancePhysician experience and engagement
Demographic Forces
Aging workforceIncreasingly diverse workforceChanging patterns of retirementIncreased job mobilityTalent shortagesAnticipated dearth of leadership
Market Forces/Financial Pressures
Ballooning accounts receivablesReduction in elective care and some needed careIntense competition and shrinking reimbursementGovernance pressures and regulatory oversightMounting regulatory pressures and opportunitiesTransforming technologies and outsourcingCollective bargaining activitiesConsumerism payment strategiesTransparency 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 organization’s 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 organization’s 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
Organization’s 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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Today’s discussion
Setting the Stage —Attraction and Retention in
Challenging Economic Times
Addressing Elmhurst Memorial’s 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 hospitalElmhurst Clinic home health/hospice
Compete in a crowded marketplace
Challenge of building a new hospital
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Employee EngagementMeasuring engagement Understanding drivers of engagement Understanding linkage between engagement and financial results
Begin with an integrated strategy framework
Business Context
Performance Management
Rewards and RecognitionEnsuring consequences for performance and behaviorUnderstanding what different segments valueSetting principles to guide decisions
Training and Development
Recruitment
Strategic WorkforcePlanning
Talent Management
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Positioning for business results: It’s really about alignment
EMHC’S Mission, Vision
and Values
HRStrategy
Monetary Total RewardsPay (base and incentives)Benefits
Nonmonetary Total RewardsCommunicationPerformance ManagementWork Environment/CultureRecognitionLeadershipCareer 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 EMHC’s journey: Focus on rewards benchmarking and optimization
Human Capital Optimization
Reduce expenditures and growth rate for fixed-cost rewards Eliminate programs with low perceived valueStreamline reward practices for greater efficiency
Cost/Risk Reduction
Increase the variable component of rewardsRedirect the overall reward spend toward pivotal rolesEnsure transparency of reward system practicesStrengthen 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 EMHC’s rewards versus the market?
Is the reward mix appropriate for employees and the company?
ConsiderationsIs EMHC’s 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
38——Competitive 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 productivityImproved financial and clinical performance benchmarks Reduced costsCompetitive advantage
EmployeeBehaviors
Attracting the right talentEngaging talent in the right behaviors aligned with a desired cultureMotivating talent to be healthy and productiveRetaining the right talent
LoyalInformed consumerEffective decision making/compliance with careConsistent with the hospital’s 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 RewardsShort-term focusCritical to attracting top talent
Relational RewardsLong-term focusCritical 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 EMHC’s base-pay practices
Towers Perrin conducted a review of EMHC’s 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 Rewardsfocus 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 changes59% favorable EMHC57% favorable healthcare norm
All in all, I’m satisfied with my job80% EMHC 200969% EMHC 200773% healthcare norm
I understand how my benefits compare64% favorable62% healthcare norm
I understand how my wages compare61% favorable
I understand how my performance impacts the organization’s 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
PartnershipRespectIntegrityDeterminationExcellence
Outstanding clinical quality/outcomesExceptional patient satisfactionStrong financial performanceSignificant market growthSafety at the core of all we do
Benefits
Learning and
Development
WorkEnvironment
Pay
You
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Today’s discussion
Setting the Stage —Attraction and Retention in
Challenging Economic Times
Addressing Elmhurst Memorial’s 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]