The Business of HR

Highlights from Mercer’s Strategic HR Symposium

September 4 – 6, 2007Washington, DC

ii

1

An introductionPat Milligan, chief markets officer, Mercer

It was a privilege to host Mercer’s 2007 Strategic HR Symposium, “The Business of HR”, in Washington, DC, last fall. Over the course of the discussion and dialogue,

we tackled the business of HR from many perspectives. Some notable examples: Wal-Mart’s Susan Chambers discussed the talent challenges at the world’s largest retailer. Joan Kelly of DHL Express described how to use technology to engage a global workforce. Michael Capellas of First Data Corp. dis-cussed leadership’s pivotal role in business transformation.

These summaries give a flavor of last year’s symposium and are a good reflection of the experience that you will enjoy at our next strategic HR symposium, planned for September 2008. We at Mercer look forward to welcoming you.

2

M. Michele Burns became Mercer’s CEO in 2006.

Previously, she served as CFO of Mercer’s parent

company, MMC. Her tenure as CFO and chief restructuring

officer for Mirant and as executive vice president and CFO

of Delta Airlines and her background in consulting with

Arthur Andersen have shaped her thinking about human

capital issues. She started the symposium by affirming the

strategic and competitive importance of human capital at

Mercer and offering a strategic road map for HR leadership

in any business.

A CEO perspective on the value of human capitalM. Michele Burns, chairman and CEO, Mercer

Table stakes and strategic partnering“‘Table stakes’ is a card-playing term I like to use. It refers to the number of chips required to get into the game. Here’s how I would define table stakes for a chief human resource officer: You must have an effective and efficient HR organi-zation, one that allows you to also focus on your CEO’s human capital issues and priorities.

“Here are the kinds of questions that need asking: How do you staff your HR organization in a global world? How do you begin to metrics-manage a complex global workforce to achieve the goals of the company and the strategy of the com-pany and measure the value that’s created? And then how do you communicate that value – both up to the board and to the CEO – and how do you communicate that value to the workforce?

“In my opinion, no company in the world can reach its strategic objectives without employing appropriate metrics, including those that measure the return on human capital. If the company is in a state of change, you as the HR leader must inject yourself in the middle of the strategic planning process. At the end of the day, you will be responsible for delivering on that strategy. So it’s absolutely essential to play a role in its development.”

3

Mercer’s Strategic HR Symposium 2007Insights from the speakers

Michael Capellas, First Data Corp. ............................................................................. 4

M. Susan Chambers, Wal-Mart .................................................................................. 6

Dr. Adrian Wooldridge, The Economist ..................................................................... 7

Adrian Slywotzky, Oliver Wyman ............................................................................. 9

Thomas Pütter, Allianz Capital Partners ................................................................. 10

Lori Sabet, The Carlyle Group .................................................................................. 10

Symposium bytes: Neil Howe, economist; Joan Kelly, DHL Express .................... 13

Mercer’s points of view ............................................................................................ 14

4

With his unique perspective on both the technology

industry – as former CEO of Compaq and MCI –

and the role of leadership in business transformation,

Michael Capellas shared insights on HR leadership and

its role in building high-performance cultures.

Business transformation: The role of leadership and cultureMichael Capellas, chairman and CEO, First Data Corp.

“HR must own – really, truly own – and have responsibility for the integrity of the performance management system. If you look at really great companies, employees know what’s expected of them. Pretty basic stuff, right? But then look at companies that get themselves into trouble. You find that the employees didn’t know what was expected of them. The performance management systems sent incredibly mixed messages about what behavior was good, what behavior was bad, and then rewarded the wrong things.

“I encourage all HR people to take this up as a mantra: ‘Sense isn’t common, and what you can do just by applying common sense is amazing.’ One of the things I have always told our HR people is: ‘One of your jobs, which is incredibly difficult, is to keep me from doing stupid things.’”

5

If you look at really

great companies,

employees know

what’s expected of

them. Pretty basic

stuff, right?

“

”

6

Leading the people agenda for the world’s largest retailerM. Susan Chambers, EVP, People Division, Wal-Mart

The HR leader for Wal-Mart, M. Susan Chambers, pre-

sented her views on the challenges of global HR for an

organization that has experienced tremendous growth and

faces the increasing complexity of building and maintaining

a world-class workforce.

“We’ve been fortunate that we’ve been able to find the talent that we needed as we’ve grown. But the right talent is going to be so much harder to find, retain and develop. So we are going to take a much different approach. We have begun to partner with schools and partner in urban markets where there are fewer oppor-tunities for people ... to help create the workforce that we’re going to need for the future.

“We believe that around 60 to 70 percent of our transactional work could be deliv-ered through employee and manager self-service. That effort begins by looking at the services we provide in a whole new light. For instance, one of the problems that we have with the significant turnover in retail is that you can’t train people fast enough on the complexities of state employment laws and policies. So we’re looking at setting up service centers, where HR representatives can call and get the kind of help they need to interpret those policies and laws.”

Culture and sustainabilityOne of the symposium’s attendees asked Ms. Chambers: “Can you say a little bit more about changing the culture at Wal-Mart?”

Chambers: “We like change. We thrive on change. But you can overwhelm people with change, especially if you aren’t communicating, helping associates not only understand what’s in it for them, but letting them play, letting them influence the process. And so we’ve created a program of town hall meetings and other commu-nication venues where associates and managers can have a real dialogue on change.

“And you’ve probably read about our sustainability initiative. It’s so exciting for all associates, but particularly for younger associates who are just coming on board with us or thinking of joining us. Whether it’s recycling, using less, consuming less, losing weight … we have amazing programs that have become quite popular.”

7

“Talent shortages are all over the place – in specialized skills and in business leadership. We have a severe shortage of top management skills and abilities. It used to be that in the economic development business, what you wanted to do was attract big companies that could provide jobs. Now states are in the business of attracting creative workers with all sorts of incentives. Kansas offers people free land if they’re young and entrepreneurial. North Dakota has tax breaks. Puerto Rico is about to abolish the federal income tax, if it can do it constitutionally, for young, talented workers. Universities are also getting into the talent business. Now, in the Midwest, it’s no longer the idea that you’re driven by the Big Three automakers. Car companies are driven by the Big Ten universities.

“Rich countries around the world are re-rigging their immigration systems to try and attract talent. They’re using restrictions; they’re creating incentives. Ireland and Singapore both have government departments devoted to attracting talent, and many countries around the world are using their university systems to attract talent. New Zealand and Australia are particularly innovative in that area.

“A lot of companies and a lot of public organizations in the West have relied over-whelmingly on having an almost infinite source of brainpower from India and China, and from Asia in general. [But] that is going to dry up as we see India and China growing – we’re not going to have this talent diaspora, which is beginning to go back home. And we’re beginning to see a populist backlash against free-market capitalism. We’re seeing it in China, with this worry about growing inequality. We’re seeing it here [in the US] with people like John Edwards, who ran a very populist campaign.… I think this could spread all around the world. We need to factor this into our thinking about the future.”

A shifting balance: The global economy and the war for talentDr. Adrian Wooldridge, Washington bureau chief, The Economist

Attracting, recruiting and retaining talent is one of the

biggest challenges organizations face. The Economist’s

Dr. Adrian Wooldridge talked about the global war for talent

and how it is changing.

8

For every type of risk ...

there’s someone out there

who has developed a

very effective counter-

measure ... to turn it into

an opportunity.

“

”

Orphans of risk management: Understanding and exploiting the upsideAdrian Slywotzky, partner, Oliver Wyman, and author of The Upside

9

“There’s been so much work done on hazard, financial and operating risk, and relatively little on strategic and human capital risk. Advances in managing financial risk have dramatically improved the performance of banks – 70 percent of their total risk is financial. For us non-banks, it’s strategic and human capital. Strategic: My brand collapses, technology changes, major projects fail. Human capital: My top decile of talent leaves, we lack the right skills for our new busi-ness design or there’s a succession crisis.

“So what significant human capital risks should Fortune 500 or Fortune 1000 companies be anticipating, quantifying and managing? There’s a shortage of skills – I don’t have the people I need to execute my business model. And attrition – in the worst case, of my very best people. Also, poor customer service can really damage your brand. Or an inability to evaluate and assess talent. Those are just some of the human capital risks out there.

“Technology and project risk can be devastating – whether it’s an IT project, a new product development or an M&A. Daniel Kahneman, the Nobel Prize-winning economist, says of the roots of risk, ‘Human beings are structurally configured to be overly optimistic about the odds of success on a project by a factor of three or four.’1 In fact, the odds of success are usually as low as 10 to 20 percent.

“There’s been a fundamental change in the incidence of risk. Over the past 10 years, 30 percent of the Fortune 1000 have experienced a loss of market value of 60 percent or greater in a 12-month period. It’s not just the market, it’s the under-lying economics. Strategic risk is something that had always been associated with the tech sector, where there were frequent collapses in market value. This has begun to spread to the bluest of blue chips, and even to the very best manage-ment teams, with the very best business models.”

In the dynamic landscape of risk management, companies

are not giving enough attention to strategic and human

capital risk. Oliver Wyman partner Adrian Slywotzky argued

that these two “risk orphans” need to move up the senior

management agenda.

1 Dan Lovallo and Daniel Kahneman, “Delusions of Success: How Optimism Undermines Executives,” Harvard Business Review, July 1, 2003.

10

The view from private equity: Winning the war for talentThomas Pütter, CEO, Allianz Capital Partners, and managing director, Allianz Alternative Asset Holding Lori Sabet, SVP, global human resources, and managing director, The Carlyle Group Dr. Eric Warner, region head, M&A consulting business, Mercer

During the past decade, the world’s major private equity

firms have attracted the best and brightest talent, as

the growth, global reach and influence of PE continues.

In this panel discussion, Allianz’s Thomas Pütter joined

The Carlyle Group’s Lori Sabet and Mercer’s Eric Warner to

explore what lessons the corporate world can learn from PE.

Eric Warner: “What can private equity firms teach the corporate world about winning the war for talent? Both of you have been involved in developing and building up your firms from a very early stage. So could you say a little bit about the strategies and techniques you use for identifying, attracting and winning the best talent for your organization?”

PE and recruitingLori Sabet: “When I first started, we primarily hired investment bankers. But our talent needs have stretched and diversified alongside our business. Today we need different skill sets. So we’re looking in corporations, M&A, corporate development, the consulting industry, the Big Four organizations.

“We primarily work through search firms, but we also encourage our employees, our portfolio companies, our senior advisers and our consultants to identify individuals for us as we go along. We are most interested in individuals who are looking for an entrepreneurial opportunity and are willing to take a big risk for a potentially large reward.”

Thomas Pütter: “When I look back over the past 10 years, I think the challenge of recruiting has changed. Today, everybody in private equity, everybody in consulting, everybody in investment banking and now everybody in the hedge fund competes for the top 2 percent – people with the best expertise, the best domain expertise.

11

“What persuades people to come to you and not somewhere else? It is a combina-tion of two things. No. 1 is culture. And No. 2 is the clear communication of what makes your business distinct. It never ceases to amaze me how few people are able to clearly explain to somebody they are interviewing what the organization is about, what the organization wants to do and achieve, what’s expected of the indi-vidual, and what can happen if he or she meets those expectations.”

Warner: “Tom, does the institutionalization of your talent processes affect your ability to attract the best talent in any way?”

Pütter: “I think the increase in formal processes and procedures enhances our ability to attract the best talent, because it makes us more predictable. It moves us away from the star system, which poses significant risks to the business. If the star leaves, then suddenly you’ve got disarray and the organization can’t function anymore.

“In a world that has become as complex as ours, you can’t buy a $5 billion market cap company anymore, with one genius or financial hero, cape blowing in the wind, doing the deal. I think you need multifunctionality, you need multiple experience and you need teamwork. You also need to institutionalize the sharing and transfer of knowledge.”

PE and performanceWarner: “Assuming that you’ve been successful in attracting the best talent to the organization in pri-vate equity, how do you manage their performance?”

Sabet: “One of the first things that I implemented was a formal performance management system. We assess all employees – including those in our back office – in three different competency areas. One is adding economic value to the firm. The sec-ond is leadership within the firm. And the third relates to team development for the more senior-level individuals within the firm. Some, such as adding economic value to the firm, are more mea-surable than others. So it’s a combination of spe-cific, quantifiable, measurable results, as well as demonstrated behaviors.

“We evaluate performance in a number of different forms: formalized performance evaluations at the end of the year and 360-

degree assessments for individuals at the senior levels, and we go out and speak with the portfolio companies. So we have several different data points. Either I or another senior-level member of my team will sit down with the fund heads twice a year, and we’ll go through the full ranking of their teams and where people are sitting. So we’re constantly tracking individuals as they progress.

“We also have a very extensive training program at the entry level – either pre- or post-MBA individuals – because one of the ways we have addressed the war for talent is by trying to develop entry-level people coming in and giving them either external formalized training or intensive training at an internal level.”

What persuades people

to come to you and

not somewhere else?

It is a combination of

two things. No. 1 is

culture. And No. 2 is

the clear communication

of what makes your

business distinct.

“

12

Define the employee experience

from the outside in, right now …“

13

Observations from Neil Howe, author, economist and expert on generational change

Capturing “voodoo knowledge”“What do you do with baby boomers in your workplace? You inspire and you retain them.

Need someone to master a skill or a task? Ask a boomer. Make them your visionaries, your per-fectionist guru mentors. One big question, now that older boomers have begun to retire, is: How do we keep what’s called their ‘voodoo knowledge’? These are things that no one can write down – like how do you kick the boiler and make it work?

“So how do you get boomers to transmit this special knowledge? One of the things we’ve been telling employers is this: Instead of having them do it for the company – because they won’t – have them become mentors and visionaries. Have them start a blog; have younger employees shadow them. Find a way for them to become the gurus they’ve always wanted to be. Inspire them personally, not institutionally.”

From the session “Engaging a multigenerational workforce”

High-maintenance millennials“Millennials crave structure, constant feedback. This is a high-maintenance generation. You

cannot tell these young workers, ‘We have an interesting problem. Go out and play around with it for three or four weeks and come back to me with some suggestions or solutions.’ They will be totally at sea. They want to know what you expect of them. That’s the way they have been educated.

“Millennials are risk-averse. What is very unpopular with millennials is a college class where the professor says, ‘I am going to give you a creative project and I am going to grade you at the end of the year. You will have no idea how you are doing until the end of the year.’ That will send them into catatonic shock. They will be on their cell phones to their moms, asking, ‘What do I do about this professor?’”

From the session “Leading, rewarding and managing millennials”

Symposium bytes

Observations from a session on delivering a valued employee experience by Joan Kelly, VP global compensation and benefits for DHL Express, and Debbie Slappey of Mercer’s communication business

Joan Kelly: “We have a communications group with a principal focus of keeping employees updated on business and strategy and related developments. Increasingly, we are employing

a ‘storytelling’ approach. We are always looking for testimonials, particularly around things that have worked for employees – things they’ve done that make better use of their health care bene-fits, for example. And there are a lot of things that we’re doing around wellness, which is a global issue, from a health perspective. We can share results that are happening around the world from employee action teams, on addressing things that come out of our employee opinion survey.”

Debbie Slappey: “If you have an opportunity to totally overhaul the employee experience, why not start on a group with a clean slate – your new hires. Define the employee experience

from the outside in, right now, with everybody new coming into the company. That will create a bridge of change that all employees – yes, even the veterans – will feel comfortable crossing.”

14

Money in motion: The changing investment mixRavi Venkataraman, chief investment officer, Mercer

During the next three to five years, complex regulatory changes, the freezing of defined benefit plans and the desire to minimize volatility will result in unprecedented “money in motion,” as an estimated US$1 trillion in pension fund assets changes hands. Mercer investment management expert Ravi Venkataraman led a provocative session exploring the impli-cations of this dynamic investment climate.

“It has been estimated that over a trillion dollars will be invested differently over the next three to five years because of the closing of defined benefit plans, with 50 to 75 percent of such plans closed by 2012. Because of these impending changes, liability-driven investing is getting a good deal of attention right now. That’s a relatively a new thing in the industry, and it’s going to drive investment behavior over the next five years. The creation of new products, coupled with the ‘de-risking’ of investments, will significantly change today’s typical 60/40 investment mix.”

Aligning business, workforce and HR designMac Regan, head of workforce strategies business, Mercer

Workforce and HR design grounded in a fact-based approach is crucial for developing a global workforce that drives sustainable business results. In this session, Mercer’s Mac Regan described how organizations can achieve this strategic goal.

“The ability to rely on fact – rather than intuition, rather than benchmarks – produces the kind of insights that have given the finance function a very nice seat at the table. That opportunity now exists for HR executives. Once you have the facts, it’s time to think strategically about what you can do differently in your talent management system to create value, to drive revenue, to do all the things the business requires to keep itself in front. Our client experience has shown that, depending on the nature of the assignment, fact-based analysis leads to the devel-opment of programs that reduce labor costs by 3 to 10 percent. That is a substan-tial amount of money for most firms – money that is left on the table until you look at the facts and use systems thinking.”

Mercer’s points of view

15

HR transformation: Myth or reality?Tom Elliott, chief operating officer, Mercer

The past 20 years have seen an unprecedented focus on the transforma-tion of HR functions, including the rise of centers of excellence, HR business partners and HR shared-service centers. Mercer’s Tom Elliott discussed this evolution.

“This next decade could be the decade of the CHRO. Strong HR professionals make a huge difference. You’ve got to have people who are skilled, who are respected, who can legitimately sit at the table with the business leaders and add value, command respect, play on the same field as the rest of the organization. HR professionals must continue to enhance their skills. That includes financial skills, more business skills, more quantitative skills that bring a harder edge to human resources.”

The future of HR: A global outsourcing outlookJeff Miller, president of Mercer’s outsourcing business

HR executives need to understand the changing global HR landscape before committing to a course of action toward HR transformation. In this session, Mercer’s Jeff Miller explored the evolution of global outsourcing.

“Boiled down to its bare essentials, companies are more and more frequently look-ing to manage and make decisions about their workforce globally. In order to do this strategically, they will need a single source of data globally. This will allow them to make the best possible workforce decisions. Hiring, managing talent, com-pensation planning and succession planning are just a few of the processes that would be enriched by a single source of data from a single vendor. Today’s HRO deals focus on data aggregation; however, the future of HRO will concentrate on true business intelligence. While we are not there yet, we’re headed in the right direction. The industry is changing the business model and building the necessary pipelines, systems and infrastructure to get there. So in the future, when we have the data, we’ll refine it, extract it and deliver it strategically. That will be the biggest value we can provide our clients.”

16

Strong HR professionals make a

huge difference. You’ve got to have

people who are skilled, who are

respected, who can legitimately

sit at the table with the business

leaders and add value ...

“

”

Argentina

Australia

Austria

Belgium

Brazil

Canada

Chile

China

Colombia

Czech Republic

Denmark

Finland

France

Germany

Hong Kong

Hungary

India

Indonesia

Ireland

Italy

Japan

Malaysia

Mexico

Netherlands

New Zealand

Norway

Philippines

Poland

Portugal

Singapore

South Korea

Spain

Sweden

Switzerland

Taiwan

Thailand

Turkey

United Arab Emirates

United Kingdom

United States

Venezuela

©2008 Mercer LLC. All rights reserved.

For further information, please contact your local Mercer office or the firm’s headquarters:

1166 Avenue of the AmericasNew York, NY 10036+1 212 345 7000

Or visit our website:

www.mercer.com

Chile

China

Colombia

Czech Republic

Poland

Portugal

Singapor

South Ko

e

rea

01137-MG