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Leading through Unprecedented Times

Managing the 2010 Workforce

March 25, 2010

2Mercer

Market and economic forces continue to create unprecedented challenges and uncertainty

Decreased rates of globalization

Decreased consumerism, credit

Access/cost of capital

Shrinking markets

Imbalances resulting from downsizing Short-term “bubbles” in labor supplies internally and

externally

Our degrees of freedom and levels of corporate responsibility will be greatly impacted

Trust and connection to the company have changed Attitudes toward success, rewards, work have shifted

The traditional “safety net” has been weakened

DEMAND WILL RETURN

but not like before

GROWTH WILL BE TOUGHER

many moving pieces

MANAGING EMPLOYEE DEMOGRAPHICS

more complex

NEW SOCIAL POLICY AGENDAS

strong impact

THE EMPLOYMENT DEAL

is being tested

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Post-recession talent strategies will be placed under increasing scrutiny

Answer critical questions What markets and talent segments are critical to

short-term return and longer-term growth?

What new types of deals will restore trust and engage employees?

With talent flows experiencing choke points and bubbles, how can career paths be redefined and managed?

With less reward dollars available, who will be rewarded and for what levels of performance?

How will the need for employee financial security and increased social responsibility be balanced with new economic realities?

How can leaders and communication strategies be better positioned to connect with and inspire employees?

4Mercer

2010 requires a new way of planning

Take action now in the

face of uncertainty

Key principles to keep in mind

Use facts instead of perceptions

Be ready to make real-time decisions and turn on a dime

Segment and focus on key talent

Strike a new deal – that works for both

Be transparent and involve your employees

Engage the business in the conversation

Context to help and

6Mercer

TalentWorkforce reduction trends

Workforce Reductions

Plans for 2009 Workforce Levels

34% 33%

19%

13%

42% 41%

13%

5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Have already reduced staff in the lastsix months (October – April)

Likely to reduce staff in remainder of2009

None

Less than 5%

5-10%

More than 10%

12%

35%

37%

15%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Hire talent, expandingour overall workforce

Hire talent toreplacement levels only;no net changeHire key talent while atsame time reducingoverall workforceReduce our overallworkforce

Source: Mercer June2009 Unprecedented Times SurveySource: Mercer June2009 Unprecedented Times Survey

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2010 workforce planning

Source: Mercer Human Capital Planning 2010 SurveySource: Mercer Human Capital Planning 2010 Survey

Primary driver for 2010 human capital decisions (N=155) Percent of participants

Continuing to contain/reduce costs 66 Responding to non-cost critical business needs (e.g., building key capabilities, focusing the workforce on key growth initiatives, etc.)

20

Matching external competitive practices 14

2010 human capital planning emphasis vs 2009

63

60

54

51

44

29

26

21

13

37

38

45

46

53

71

64

70

79

2

1

3

3

10

9

8

0 20 40 60 80 100

Workforce costs

Focus on high-potentialemployees

Focus on critical skills

Development of workforcecontingency plans

Focus on employee engagement

Use of internal analytics

Worklife balance

Use of external benchmarking

Use of workforce segmentation

Percent of organizations

More emphasis About the same Less emphasis

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Market base pay increase trends In the past six months, 51% of organizations froze salaries at 2008 pay levels for at least part of their employee population; 30% of organizations overall

2009 actual 2010 projected

Employee category

Average base pay increase

budget (excluding 0’s)

Salary freezes

Average base pay increase

budget (including 0’s)

Average base pay increase

budget (excluding 0’s)

Salary freezes

Average base pay increase

budget (including 0’s)

All employees 3.2% 30% 2.1% 2.9% 11% 2.6%

Executive 3.5% 39% 1.9% 3.1% 14% 2.6%

Management 3.2% 31% 2.1% 3.0% 11% 2.6%

Professional (sales & non-sales)

3.2% 28% 2.2% 2.9% 10% 2.6%

Office / Clerical / Technician

3.1% 25% 2.2% 2.9% 10% 2.6%

Trades / Production / Service

3.0% 24% 2.2% 2.9% 10% 2.6%

Romania / All industries 9.8% 20% 6.7% 6.5% 15% 6%

9Mercer

Annual incentive trendsMany companies have made adjustments to their annual incentive programs in 2009, and many are considering changes for 2010

Annual Incentive Program Changes (n = 229)

10%

10%

10%

10%

16%

16%

17%

29%

3%

4%

7%

11%

10%

13%

14%

20%

0% 10% 20% 30% 40% 50%

Increase maximum payoutopportunity/leverage

Use of more absolute performancemeasures

Decrease maximum payoutopportunity / leverage

Use of more relative performancemeasures

Allow for increased discretion relatedto payouts

Change / introduce new non-financialperformance measures

Increase the range of performance forcorresponding payout levels

Change or introduce new financialperformance measures

Implemented in 2009 Considering for 2010

Percent of organizationsPercent of organizations

Source: Mercer July 2009 Weathering the Storm SurveySource: Mercer July 2009 Weathering the Storm Survey

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Long-term incentives in 2009One-quarter of companies reduced LTI values, while the balance delivered a value consistent with 2008 grant levels; 11-30% reduction was most common

2009 Long-term Incentive Grant Levels Per Recipient (n = 233)

2009 Long-term Incentive Grant Level Reductions

Grant Reductions

Executives% of Orgs (N = 51)

Non-executive Participants

% of Orgs(N = 49)

Less than 10% 25% 20%

11 – 30% 51% 49%

31 – 50% 6% 14%

More than 50% 18% 16%

5% 5%

14%

77%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Percent of organizations

Reduced the value and applied alower reduction to executives thanother grant recipients

Reduced the value and applied agreater reduction to executivesthan other grant recipients

Reduced the value and appliedreduction equally for all long-termincentive recipients

Did not reduce the value of grants

Source: Mercer July 2009 Weathering the Storm SurveySource: Mercer July 2009 Weathering the Storm Survey

Tactical approaches to get

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Myths and realities about human capital in a recession

Myths Realities

Employee Retention

We don’t have to worry about retention – no one is going anywhere

Challenge of retention has given way to challenge of engagement. Transparency fosters engagement, which will ensure retention of high performers when times improve

Talent Employees only care about pay increases

Career development enhances the employment relationship

Pay reductions We can cut across the board and worry about competitiveness later

When the economy improves, pent up demand for high performers will prevail

Performance We don’t have to be concerned about whether our pay programs work well because we’re not paying out that much anyway

Given limited resources, it is crucial that any salary increases and incentives are allocated to critical segments

Rewards: Market data

We don’t need market data this year given inevitable pay increase cut-backs

Falling too far behind increases the risk of losing key talent when the economy turns around

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EMPLOYEEENGAGEMENT

Moving forward, action plans won’t wait

TALENT

REWARDS

Adapt workforce cost and capabilities to reflect uncertain business conditions and multiple planning scenarios

Create career development opportunities, particularly when monetary rewards may be limited

Manage performance, identify / differentiate top performers

Focus limited resources on engaging talent to drive performance and profits

Use communication effectively to quell fears, minimize distractions and increase productivity

Manage financial and brand risks of changing labor legislation and social policies

Redefine links between performance and payUtilize fact-based data to set compensation planning

agendas and re-tool reward program design

2010 priorities must be established now

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