MERCERREWARDSFORUM

Melbourne, Wednesday 9 AprilSydney, Thursday 10 April

APRIL 2014

RIDING THE WAVE OF THEDEMOGRAPHIC SHIFT

MERCER REWARDS FORUM

Dr David Knox Garry AdamsSenior Partner Partner

LONGER LIVES AND OUR WORKFORCE

LIFE EXPECTANCY FOR THE BABY BOOMER BORN IN 1950

0102030405060708090

100

Male Female

Age 66.1 70.6

Source: Mercer

LIFE EXPECTANCY FOR THE BABY BOOMER BORN IN 1950

Now let’s assume our baby boomers know they are going to make it to 65…

0102030405060708090

100

Male Female

Source: Mercer

Age

+11.2 +8.8

66.1 70.6

77.3 79.4

LIFE EXPECTANCY FOR THE BABY BOOMER BORN IN 1950

Now it’s 2015 and they have actually made it to age 65…

0102030405060708090

100

Male Female

Age

+11.2 +8.8

83.5 86.6

66.1 70.6

+6.3 +7.2

Source: Mercer

LIFE EXPECTANCY FOR THE BABY BOOMER BORN IN 1950

But wait! They’re a white collar professional…

0102030405060708090

100

Male Female

Age

+11.2 +8.8

86.1 88.4

66.1 70.6

+6.3 +7.2+2.6 +1.8

Source: Mercer

LIFE EXPECTANCY FOR THE BABY BOOMER BORN IN 1950

And as long as we’re alive, there is more improvement to come!

0102030405060708090

100

Male Female

Age

+11.2 +8.8

88.2 89.9

66.1 70.6

+6.3 +7.2+2.6 +1.8+2.1 +1.5

Source: Mercer

WHEN ARE YOU GOING TO DIE?

It’s as uncertain as the markets!

65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100

101

102

103

104

105

Age of death

Source: Mercer

OUR POPULATION IN 2006

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100

THE CHANGES IN 40 YEARS

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100

2006 2046

PARTICIPATION AND POPULATION SHARES

RATIO OF WORKERS TO ELDERS

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

520

12

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

2042

2044

2046

2048

2050

ratio

ofw

orke

rsto

elde

rs

yearSource: IGR

RATIO OF WORKERS TO ELDERS– A SOLUTION?

57

67

77

87

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

assu

med

retir

emen

tage

ratio

ofw

orke

rsto

elde

rs

year

retirement age IGR response

RETIREMENT AGE IS BECOMING CRITICALARE YOUR EMPLOYEES READY TO RETIRE?

RETIREMENT READINESS REPORT

• Compare your fund with others

• Compare your fund over time

• Identify stronger and weaker readiness among different membership segments

• Measure the effectiveness of marketing campaigns

• Report progress to members

DEMOGRAPHIC TRENDS SUMMARY

• People are living longer

• They enjoy better health and well-being

• Many are concerned about the adequacy of their retirement savings

• Government is concerned about impact on retirement funding and willprogressively raise the pension age

• More employees will stay at work longer

SO WHAT DOES THIS MEANFOR ORGANISATIONS?

LIVING LONGER, WORKING LONGER

20 35 50 9565 80

CareerChildhood ActiveRetirement Old AgeCareer

Preparation

CareerChildhood CareerPrep

ActiveRetirement Old Age

Flexible, ActiveEngagement

Traditional Retirement Model

• Work full-time to retirementage

• Retire

• Stop work

Transition to Retirement Model

• Phase-down in final yearsthrough part-time work

• Transition to Retirementmaintains net income

Future Model

• Continued active participationin paid work

• Flexible forms of engagementevolving over time

A PROPOSITION, AND SOME QUESTIONS

Most organizations have not focused their thinking about the organizationimplications of employees extending their retirement age

If employees are / will be staying at work longer:

• What impact will this have on talent pipelines?

• How do we manage the late career employee?

• Are there opportunities for different forms of engagement?

• What implications does this have for remuneration strategies?

WHO HAS A STAKE IN THIS?

Theorganisation

Senioremployees

Otheremployees

IMPACT ON TALENT PIPELINES

• Has our succession planning taken likely retirement timeframes into account?

• How do we ensure continued movement through our talent pipelines?

• Will senior employees staying in their current jobs limit opportunities for our highpotentials to move up?

• Are there opportunities for different types of roles for senior employees that will addvalue to the organization and un-block Talent pipelines?

MANAGING THE LATE CAREER EMPLOYEE

• Identifying/exploring the drivers of motivation and engagement– Can’t afford to retire– Not prepared for retirement– Continuing desire to contribute– Power and influence– Autonomy– Mastery– Legacy

• Winning in the “3rd quarter”– Understanding what winning looks like - for the individual, for the firm– Designing the role and form of engagement to meet these needs

FLEXIBLE FORMS OF ENGAGEMENT

• Differing forms of engagement to meet differing needs

• Single employer versus portfolio career options

• Innovating/adapting job design to enable more flexible engagement

• Evolving forms along the way

Full-time Permanentpart-time Part-year Contingent

REWARD STRATEGIES

• Do your reward systems impede the shift to more flexible engagement?

• Transition to retirement strategies

• Aligning reward strategies with targeted retirement dates– Pay particular attention to STI deferrals and LTI vesting– Be prepared to individualise the plans to achieve mutual objectives

SUMMARY

• Understand your workforce demographics and age profile

• Understand their ‘Retirement Readiness’ – financial and personalobjectives

• Map your talent pipelines – scan for succession risk and flight risk

• Consider flexible forms of engagement

• Align reward strategies with intended retirement age

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