As we continue in the grip of a recession, the potential competitive advantage of getting the people investment right is too big to miss. This report looks at the impact of The War for Talent on the bottom line in the context of three questions: what is the impact of an ageing workforce, does it matter if your employees are engaged, and are you maximising the return on your investment in your people? We have looked at some of the practical ways in which organisations are addressing the issues, and share some of the actions you can take to stay ahead of the game in The War for Talent.

1. The War forTalent
What it means for the bottom line

2. Contents
03 Foreword
04 An ageing workforce
09 Employee engagement
12 The return on investment in people
16 Contacts
2 THE WAR FOR TALENT

3. Foreword
In summer 2012 I hosted an event as part of our FD Intelligence
programme. The discussion focussed on how rapid changes in
the global workforce will affect the role of the finance director.
We were fortunate to have a number of dynamic international
organisations and industry experts to explore the issues.
As we continue in the grip of a the rise of the globalised economy
recession, the potential competitive and changes in demographics, the
advantage of getting the people accelerating importance of technology,
investment right is too big to miss. In the difficulties of the recession and the
our event we looked at the impact of need to think about environmental and
The War for Talent on the bottom line sustainability considerations.
in the context of three questions: what Evidence shows that how an
is the impact of an ageing workforce, organisation manages talent in this
does it matter if your employees are environment can make all the difference
engaged, and are you maximising to the bottom line. For example,
the return on your investment in organisations with engaged employees
your people? will be 16% more profitable than those Justin Rix
From our discussions at the event with poorly engaged employees. But Employer Solutions Partner
itself and more generally it is clear engaging employees and maximising Grant Thornton UK LLP
FDs recognise that people are one of your returns generally, are not simply
their most valuable assets, and that the a question of spending more. In fact,
effective management of and investment this will often have the opposite effect.
in people is fundamental to achieving Instead, it is critical that organisations
an organisation’s growth aspirations. plan for and invest in the skills needed
Whilst FDs used to leave the ‘people to drive growth as the landscape
stuff’ to HR, the savvy FD now works continues to evolve.
closely with their colleagues in the In this report, we have looked at
people space to drive competitive some of the practical ways in which
advantage. organisations are addressing the issues,
Why is this shift happening now? and share some of the actions you can
Organisations face an onslaught of take to stay ahead of the game in The
rapid change, not only in the UK but War for Talent.
internationally too. These include
THE WAR FOR TALENT 3

4. PART ONE
An ageing workforce
‘As we grow Why is it an issue now? Currently, the median age of the UK
population shown in the table below,
older we must One of the major issues facing (ie the age at which there are the same
organisations over the coming years number of older and younger people)
discipline will be how to cope with an ageing is just under 40 years old. This will
workforce. This is the consequence of continue to rise and is expected to reach
ourselves
two changes: an ageing population in just over 42 years old by 2035. Over the
many developed countries and the fact next 10 years, 13.5 million new jobs are
forecast to be created in the UK, but in
to keep
that people are staying economically
active for longer. the same period there will only be seven
million school and college leavers. For
expanding,
It’s no secret that as a nation, the UK
is getting older. In 2010, for the first the first time, businesses in the UK will
time on record, the number of people need to plan for the rising number of
broadening, of retirement age and over exceeded
the number of 16 year olds and under.
older employees.
learning, More than one in three of us is now
over 50.
keeping our Inevitably, an ageing population
means a greater dependency on
minds active a declining number of people of
traditional working age. In 2011,
and open.’ the UK had a dependency ratio (the
number of retired and unemployed as
a proportion of the number of people
Clint Eastwood,
at normal working age) of 25%. This is
Actor
forecast to increase to 38% by 2050.
36.9
35.5
26.5
SAUDI ARABIA 25.3
UNITED STATES
UGANDA 15.1
CHINA
INDIA
Median age in 2011
4 THE WAR FOR TALENT

5. An ageing world China and India population distribution (by age group, in years)
China 1960 India 1960
The UK is not unique in facing the Males Females Males Females
challenge of an ageing population, as 80+ 80+
the table below shows. The same is 70-74 70-74
true in most northern European and 60-64 60-64
50-54 50-54
developed countries, such as Japan and
40-45 40-45
the US. It presents these countries with 30-34 30-34
a growing issue that will have to be 20-24 20-24
tackled, principally through innovation 10-14 10-14
0-4 0-4
in business practices, combined with a 80 60 40 20 0 20 40 60 80 80 60 40 20 0 20 40 60 80
change in attitude as to how business Population (in millions) Population (in millions)
talent is managed. China 2010 India 2010
Males Females Males Females
80+ 80+
70-74 70-74
60-64 60-64
50-54 50-54
40-45 40-45
30-34 30-34
20-24 20-24
10-14 10-14
0-4 0-4
80 60 40 20 0 20 40 60 80 80 60 40 20 0 20 40 60 80
Population (in millions) Population (in millions)
Source: United Nations, World Population Prospects (2009)
45.0
44.8
China and India
40.0
40.0
With many organisations competing sharply, largely due to the one child
with the emerging powerhouses of policy introduced by the authorities
India and China, let’s explore the in 1979. Given the importance of
UNITED KINGDOM
demographics of these countries over China to the world economy, there are
the same period. The age distribution of real concerns about how a shrinking
India’s population follows expectations workforce, coupled with the heavy
GERMANY
in terms of an emerging major burden of elderly care, will impact
FRANCE
economy: a relatively neat pyramid China’s economic growth.
JAPAN
shape with a comparatively low median
age. China, on the other hand, doesn’t.
Its median age is only just below that
of the US and UK and is increasing
THE WAR FOR TALENT 5

6. A longer working life
A longer working life is already becoming a reality for many employees, meaning
employers will face both challenges and opportunities as their workforce ages.
The legal and regulatory environment has changed, age discrimination is illegal
and the Default Retirement Age has been removed. According to reports, 54% of
those aged 55 and over intend to work past the current state retirement age. This
group can be roughly divided into two camps: those who need to work longer
because of financial pressures and those who want to work longer. How will
organisations motivate these different groups?
I’m working because I have to I’m working because I want to The opportunity for business
Insufficient savings for retirement and People now have a choice. The
the economic downturn, combined with scrapping of the default pension age in How can you best leverage the
major shifts in the regulatory landscape October 2011, and tougher legislation knowledge, experience and reputation
and working culture, means that many on age discrimination, means that of your ageing workforce? Our
people are already being forced to work employees have far more control over discussions with organisations have
beyond their intended retirement age. when they decide to retire. highlighted a number of common
According to the Office for National themes, including:
Statistics (ONS), the average pension
• Creating cultural change – dealing
savings of people retiring between the
with myths about older workers
ages of 50 and 64 last year was £91,900,
a figure that would provide an income • How to maximise this resource to
of just £3,500 to £4,000 a year. Almost help drive growth
half of the UK working population is • How to meet future resource needs
not saving enough for retirement and and use succession planning
one person in five is not saving at all. effectively
£91,000
Average pension
saving in 2011 for
retirees aged 50 to 64
Source: ONS
6 THE WAR FOR TALENT

7. Almost half of
the UK working
population is not
saving enough for
retirement and one
Solutions and actions person in five is not
If, as an FD, you have an ageing workforce, the first step you will need to take is
saving at all.
to get to know the likely future shape of your employee demographic. Everyone
in an organisation, can contribute to the bottom line. Different groups may have
different motivations and understanding these enables a focus on how to maximise
that contribution.
Create a culture that embraces Myth three: Older workers will we have spoken to include
older workers take more sick leave days than other former senior employees moving
Creating a culture that is positive employees. to ambassadorial roles for the
about the changing demographic Although older workers who are sick organisation, running key initiatives
is an important step. Myths about tend to be sick for a longer period, older and change programmes and
older workers abound and should be workers actually take fewer sick leave becoming more involved in training
addressed upfront by organisations. days than younger workers. and development. Clearly, there are
issues that may arise with a change
Myth one: All older workers are alike.
in role, not least that it may require a
For example, they are just counting Use your resources effectively
realignment of the reward structure
down the days, they are less motivated, The consensus among organisations we
and working hours to reflect the
less likely to take risks and can’t deal talk to is that making changes in both
contribution and value of the role to
with change. work environment and role are key to
the organisation.
In fact, although people’s priorities maximising the contribution of their
may change, their fundamental older employees.
motivation and attitude to work
• Environment One size doesn’t
changes remarkably little throughout
fit all. What needs to be in place
their working life.
for different people to work
effectively? Some of the changes
Myth two: Older workers are unwilling
organisations have begun to put in
to learn or engage in training and
place include: adaptable working
development. In other words, you can’t
arrangements, more tailored training,
teach an old dog new tricks.
and development programmes,
This assumes that all older workers
remuneration and benefit structures
are the same. In reality, levels of
that reflect changing priorities at
engagement have far more to do with
different stages in people’s lives.
individual differences and motivations
rather than age. • Role Are you tailoring roles to
make best use of people’s skills
and experience? Examples that
have worked well for organisations
THE WAR FOR TALENT 7

8. Expert
comment
The importance of succession
planning
Good succession planning can make a
big difference in retaining knowledge
and expertise within an organisation. Justin Rix, Employer Solutions
The next generation of leaders needs to Partner, Grant Thornton: “The
be developed, and sustainable growth
happens when older employees are seen
impact of an ageing population
as contributors rather than blockers for many organisations will be an
of young talent. The experience and increasing reliance on an older
knowledge of an older workforce
workforce. Ensuring that the
can be used as an integral part of
their development through effective culture is right and that there is
mentoring and coaching programmes. flexibility in both working practices
One of the issues many organisations and role will be key to attracting,
we talk to face is how to deal with
succession planning within the
retaining and maximising the
leadership team. Here, there is a clear contribution of this group of
divide between the challenges faced by employees.”
large businesses and those of private
companies and partnerships. In many
private companies, senior roles are
held by the owners of a business. This
type of business may face the challenge
of separating out the suitability of
a particular person for their role,
even if they retain ownership. Larger support for retirement planning. The
organisations, where ownership government is pushing the agenda of
is separated from role, generally making people plan for their retirement,
have more rigorous performance for example the auto enrolment
management processes in place for all arrangements are being introduced in
employees. These processes, although late 2012. Supporting people to plan for
by no means perfect, do potentially retirement so you don’t have people
identify when somebody is no longer in working beyond normal retirement age
the right role as their priorities change. because they have to rather than they
For the FD another choice is the want to is a sound investment.
8 THE WAR FOR TALENT

9. PART TWO
Employee engagement
‘The essence of What is employee
engagement?
Why is it an
issue now?
competiveness When employees understand the goals As far back as 2009 The MacLeod
is liberated and ambitions of a business and how
they fit in; when they feel they want to
Review of Employee Engagement,
commissioned by the Government,
when we make
be part of the success and when they demonstrated the direct link between
give their extra discretionary effort to business performance and employee
people believe
take the business forward, then you’ve engagement. Engaged employees are
got it. more motivated, they are more willing
what they
to stay with a company and to make
extra discretionary effort at work
because they feel good about what
think and do is they do. This discretionary effort may
make all the difference in distinguishing
important – and one company from its competitors,
or indeed one team from another. It’s
then get out of compelling reading: organisations in the
top quartile for employee engagement
their way while showed 18% better productivity, a 12%
improvement in customer ratings and a
they do it.’ massive 37% reduction in absenteeism,
as well as being 16% more profitable
than others.
Jack Welch, former CEO
of General Electric
THE WAR FOR TALENT 9

10. And it’s backed up by our own What affects employee How organisations can
experience. Our internal employee engagement? promote employee
engagement surveys clearly demonstrate engagement
that the strongest performing business Many might think it’s all about
units have the highest levels of the money. And of course, it is an The introduction of relatively
employee engagement. important element. According to the straightforward and inexpensive
In this competitive global business What’s Working survey by Mercer initiatives by organisations can
environment it could be argued that in 2012, 36% of staff stayed with positively impact employee
no organisation can afford not to an employer because of the benefits engagement, generating substantial
have engaged employees. And yet package, while 61% said they were tangible financial benefits. Three well-
the Chartered Institute for Personnel motivated by incentives and bonus pay. recognised drivers of high levels of
Development report for winter But it’s not the full story. employee engagement are:
2011/12 found that 64% of employees Creating high levels of employee
were not engaged. The consequences engagement is more complicated than
of low engagement? Organisations just increasing pay. In his excellent book
with employee engagement ranked - Drive - The surprising truth about
in the bottom quartile by MacLeod what motivates us - author Daniel Pink
autonomy:
experienced 51% higher staff turnover, explains that you need to pay people the ability to
62% higher incidents of accidents and enough to take the issue of money off self-direct your
51% more inventory shrinkage. the table so that they can concentrate work
It’s a no brainer. Getting employee on their work. All the research shows
engagement right can make all the that, except for purely mechanical tasks,
difference to organisations in a buoyant once ‘enough’ money has been put on
economic climate, but is arguably even the table, purely financial incentives can
more important in a downturn, where actually impair performance. mastery:
discretionary effort is a low-cost boost Organisations cannot oblige
the opportunity to be
to growth. their employees to be engaged. If
really great at what
organisations want to hang on to their
you do
best talent they will need to create
an environment where it happens
voluntarily.
purpose:
being able to see where
the organisation is
going and how you (the
employee) fit in.
10 THE WAR FOR TALENT

11. ‘If I am the
smartest person
in the room I
know I’ve got a
problem.’
CEO,
McDonald’s
We have found 10 common themes
among organisations addressing these in
practical ways.
• Establish current levels of employee
engagement CASE STUDY
• Focus on recruiting, developing
and retaining the very best people An Australian IT company introduced an
possible
initiative of giving each employee one day
• Have a leadership team that sets
a clear vision that is authentic,
every quarter to spend solely on coming up
inspiring and more than just with ideas for improving the organisation’s
motivated by profit processes and products, and developing
• Encourage a two-way relationship new business ideas. The only condition was
between employer and employee that they had to present them back to the
based on mutual respect and fairness
company. The results were spectacular, not
• Provide opportunities for employees
to challenge themselves and develop
only in terms of the scale and speed of the
broader skills positive impact to the financial performance
• Give employees a voice and be seen of the business, but also for the impact on
to respond the level of employee engagement.
• Encourage a culture that enables
employees to self-direct their work,
and so actively contribute to the
organisation
• Underpin this with an effective
performance management
programme ‘There isn’t a
• Make sure line managers empower separate department
and coach people rather than micro for managing talent,
manage it is everyone’s
• Put in place a culture of praise where responsibility.’
the contribution and success of Lorraine Heggessey, former
employees is recognised controller of BBC One
THE WAR FOR TALENT 11

12. Sacha Romanovitch, National
Leadership Board member for People and
Skills, Grant Thornton: ‘When you hire smart
Expert people it’s critical to make sure you then
create the environment for them to do great
comment work. If they feel inspired by what you are
trying to achieve as a business, feel they have
a part to play and are supported to develop
the skills to be able to make a real difference,
then you can create real competitive
advantage. In my five years leading our
London Assurance and Tax practice I found
that if you get the culture right and hire
people better than you, then business
Grant Thornton and performance can be phenomenal.’
employee engagement
At Grant Thornton, we ask our
employees to ask themselves the
question: “Can I make a difference
at Grant Thornton?” Our practical
initiatives include: • A recognition culture: Recognise
• Developing skills: We involve people people when they do great work
in projects and initiatives outside and they are likely to do more of it.
their usual role, using short-term We introduced a recognition scheme
secondments or rotation programmes where anyone in the firm can thank
between divisions and functions. others for doing something well and
These help to develop a broader in line with our values – this can be
skills and knowledge base, as well as a simple thank you card through
providing new opportunities to gift awards. We share stories of
for people success to inspire others
• Coaching culture: We hire smart • Engaging our employees:
people; our role is to create an We recognise that effective
communication is just as much
FACT
environment where they can do
their best thinking. We’ve invested about listening as talking. We
in a programme of growing our own have an elected forum of over 50
coaches (over 70 of our partners have employees who meet regularly with
completed a foundation coaching our National Leadership Board and The Sunday
qualification) and embedded provide input into our business – Times ‘100 best
from how we communicate to key
these skills in all our learning and companies to work
development programmes decisions affecting them
for’ list shows that
• Recruitment: We’ve involved our • Innovation space: We create the
time and space for employees to
“being listened to”
people in bringing others into the
firm – from our award winning think about how we can unlock is the single most
Spilling the Beans site run by our the potential – for themselves, our important factor
business and our clients. We use
trainees to share what it’s really
social media collaboration sites to
in measuring how
like to begin your career with the
firm through to our recruitment share and stimulate ideas. It’s really much employees
incentives to reward employees who exciting seeing the passion and value their
energy our people have to make a
introduce talented individuals to organisations.
our firm real difference in everything they do.
12 THE WAR FOR TALENT

13. PART THREE
The return on investment
in people
‘People are now Why is it an issue now? of just under 38%. Ten years ago, in the
first quarter of 1992, it was £136.20, an
becoming the Global, technological, economic and increase of more than 75% over the past
environment changes are occurring at 20 years.
most expensive a rate that is arguably greater than ever Managing these costs is critical to
before. It’s not enough to invest in the meeting budgets. People are a dynamic,
component of
skills that made businesses successful appreciating asset; making the right
today. Are you investing in skills to investment decisions in respect of
this asset is fundamental to achieving
the production
drive success in tomorrow’s world?
The phenomena of automation and current and future goals.
process and
the meteoric rise of the Chinese and
Asian economies has had a seismic
impact on UK organisations. In both Are you getting the best
technology is manufacturing and service industries
many routine, process-driven tasks are
return on your spend?
becoming the either migrating to those cheaper labour
markets or have disappeared entirely.
In 2009/10, a study commissioned by
the Institute of Employment surveyed
cheapest.’ This of course has a significant impact
on the people within an organisation in
173 UK organisations employing
more than two million people between
Michael Dunkerley, terms of the skills they need to develop. them. It included representatives
Author As Daniel Pink challenged in his from the private, public and ‘not for
book – A Whole New Mind – Does profit’ sectors. More than 70% of the
your job pass the three-part test? – can organisations surveyed believed that
someone overseas do it cheaper, can a employee reward was either ‘very
computer do it faster and am I offering important’ or ‘critical’ to their success.
something that satisfies the non- Around 68% of the organisations
material desires of an abundant age? had made material changes to their
And people costs are one of the remuneration arrangements over a
biggest overheads for most businesses. two-year period. These changes were
A study of FTSE listed companies mainly to reward strategy, bonus/
in 2011 showed employee costs as a incentive plans and employee benefits
percentage of the cost of sales was and allowances. More than half of
21.8%. ONS data for unit labour cost, these changes were due to either cost
i.e. the amount needed to pay staff or financial pressures, to better reflect
to make one unit of output paints a market practice or to address specific
striking picture: in the final quarter of weaknesses or ineffectiveness.
2011 for the whole UK economy this When asked how effective they
was £239.57, compared to £173.87 in believed their arrangements were
the first quarter of 2002, or an increase against three criteria; alignment
THE WAR FOR TALENT 13

14. ‘If you are planning
for one year, plant rice.
If you are planning for
10 years, plant trees.
If you are planning
for 100 years,
plant people.’
Indian proverb
with business strategy, external their employee reward arrangements. How are organisations
competitiveness for recruitment and Less than half (46%) had carried out maximising the return on
retention, and level of pay versus a comprehensive review and 36% a
their investment in people?
performance and contribution only 2% partial review, while 18% had not
felt that their arrangements were highly carried out any kind of review at all.
Our experience shows that employee
effective, while 71% responded that
reward is a key issue for the vast
they were only reasonably effective
majority of the organisations we work
or worse.
with. These are some of the strategies
However, this doesn’t seem to
they are putting in place to ensure that
have spurred the organisations to
their investment in people is effective,
have reviewed the effectiveness of
efficient and generates the best return
possible:
• Find out what’s working in your
current arrangements
Evaluate the various elements of
current programmes in terms of fit
CASE STUDY
with the organisation’s objectives,
cost effectiveness of delivery and
value generated.
We recently reviewed our own arrangements • Review employee benefit plans
When you factor in employee
for the provision of employee private pension arrangements, benefit plans
medical benefit. We know from our can represent a significant level of
employee surveys that this benefit is valued expense. Yet it is not uncommon for
employee benefit plans to evolve
by our employees. Through the use of a
over time rather than being part of
medical benefit trust we were able reduce an overall strategy. Organisations
the cost of our private medical insurance by can save significant costs, as well as
several hundred thousand pounds without improve the value of their employee
benefit plans, by taking the time
having any impact on the level of cover to look at what employees actually
or quality of service. We can now use the value, reviewing and renegotiating
savings generated to reduce the level of arrangements with suppliers and
restructuring how benefits are
employee contribution. delivered.
Grant Thornton
14 THE WAR FOR TALENT

15. Expert
comment
Charles Hutton-Potts,
Audit Partner, Grant Thornton: It’s
important to treat employees as an
• Review the effectiveness of bonus
and incentive arrangements
investment. An organisation’s people
How effective are your arrangements represent one of, if not the most
in influencing employees and valuable of its assets. Like any other
creating behaviour in line with
organisational goals? An overly
asset it requires proper investment
complex or poorly executed and management to maximise its
incentive plan can, at best, be a waste value to the organisation. Making sure
of money. At worst, it can reward
the organisation has the right people
behaviours which are ultimately
detrimental to the organisation. with the right skills, coupled with an
• Broaden employee ownership in the
effective and efficient employee reward
organisation programme will be crucial to enabling
Providing employees with a it to adapt and evolve to meet
direct stake in the business can be
a powerful driver for sustained
its growth aspirations.”
future growth. The ‘John Lewis’
model shows that what people
own, they also value. Research
shows a personal, financial
stake encourages employees to
take more responsibility and
ownership. This, in turn, improves
productivity, profitability and effective learning programme ensures it is communicated. If employees
employee engagement also, with the that the right people are doing don’t understand the programme,
inherent benefits this brings for an the right job and at the same time they won’t be motivated by it.
organisation. they are developing skills for the Organisations can use employee
future of the organisation. Learning surveys to identify any elements of
• Reviewing the effectiveness
programmes that aren’t backed up by the programmes that are not valued
of learning and development
on the job experience rarely deliver by employees, and either adjust or
programmes
the promised improvements in remove them, or improve how they
From what we have seen, even
business performance. are communicated.
a relatively high-level review
of learning and development • Evaluate the quality of the
programmes will often result in employee communication
material improvements along processes
with cost savings. These savings One of the key elements in
can be invested back into further the success or otherwise of a
development programmes. An reward programme is how well
THE WAR FOR TALENT 15

16. Contact us
For further information on any of the issues explored in this report contact:
Justin Rix Sharon Gilkes
T 020 7728 2937 T 0121 232 5259
E justin.rix@uk.gt.com E sharon.i.gilkes@uk.gt.com
Sacha Romanovitch Mike Herdman
T 020 7728 2355 T 0161 953 6489
E sacha.v.romanovitch@uk.gt.com E mike.herdman@uk.gt.com
Amanda Flint Caroline Harwood
T 020 7728 3145 T 020 7728 3225
E amanda.flint@uk.gt.com E caroline.r.harwood@uk.gt.com
Clive Fathers Richard Webb
T 020 7728 2632 T 0118 955 9176
E clive.j.fathers@uk.gt.com E richard.j.webb@uk.gt.com
Charles Hutton Potts Peter Gomersall
T 020 7728 2175 T 0113 200 1548
E charles.hutton-potts@uk.gt.com E peter.c.gomersall@uk.gt.com
Ellie Gamble
T 020 7728 2217
E ellie.gamble@uk.gt.com
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Multiple research sources have been used to compile this report, such as the MacLeod
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