Mercer’s experts share their finely tuned insights in economics, HR and employee analytics – what they know and what to look out for.
A big picture view of the Australian and global economies is essential for remuneration specialists working with key organisational talent. In mid-October, Mercer partner Raphaele Nicaud, Head of the Talent Products and Innovation Business, kicked off Mercer’s annual Total Rewards Forum in Melbourne with four key facts.
“We’ve now entered a period of slow growth, averaging around 3 per cent or perhaps a little above,” Nicaud told the room of 100+ HR professionals, at the first of 4 events also held in Sydney, Brisbane and Perth, that range across global economic issues affecting remuneration, the new-look HR function and remuneration analytics. This slow growth, she said, reflects a shrinking workforce as the population ages, as well as low productivity growth.
The International Monetary Fund (IMF) downgraded Australia’s forecast economic growth rate for 2017 by 0.3 percentage points to 2.7 per cent – although consumer and corporate confidence has improved since August, Nicaud said. Globally, growth is coming mainly from the United States, Latin America and Asia.
A second key economic fact is that the growth model for emerging markets – exporting cheap products to developed economies – is broken.
Third, global debt levels are very high, which puts a lot of risk in global financial markets. In terms of government debt, Australia is doing better than most countries at 21 per cent of gross domestic product, yet Nicaud noted that Australia’s debt sits at $463 billion – more than six times former Prime Minister Kevin Rudd’s proposed cap of $75 billion almost 10 years ago.
“But this is also about corporate and household debt, not just government debt,” Nicaud said, adding that average household debt has tripled over the past 25 years, from 6 to 18 months of annual income.
And fourth, Nicaud said that interest rates would remain at historic lows, with the Reserve Bank of Australia likely to maintain the cash rate at 1.5 per cent.
We have known unknowns which we can manage, though the unknown unknowns are what create global uncertainty. Nicaud said economists are unsure why Australia’s productivity growth has stalled since 2004. Second, the ramifications of Brexit are still unfolding. “While the IMF has halved the UK’s growth forecast for next year to 1.1 per cent and the pound is falling, we don’t know how contagious this will be or its impact on the terms of trade,” Nicaud said. Finally, the US election on November 8 and Russia’s tense relations with the US are further unknowns with potential global economic impact.
What does this mean for remuneration professionals? Having expert insights and real-time supporting data is crucial to all future HR decisions. Relevant economic data, such as remuneration and location movements, forecasts and trends, is now available and free to access at Mercer’s Know Your Market website. It also includes a pay increase barometer showing the proportion of employers expanding, contracting or keeping stable their pay rates; a remuneration sentiment index (currently at 3.3 per cent) and whether new hires are being paid more, less or the same as incumbents.
HR’s new agenda
In the late 1990s, HR’s strategic value was a hot topic. Fast-forward two decades and it’s still being debated, according to Mercer’s Principal Talent Consultant, Lily Kan. She outlined eight major workforce trends driving the need for HR to change, then briefed Forum attendees on the new HR operating model.
The number-one workforce trend is technology, such as cloud-based HR platforms. This is transforming the delivery of HR services and radically shaping the HR agenda, Kan said. “The increasing number of digital natives in the workforce expect streamlined, efficient, technology-enabled HR,” she said.
Technology is also fuelling the demand for workforce data and analytics. For example, Kan mentioned, “I think” strategies, based on anecdotes, reactive checks and ongoing reports and benchmarks, are being replaced by “I know” strategies underpinned by correlations, simulations and predictive modelling.
Other workforce trends include the influence of social media on employer branding and the rise of employee consumerism. Millennials will comprise half the workforce by 2020, and they see themselves as consumers in the workplace with more say in how, when and where they work. They also move jobs every 18 months or so, pressuring HR on-boarding and employee development to move faster.
Managers’ roles are evolving, requiring them to develop deeper relationships with their team, Kan said. The rise of freelancers and contractors means HR must deal with a broader, more fluid talent ecosystem, which is harder to manage and engage.
Rapidly changing skills requirements mean 65 per cent of children entering primary school now will eventually take up jobs that don’t exist today, according to Kan. And finally, talent scarcity – and the failure to attract and retain top talent – remains the number-one HR concern for CEO’s globally.
These workforce trends are driving huge changes in the HR function. “About three-quarters of CEO’s say the next three years will be more critical than the last 50 years, with the organisation undergoing significant transformation,” Kan said. “The HR function has never been so critical.”
The future HR operating model will be leaner, more innovative and agile, and will embrace the new work equation of a flexible, digital workforce, Kan said. HR will champion the manager’s role in mentoring and developing employees and it will infuse technology, data and analytics into all that it does. HR will also let go of the traditional employer/employee relationship and embrace the whole talent ecosystem to source the best performers.
Analytics for remuneration
HR’s “Moneyball moment” has arrived, according to Mercer Principal Simon Kennedy, who leads Mercer’s Workforce Products, referring to the 2011 movie with Brad Pitt and Jonah Hill about building a successful baseball team through rigorous data analysis.
Today, however, gathering and collating this data can be difficult and time-consuming. Disparate data sources, clunky collection processes for surveys, management demands for more data, and backward-looking inferences mean HR often feels like it’s on the back foot.
Fast-forward five years, however. Kennedy believes 2021 will usher in a whole new ballgame. Multiple data sources for remuneration, staffing mix, productivity and business metrics, for example, will be combined into one source. The HRIS (human resources information system) will be connected to survey analytics systems, allowing a seamless data collection process at the push of a button. And forward-looking, predictive results will mean HR is on the front foot and closely integrated with business objectives.
Kennedy presented a sample Mercer remuneration dashboard based on a typical data submission. It included snapshots of key metrics such as ranking among industry peers, gender pay gap, new-hire pay and employee mix. “It gives you more agile, adaptive, quicker insights,” Kennedy said.
He then presented a sample live dashboard, presently under development, that combined data from 890 organisations, updated every 30 minutes. Alerts pop up if a client’s key parameters, such as turnover rate, are exceeded, of which the organisation will be informed, in real-time.
“Advances in data are really pushing the envelope for HR,” Kennedy said. “It can shape and stress test strategies and predict how employees will behave. And it will be the enabler of a leaner HR function.”
As HR teams are forced to do more with less, insightful and data-driven decisions are required in order to increase efficiency and accuracy.
If you’re interested in discussing key insights presented at Mercer’s Total Rewards Forum, then please contact us using the form below.