0 Response to Request For Information Bergen Brunswig Corporation W W W. W A T S O N W Y A T T. C O M Financial Executives International Linking HR Practices to Financial Success May 7, 2001

1 About Watson Wyatt Services Human Capital Benefits HR Tech We pride ourselves on: Reputation Long-standing relationships Thought leadership Global reach and scale Innovative technology-based solutions Revenues: $600 million Employees: 6,000 Countries: 30 Facts

2 Linking HR Practices to Financial Success We’ve long known that successful human resource management leads to enhanced productivity Early attempts focused on “metricizing” human resource practices Productivity measures, staffing ratios, etc. Linkage to total shareholder return –Fortune’s “best places to work” Criticism of GAAP orientation to creditors and not investors –Early development of intangible asset assessment Baruch Lev’s Knowledge Capital Criticism that HR focuses on “competitiveness / comparableness” and not delivery of results

3 Employee Productivity - Typical Measures Banks & Savings Banks - Employee Productivity, Sales Data Source: AAII 2/01 $148,496 $179,934 $231,557 $305,684 $428,737 $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000 10th Percentile25th Percentile50th Percentile75th Percentile90th Percentile Percentile Rank Sales / Employee 85% improvement over median company performance

4 Employee Productivity - Potential Measures Banks & Savings Banks - Employee Productivity, Net Income $8,666 $19,816 $30,027 $43,135 $64,129 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 10th Percentile25th Percentile50th Percentile75th Percentile90th Percentile Percentile Rank Net Income / Employee 114% improvement over median company performance Data Source: AAII 2/01

5 End Result: High Employee Productivity Tied to Increased Returns to Shareholders Banks & Savings Banks - Employee Productivity in Relation to Shareholder Returns Data Source: AAII 2/01

6 Linking HR Practices to Financial Success Measurement tells us the results Fails to tell us the how Watson Wyatt set out to take the next step: Integrate the theory of employee motivation with underlying measurable drivers related to actual performance achieved

7 Service Profit Chain Employee Satisfaction & Engagement Employee Retention Employee Productivity Service Value Customer Satisfaction Customer Loyalty Profitability Adapted from “Putting the Service Chain to Work”; Heskett, et al; Harvard Business Review, March-April, 1994 HR Process

8 Service Profit Chain HR Practices Employee Attitudes High Performing EE Attitudes TSR Tobin’s Q Financials Employee Satisfaction & Engagement Employee Retention Employee Productivity Service Value Customer Satisfaction Customer Loyalty Profitability HR Process Human Capital Index Employee Commitment

9 Human Resource Practices

10 Where Top Performing Companies Excel Source: Watson Wyatt’s Strategic Rewards Survey

11 Where Top Performing Companies Excel Employee Turnover Average 5-Year Shareholder Return 40% 54% 318% Higher from prior Unchanged from prior Lower from prior Source: Watson Wyatt’s Strategic Rewards Survey

12 Research Correlates Human Capital Theory with Results Prior 5-Year Annualized Total Return to Shareholders Low HCI Companies Medium HCI Companies High HCI Companies (1/1/94-1/1/99) Human Capital Index Source: Watson Wyatt’s Human Capital Index TM (HCI) Research 15% 9% 13%

13 Research Correlates Human Capital Theory with Results Subsequent 2-Year Annualized Total Return to Shareholders Low HCI Companies Medium HCI Companies High HCI Companies (1/1/99-1/1/01) Human Capital Index Source: Watson Wyatt’s Human Capital Index TM (HCI) Research 15% -6% 1%

14 US Practices: Linking Human Capital and Value Creation Source: Watson Wyatt’s Human Capital Index TM (HCI) Research Expected change in market value associated with a significant (1 SD) improvement in HCI dimension 0.00% -10.0% Prudent Use of Resources 4.0% Communications Integrity 10.1% Recruiting Excellence 7.8% Collegial, Flexible Workplace 9.2% Clear Rewards and Accountability

15 US Practices: Linking Recruiting and Value Creation Source: Watson Wyatt’s Human Capital Index TM (HCI) Research Expected change in market value associated with a significant (1 SD) increase in HCI practice 0.00% 2.3% 1.8% 1.7% 0.6% 1.4% Professional new hires are well- equipped to perform duties Recruiting efforts are specifically designed to support business plan Company has established reputation as desirable place to work Hourly new hires are well- equipped to perform duties Formal recruiting strategy exists for hiring critical positions Employees have input on hiring decisions

16 US Practices: Rewards and Accountability and Value Creation Expected change in market value associated with a significant (1 SD) improvement in HCI practice Source: Watson Wyatt’s Human Capital Index TM (HCI) Research 1.8% Company terminates employees who perform unacceptably Top performers get more pay than average Profit-sharing based on firm’s success 0.00% Employees are eligible for stock plan programs 1.8% Company does a good job of helping poor performers improve 1.5% 0.8% Company positions pay above market 0.4% Employee performance appraisals used to set pay 0.4% 0.6% Pay is linked to company’s business strategy

17 US Practices: Collegial, Flexible Workplace and Value Creation Expected change in market value associated with a significant (1 SD) improvement in HCI practice Source: Watson Wyatt’s Human Capital Index TM (HCI) Research 0.00% Flexible work arrangements1.7% Culture encourages team work and cooperation 1.5% Perquisites do not vary with position 1.4% High employee satisfaction 1.4% Employees are on first name basis with top management 1.3% Titles are not designed to designate authority 0.6%

18 US Practices: Communication Integrity and Value Creation Source: Watson Wyatt’s Human Capital Index TM (HCI) Research Expected change in market value associated with a significant (1 SD) improvement in HCI dimension 1.8% Employees have easy access to technologies for communicating 0.8% Employees have the opportunity to give ideas and suggestions directly to senior managers 0.8% Financial information is shared with employees 0.2% Business plans and goals are shared with employees 0.4% Employees have input into how the work gets done 0.00%

19 US Practices: Prudent Use of Resources and Value Creation 0.00% Employees have input in evaluating managers -3.9% Employees have input in evaluating their peers -2.5% Training is provided to employees for attaining higher level positions -1.9% Employees participate in profit sharing based on business unit’s success -0.8% Training programs are maintained even in less than favorable economic circumstances -1.0% Expected change in market value associated with a significant (1 SD) improvement in HCI dimension Source: Watson Wyatt’s Human Capital Index TM (HCI) Research

20 European Practices: Convergence and Divergence Similarities Recruitment, pay, collegial/open environment, and communication positively influence TSR Differences Consistent pan-European practices, labor relations, positively related to TSR 360 feedback, coordinated with integrated leadership (leadership, teamwork, collegial environment) results in positive TSR Retention programs and job security negatively correlated with TSR –Turnover among European co’s 1/2 of US practices Current Survey

21 Employee Attitudes

22 Where Top Performing Companies Excel: Employees Say… Company Communications Source: Watson Wyatt’s Work USA™

23 Where Top Performing Companies Excel: Employees Say… Resource Management Source: Watson Wyatt’s Work USA™

24 Where Top Performing Companies Excel: Employees Say… Climate Source: Watson Wyatt’s Work USA™

25 Where Top Performing Companies Excel: Employees Say… Motivation Source: Watson Wyatt’s Work USA™

26 Employee Commitment is Linked to Higher Shareholder Value Source: Watson Wyatt’s Work USA™ Average Total Return to Shareholders % 90% 112% Low Employee Commitment Medium Employee Commitment High Employee Commitment

27 Employee Commitment - A Function of: Trust in senior leadership Chance to use one’s skills on the job Competitiveness of reward program Job security Quality of company’s products and services Absence of work related stress Honesty and integrity of company’s business conduct

28 Key Drivers of Employee Commitment Key Drivers for Employee Commitment (% Impact of Each Factor) Source: Watson Wyatt’s Work USA™

29 How Are We Doing?

30 How Are Companies Doing? 1/2 Way There Communication of Reward Plans 74% 69% 53% 57% Reward system design communicated to all employees Employees understand reward plans Top-performing firms All other firms Source: Watson Wyatt

31 How is Your Company Managing Human Capital?

32 Service Profit Chain Employee Satisfaction & Engagement Employee Retention Employee Productivity Service Value Customer Satisfaction Customer Loyalty Profitability HR Process Surveying attitudes High performer identification & needs Customer satisfaction research HR Strategy linked to Business Strategy Recruitment / Rewards processes Communications / Environment Financial Results Turnover General productivity rates

33 Conclusions Financial Success is linked to Human Capital Practices High HCI companies generated 2 X the five year TSR of low HCI companies Financial success is linked to Employee Commitment High Employee Commitment companies generated 1.5 X the 3 year TSR of low Employee Commitment companies 1/2 of all companies are not effectively managing Is your company measuring & focused on improving your human capital?