WORKFORCE SEGMENTATION Identifying the parts of your workforce which are critical to your business success Tool 7

Why is workforce segmentation useful as a Total Rewards tool? Effective Total Rewards are targeted to employees in order to maximise the value and return on that investment. Workforce segmentation enables your business to identify key parts of the workforce and design rewards spend accordingly Every business segments rewards to some extent, for example: Leadership levels are always a segment with different rewards design, often including an LTI or greater bonus opportunity Sales employees are also typically a segment as they are incentivised differently to other employees Expatriates often have different benefits packages For the purposes of this Total Rewards review the purpose of segmentation will be to identify your critical talent and consider the needs of that group as part of your review. For example, you may want to conduct specific cost or market analysis against a small strategic segment or communicate to them in a slightly different way This tool is developed to help you think about who your critical segments are and then to test these thoughts with your leadership during the interviews. This initial review should take no more than an hour as a desk top exercise Question - which employee segments do you already identify in current Total Reward strategy and application?

Total Rewards components Why is workforce segmentation useful as a Total Rewards tool? It will help you answer these questions, which are central to the review: Total Rewards components Definition of Market What is the appropriate labour market for this employee segment? How available is required talent? What unique pressures and trends are present in this segment’s talent market? Pay Positioning What is the desired market position for jobs within this segment? How should it differ by reward vehicle? Emphasis on Reward Elements Which reward vehicles should be used? Base pay, Short-term Incentives, Long-term Incentives, etc. What is the purpose of each vehicle? Does this differ by employee groups? What is the appropriate mix of vehicles relative to target Total Rewards? Careers and Talent Have the requirements of this segment changed to meet business aims? Are there any particular training requirements for this segment? How critical is it to have top performers in this segment? Differentiation To what extent should rewards be differentiated based on individual performance? Should individual performance differentiation differ by job?

Hot skills (market scarcity) How are different segments defined? All segments can be identified by one of these categories Organisational Key talent Preferences Geography Business unit Division Function Leadership High performers High potentials Hot skills (market scarcity) Critical roles Job family Age Gender Culture Career aspirations E.g. you may have a critical business area central to the Market’s strategic goals E.g. you may want to identify incumbents of a critical role where there is high competition for talent in the market E.g. you may have a workforce with a high level of incumbents approaching retirement age who require particular benefits package to retain them

Examples of segments within these categories: Segmentation by division Segmentation by leadership and high potentials Segmentation by age demographics

Criticality to the business However, some segments will be of more importance to your Market Importance depends on their strategic contribution to drive business imperatives Essential to the business: Specialist knowledge and skills that can be “bought” Critical to long-term business success, specialised skills or knowledge that must be recruited and / or developed General knowledge and skills, not focused on strategic direction Important to delivery of products or services, more readily available skills or knowledge SPECIALIST STRATEGIC Determine roles unavailable on the market and with long internal lead time for development Scarcity of Skill Set NON CENTRAL / FLEXIBLE CENTRAL Criticality to the business Identify people who contribute to the long-term strategic success of the organisation – if you don’t possess and nurture those specific groups, your strategic plan cannot succeed For the purposes of this review, you should only consider those segments which contain CRITICAL TALENT for your Market

Talent segmentation decision tree These questions can help you position roles in the matrix Is this position critical for your organisation? Are these skill sets difficult to replace? Non-central / flexible Specialist Central Strategic No Yes Have greater impact on the organisation’s success Directly linked to the organisation’s main mission Provide a competitive advantage General knowledge and skills, not focused on strategic direction Essential to the business; specialist knowledge & skills that can be “bought” Important to delivery of products or services, more readily-available skills or knowledge Critical to long term business success, specialised skills or knowledge that must be recruited and/or developed Sample Roles Administrative support Data specialist Telecommunication line installer Software engineer

Criticality of the role How can you identify your critical talent? Key questions to consider. Some of these are incorporated into the leadership questionnaire to give you another perspective on segmentation What specific talent groups will be critical to achieving strategic goals? What kind of talent will be needed? How strong is your “bench”? Do you have enough to meet your future business needs? What’s changing about your workforce demographics, and what is the impact on the business? (e.g. older employees staying in the workforce, different values of younger workers? As you compare your current workforce with where you need to be in the future, where do you see gaps in the talent pipeline? If you continue to maintain the way you currently hire, promote and retain employees, what will your talent gap be in the next three years? Higher skills gap Less critical role for the business Higher skills gap Critical role for the business Skills gap - scarcity Lower skills gap Less critical for the business Lower skills gap Critical role for the business We suggest that you attempt to populate this matrix for your population and then draw on feedback from the leadership interviews to test your thinking and finalise the matrix Remember to consider skills of the future as well as the present Criticality of the role

Tips to help you with the exercise Illustrative example TIPS FOR SUCESS Here are three rules of thumb to remember when selecting your critical talent: Talent relates to general roles within the organisation and NOT to specific people. Please don’t think about who your best people are, only which roles you need Identify your workers that are in high demand internally and externally Target individuals / roles that could not be replaced immediately Don’t assume that because a role has high turnover that it is critical. It may be an indicator of how easily the incumbents can get another job Don’t worry if the majority of your important roles are not identified as strategic. They will all benefit from the Total Rewards review Higher skills gap Less critical role for the business Higher skills gap Critical role for the business (now and in the future) Relationship managers in produdt B Relational sales Customer analytics E-Marketing group Accountancy Skills gap - scarcity Lower skills gap Less critical for the business Lower skills gap Critical role for the business Legacy product technicians Operations managers Criticality of the role

Strategic Workforce Analytics Appendix Strategic Workforce Analytics If through the course of the research you feel concern about your workforce structure and demographics, you may require further analytics. Outlined overleaf are three example analytics that Mercer regularly conducts for clients

1.Internal labour market analysis If workforce analytics is an area of interest there are additional investigations you may find useful, a few a listed below 1.Internal labour market analysis 2.Career pathways for high and low performers Assess your career paths and identify any blockages and the impact of personal performance This can be useful for understanding your workforce demographics both now and how it is developing 3. Age demographics Understanding your critical workforce segments by generation Please contact Mercer consultant Julia Howes for further information on Mercer analytics: Julia.Howes@mercer.com

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