How Much Is Enough Anyway

 It can be complicated—the trick is helping participants create plans that work.

PLANSPONSOR.com
July 2012
Rebecca Moore


Illustration by Josh Cochran

The amount of income workers will need in retirement and how much they should save to reach that goal have gained more attention since the economic downturn of 2008 and 2009 depleted many retirement accounts. Before the downturn, service providers and researchers in the industry estimated that workers would need to replace between 70% and 75% of their preretirement income— i.e., what came from all sources. But even then, that estimate was being scrutinized.

Target income replacement ratios should be higher, the Retirement Advisor Council now contends. In a paper, the council says this is to account for the always increasing projected cost of health care in retirement, as well as other financial planning concerns workers face, such as children’s educational needs and the cost of caring for elderly relatives.




saving and spending (Photo credit: 401(K) 2012)

So, how much is enough, anyway? Josh Cohen, defined contribution practice leader at Russell Investments, says that while the appropriate replacement rate is different for each person’s situation, 80% is a good target, because studies have shown it is about the average amount needed to maintain current lifestyle.

When trying to arrive at the best income replacement rate for themselves, workers should use their imaginations, says Jason Scott, Ph.D., director of the Financial Engines Retirement Research Center. They should imagine continuing to do things postretirement that they did preretirement. Then they should consider expenses they will no longer have once they retire. … Some retirees can make it with a lower income in retirement, Scott believes, but, he notes, if individuals will travel or spend more in their free time, expenses they incur will offset the savings, meaning they may need more income.




Pension (Photo credit: Frederik Seidelin)

Cohen points out that this replacement rate comes from all potential sources, including Social Security and personal savings, in addition to defined benefit (DB) and/or defined contribution (DC) plans. …


Patricia Advaney, senior vice president of participant solutions at Diversified, says that because the standard

estimate replacement ratio of 70% to 75% may be inadequate, workers should think about increasing their goal. “It’s a moving target, with questions about Social Security, the rising cost of health care and longevity,” she says. The industry has shifted from trying to give an exact number for target replacement income to suggesting a minimum 10% savings for retirement, including both employee savings and employer match.

English: Proportion of pay to save. (Photo credit: Wikipedia)

The Retirement Advisor Council says, regardless of target income, a consistent contribution to 401(k) and 403(b) plans in the range of 10% to 16% of pay over a 30-year or 40-year career is needed to achieve the appropriate replacement retirement income.

In a research paper, “What’s the Right Savings Rate?”, Russell Investments contends that the total replacement income (TRI) 30 rule-of-thumb helps answer the question: “How much should participants save?” Saving 30% of the TRI rate each year—including personal savings, savings in an employer-sponsored retirement plan and any employer contribution—leads to about a 90% probability of meeting the income goal at retirement. This assumes a 40-year period of savings, Cohen notes.




English: Retirement savings rate as squirrel and nuts anaology (Photo credit: Wikipedia)

… Many who may want to retire early, Scott thinks, will find that their savings are much less than what they will need. But that figure also depends on exactly how early they want to retire. “It’s really hard to just look at savings in their 401(k) and determine whether they are hopelessly far behind,” he says.

According to the Employee Benefit Research Institute’s (EBRI’s) Retirement Security Projection Model (RSPM), 44% of Baby Boomers and Generation Xers are still projected to be “at risk” of running short of money in retirement. …

The trick is helping people figure out, wherever they are, how to create a plan that works, according to Scott. …

Workers should think about how they might boost savings by working longer, and therefore saving more, or being savvier about other benefits, such as claiming Social Security at a later age, Scott says.

A brief from the Center for Retirement Research (CRR) at Boston College concludes that starting early to save for retirement and working longer are more effective levers for ensuring retirement security than earning a higher return on savings. “How Much to Save for a Secure Retirement” said this strategy of saving longer is especially effective, given the greater risk that comes from chasing investment returns.




English: In the United States, Social Security benefits compared for younger vs. older workers. According to author Joseph Fried, this graphic uses information from: C. Eugene Steuerle and Adam Carasso, "The USA Today Lifetime Social Security and Medicare Benefits Calculator," (Urban Institute, October 1, 2004), from: http://www.urban.org/publications/900746.html. Note: The calculator does not include the value or cost of the Social Security disability program. (Photo credit: Wikipedia)

… Because Social Security benefits are actuarially adjusted, they are more than 75% higher when he is age
70 than age 62. As a result, they replace a much larger share of preretirement earnings if workers wait to apply—29% if they are 62 and 52% if 70, in the CRR’s example—reducing the amount they would need to take from savings­. And, by postponing retirement, people have additional years to contribute to their 401(k) and allow their balances to grow. Finally, a later retirement age means that people will have fewer years of dependence on their accumulated retirement assets. 

Plan sponsors can help with reporting, to show how far behind workers are, Cohen says. Then decisions can be made, …

“You can’t invest your way out of a savings problem. There may be different asset allocations that would be better, but, at the end of the day, investments can only do so much,” Cohen says. “It’s all about savings patterns, how long you work and reasonable expectations.”

According to Cohen, plan sponsors can set goals for partic­ipants and use the match formula as an incentive. For example, if a participant needs 15% put away each year and the company is willing to contribute 5%, the match formula would be 50 cents on the dollar, up to 10% of compensation. At the same time, plan sponsors can help participants get to that 10% by using automatic­ enrollment and automatic escalation.
“It takes a well-designed plan and the smart use of … auto-features and qualified default investment alternatives [QDIAs] [which], if implemented, [can give] the typical American worker … a very successful retirement,” Scott concludes.

Kristi Mitchem, head of global defined contribution at State Street Global Advisors, says workers today are in a much better position than before because the introduction of auto-enrollment has been incredibly powerful in getting participants of different income levels into retirement plans early and saving at an appropriate level. “We have put mechanisms into place to help people get on the right path and be successful,” she says.

Mitchem recommends plan sponsors auto-enroll at a 4% to 6% employee deferral range. They can pair that with auto-escalation up to 10%. And, as always, plan sponsors should communicate the importance of deferring substantial savings for retirement, according to Mitchem.

Advaney suggests retirement plan sponsors use service provider resources to help participants save more. …

“This is an incredibly important topic because the reality is, the biggest contributor of what you have in retirement is how much you put away,” Mitchem says. “So, getting people comfortable at an appropriate savings rate is the most important thing to ensure [they] have appropriate retirement savings.”

Everyone needs guidance on saving for retirement, but this is especially true for middle-income workers, says Kristi Mitchem, head of global defined contribution at State Street Global Advisors. While high-income workers will have less income replaced by Social Security, they presumably will have more personal savings to supplement their retirement income, and lower-income workers will have a higher percentage of income replaced by Social Security.




English: This is a chart outlining the historical personal savings rates in United States as compiled by the US Department of Commerce, Bureau of Economic Analysis (Photo credit: Wikipedia)

So, where does that leave middle-income workers? Sources of retirement income are important for this group. Baby Boomer and Generation X households that have a defined benefit (DB) pension plan accrual at retirement age are, overall, almost 12 percentage points less likely to be “at risk” of running short of money for basic needs and uninsured health costs in retirement, according to a report by the Employee Benefit Research Institute (EBRI). The report, “Retirement Income Adequacy for Boomers and Gen Xers,” finds that, while having a defined benefit plan is particularly valuable for those with the lowest income in both age groups, it also has a “strong impact” on reducing at-risk rates for those in the middle class: ...

More than any other group, middle-income workers­ should take advantage of all resources available, says Patricia Advaney, senior vice president of participant solutions­ at Diversified. … Middle-income workers need to start thinking about what they will need and should hold onto retirement paperwork until positive­ they can retire. Retirement plan advisers need to have conversations­ early enough for middle­-income workers­ to understand the implications of any decisions they will have to make.

Related articles

• The Defined-Contribution Plan

  ---

• Robert Teitelman: The Looming Retirement Crisis and What to Do About It

  ---

• Opinion: Our Ridiculous Approach to Retirement

  ---

• Retirement?

  ---

• An Estimate for Needed Retirement Savings

  ---

• Retirement planning is personal

  ---

When the Boomers Go

CFO Magazine – June 2012
Russ Banham

The coming retirement of the baby boomers could leave businesses short of critical knowledge and skills. Make sure that doesn’t happen to your company.

Thanks to its sheer size, the baby-boom generation has had an enormous impact on society and the economy at every stage of its development. The present time is no exception, as Americans born between 1946 and 1964, currently accounting for one-third of the workforce, begin to enter their golden years. Many boomers are postponing retirement… But many others are ready to retire, and sooner or later, the boomers will be leaving the workplace in droves.

When they do, employers face the loss of all that experience, all that institutional and subject-matter knowledge and expertise.



Human Resources (Photo credit: zachstern)

“Everyone knew that boomers were getting older and would soon be retiring, but when the financial crisis hit and many stayed on, companies sort of postponed their reactions,” says Colleen O’Neill, talent management leader for North America at Mercer, the human-resources consulting firm. “Now boomers are leaving, thanks to rising 401(k) values, and it’s time to take action.”

Many companies are just catching on to the impending exodus. Some are bringing in consultants to ferret out the skill-set gaps that will materialize. Others are developing knowledge-transfer and mentoring programs to get younger workers up to speed. Still other companies are creating flexible work environments where cash-strapped boomers can return to work on a part-time or project basis.



Society for Human Resource Management (Photo credit: Wikipedia)

 

For some employers, boomers waving good-bye to the office is good news, given their generally higher pay and benefits. But the loss of human and knowledge capital is potentially dire for the bulk of organizations in industries like manufacturing, technology, engineering, and accounting. According to a recent poll of employers conducted by the AARP and the Society for Human Resource Management, 72% of HR managers stated that the loss of talented older workers was “a problem” or “a potential problem.”

… “Organizations are running much leaner than ever before, and there are not a lot of extra people to pick up the slack when someone exits,” says Jackie Greaner, talent management and organization alignment practice leader for North America at human-resources consultancy Towers Watson. “Companies need to do a better job of identifying critical skills and planning for their inevitable loss.”

The Knowledge Checklist



The Baby Boomers’ 60th birthday (Photo credit: Christchurch City Libraries)



Approximately 4.6 American adults will turn 65 every minute of 2012, and by 2015 that number will increase, to 8, according to the U.S. Census Bureau. …

The first order of business is to get the facts straight by determining the organization’s skill sets, and a good way to start is by assessing which people are truly strategic. “Some skills you can fill easily,” says O’Neill. “It’s the singular, hard-to- find skills that take a while to replace that create risk.”

Lockheed Martin Space Systems instituted a project 10 years ago to identify and assess employees’ skills to prepare for future voids in intellectual capabilities. “We realized we had senior people who were very technically expert in our complex systems, were known to our customers, and would be eligible to retire in a few years,” recalls Tory Bruno, president of Lockheed Martin’s strategic and missile defense systems unit. “We needed to identify this knowledge and find ways to successfully transfer it.”

Bruno’s unit began by identifying critical skills needed by the business, and going through a detailed interview process to understand what it was that made certain employees experts. …

Armed with this data, Lockheed Martin now teaches advanced skills to less-experienced employees through its Critical Skills Management Program. The program pairs up a junior employee with an expert, who becomes his or her mentor. A member of the management team, typically the manager of the junior employee, is part of the equation, planning and arranging assignments for the protégé to absorb the required knowledge. … [Bruno explains, ]“The respective tasks in the process become part of each employee’s performance review,” … “At the end of the process, we have a graduation ceremony, where the protégé is certified as an expert by the mentor and manager.”

Corey Leal, director of finance in Bruno’s operating unit, says the program has significant financial value. “Assuring that our technical employees have the expertise needed to support our core competencies means less reliance on subcontractors and, ultimately, greater profitability for our business,” he says.

Accelerated Learning

For some companies, traditional mentoring processes may not work quickly enough. “Seven years to transfer rare skills may be too long,” says Mercer’s O’Neill. “But if you can create ways to accelerate this to two or three years using software and scenario- planning tools, you will be ahead of the eight ball.”




CHARLOTTE, NC - JANUARY 10: A man walks out of the Duke Energy Center at 550 South Tryon St., one of two buildings that house Duke Energy's headquarters January 10, 2011 in Charlotte, North Carolina.  (Image credit: Getty Images via @daylife)

Duke Energy, for one, used a software tool to pass on institutional knowledge. “We had lots of manuals, drawings, and other informational assets about our existing power stations and brand-new ones, but what we lacked was the human element, which wasn’t included in these documents,” says Arnold Fry, manager of substation engineering standards and power delivery engineering at the Charlotte, North Carolina– based electric utility.

Duke Energy scheduled a series of interviews with senior engineers, in which questions were asked about their functions. The responses were then digitized using the software tool. “In the old days, a younger worker would shadow an older one, …,” says Fry. “This type of mentoring is fine when you have the time, but now there are too many older workers ready to retire, and far fewer younger ones to come up the ranks.

“Now when people retire, their experience is preserved and can be passed on to future generations,” says Fry. “And you are able to access knowledge from multiple people.”

The need to compress the training time frame is critical in the electric power industry. “According to a recent report by the IEEE Power and Engineering Society, 51% of electric power engineers will be eligible to retire by 2014,” says Geoff Zeiss, director of the utility industry program at software-maker Autodesk. “Utilities are losing experienced workers and are having a tough time replacing them with younger workers. This elevates knowledge transfer to a strategic necessity.”

Out and Still About

Another way to bridge the skills gap is to hire boomers who have retired from their old jobs but still want to work. “Almost half of adults aged 65 to 69 receive wages, salaries, or income from self-employment,” points out Samantha Greenfield, employer engagement specialist at The Sloan Center on Aging &Work.

… Many have joined organizations that provide skilled workers to companies needing them on a part-time or even full-time basis. The National Older Worker Career Center, for instance, specializes in recruiting and providing skilled engineers, scientists, technicians, and other professionals for the U.S. Department of Agriculture and the Environmental Protection Agency. “We’re an executive search firm, except these executives are in their 60s, 70s, and older,” says Joel Reaser, NOWCC senior vice president. “… Our oldest, at 92, just retired for good this time.”

Reaser says the steady exit of baby boomers from the workforce is having an adverse effect on the federal government, which can’t find enough younger talent to pick up the slack. The solution is to recruit and employ experienced retired people until younger workers get up to speed. “Organizations are not going to have an option about whether or not to hire older workers—the demographics insist on it,” says Reaser, who is 72. “This isn’t, ‘Let’s hire older people because they’re nice to have around.’ There are few other choices.”




A few issues of SHRM's monthly publication HR Magazine. (Photo credit: Wikipedia)

Employers will have to adapt to an older cohort of workers, says Reaser. “Just like the accommodations that were made when women entered the workforce in large numbers a generation ago, …,” he says. “These include preventive health care and health maintenance, flexible work arrangements, and valuing ‘power naps’ in the middle of the day.”

Yoh, another staffing agency, also specializes in providing seasoned workers as short- and long-term temporary workers, in its case to the telecom, technology, aerospace, life sciences, and entertainment industries. “Companies are looking for highly technical legacy experience as much as they want younger people with cutting-edge technology skills,” says Matt Rivera, Yoh’s director of customer solutions. …



The Human Resources Manager (Photo credit: Wikipedia)

One novel staffing resource is work campers—retirees with specialized skills who travel from city to city in recreational vehicles to fill in where they are needed. “These are sought-after workers for ‘bridge’ assignments,” says Joan Davison, president and COO of Staff Management SMX, a managed staffing and recruiting services provider based in Chicago. “They have exited the workforce, but they still want that feeling of engagement, in addition to the extra income. If they live in Minnesota, they might be enticed to spend the winter in Southern California for two months in a technical capacity.” …

O’Neill points out that many companies are forming retiree networks internally. “A lot of technology firms are creating these affiliate networks, where they take a cadre of recent retirees and bring them in on consulting assignments,” she explains. “We’re actually thinking of something similar here at Mercer. We have a whole category of people who are going to leave the business, and we’re investigating the idea of them coming back part-time as consultants in a more systematic way.”

The Fourth Generation

Adding a fourth generation to the work environment is a good thing, contends Rivera. “The composition of the workforce is changing out of necessity,” he says. “If you’re going to be competitive today, you have to appreciate the generational differences. Young people—the millennial generation—are looking for openness, transparency, and a sense of meaning in employment, whereas pre-boomers and boomers seek ways to spread their knowledge. Blending this is the real trick.” (See “Bridging Generation Gaps,” ...)

… Many businesses with benefit plans stipulate that employees will receive a stated percentage of the highest salary they received in the five years before their retirement, Reaser notes. “If they stay on in some capacity at lower annual compensation, they run into the risk of a lower pension,” he says. “Obviously, the rules need to change.”

Changing such rules and providing flexible work arrangements for older workers serve yet another purpose: helping companies ease high-paid employees out the door. Mercer does this by offering a senior consultant in a leadership role the opportunity to move laterally into a client-facing position at lower pay. “This only works if you have the right conversation with the older worker, affirming that he or she still has a place in which to contribute,” O’Neill cautions.

The concept may have appeal to boomers. “There are many boomers who no longer want to work full-time, yet wouldn’t mind moving into an encore career,” says Ted Fishman, author of Shock of Gray, a 2010 book on the aging of the world’s population. Davison concurs. “Corporate America is recognizing that you can’t simply push the workforce out the door anymore—certainly not boomers,” she says. “You need ways of accommodating them.”

Bridging Generation Gaps

connecting workers of all ages can be a challenge

.With many baby boomers and pre-boomers staying on in a variety of roles at their companies, today’s workforce is looking a bit like a family reunion, with as many as four generations sitting at the table engaging in oft-cumbersome conversations.

Getting four generations to agree on anything is difficult, but in the workplace, effective communication and collaboration are imperative. … “Each generation has very distinct methods of communicating,” says Jascha Kaykas-Wolf, chief marketing officer of Mindjet, a maker of collaborative work management software. “For instance, many pre-boomers focus on building personal relationships, [while] many millennials use social collaboration tools like Facebook and Skype to communicate and collaborate. It’s a big struggle to keep all this intellectual capital working together effectively.”

This was the case at California State University in Chico, where, … ages range from professors and administrators nearing age 65 to students still in their teens. The wide difference in ages hindered the university’s ability to create a collaborative working environment in preparing Cal State’s annual town-hall meeting, a oneday event in which students, faculty, administrators and community members gather to hear various speakers discuss public-interest topics.

Thia Wolf, an English professor and director of the university’s first-year experience program, acknowledges that she and her students communicate and work differently. “I’m in my mid-50s and am used to e-mail and faxing in an office environment, whereas they are communicating using smartphones and social media on the go,” she says. “In putting together the town hall, they rebelled against me drawing up diagrams of the seating arrangements, … which I planned to fax or scan and e-mail. That was too long and inefficient, they argued.”

The university tapped a Mindjet product called Mindjet Connect to bridge the generation gap. The software uses brainstorming and task management capabilities as well as social media and integrated online sources in the cloud like Google and Twitter to capture, organize, and communicate information. This allows a multigenerational team to plan and stay current on a project, no matter what devices they use. So, for example, Wolf stays connected via her desktop with students who collaborate using their smartphones.

Banking giant Wells Fargo is … piloting a master’s-level certificate program that pairs up members of its Boomers Connection network with its Young Professionals network in Minnesota. Graduates receive an MA in organizational leadership certificate from St. Catherine’s University in St. Paul/Minneapolis.

“The goal is to get older people to work alongside younger people who work very differently than they do, and vice versa, to appreciate each other’s learning and work styles,” says Philomena Morrissey Satre, vice president of diversity and inclusion for the bank’s Mountain Midwest region. This year’s graduating class of 12 includes seasoned banking executives as well as newer hires. ◗ R.B.









Related articles

• How Baby Boomers Are Stifling The Marketing Revolution

  ---

• Data Point #5: We Can't Succeed Without Baby Boomers

  ---

• Generations At Work

  ---

• Poll: Businesses Concerned About Losing Older Workers

  ---

• The United States Most Valuable Resource is Being Ignored!

  ---

• Reaching baby boomers: Imitation is the sincerest form of flattery

  ---

When should you take Social Security?

CBS News:

By

Jack Otter

 (iStockphoto)

(MoneyWatch) When should you take Social Security? ... For most people, the answer is straightforward, if not popular: As late as you can, the closer to age 70 the better.

The reason is simple: The longer you wait, the higher the payout. Granted, this advice is useless if you can't afford to wait. But if you have any flexibility at all, it's important to consider the numbers. ...

If you are making $75,000 and you retire this year at age 62, your annual Social Security payout would be about $16,300 (that number will vary depending on your earnings over your lifetime). If you wait until your full retirement age of 66, your Social Security income in 2016 will be around $22,600. If you can hold out until age 70, expect to bring in more than $30,000.

This is a chart illustrating the future payouts of Social Security Benefits in the US from 2009-2083. The source of the information is the Social Security Administration's website. (Photo credit: Wikipedia)

Some people prefer a bird in hand, and they argue that you're better off taking the checks at age 62 and investing the money. Here's the problem: You would have to earn around 8 percent a year on your Social Security checks to match that payout. There's no investment in the world that pays 8 percent a year without a lot of risk. Despite all the fear over Social Security funding levels, the program has a U.S. government guarantee behind it, and even if you're skeptical of the Treasury, it's far safer than junk bonds that yield 8 percent.

Social Security general benefit increases in the USA. (Photo credit: Wikipedia)

Holding out for bigger checks becomes more valuable the longer you live. Using the numbers above, if you live to age 90 you'll get $170,000 more in Social Security by waiting until age 70 to take benefits. ...The bigger your checks, the higher the dollar amount of any cost-of-living adjustments. Unless you're in ill health (and therefore may not live long enough to benefit) or simply can't affordnot to take Social Security early, it's a no brainer.

The broader lesson here is what led to the name of my book: Worth It...Not Worth It: Simple & Profitable Answers to Life's Tough Financial Questions. While managing money is never easy, the answers to many of the questions we face are fairly simple, once you see the numbers. The same is true for life insurance, investing, and even whether to use your credit or debit card. 

© 2012 CBS Interactive Inc.. All Rights Reserved.

• >> View all articles by Jack Otter 
  Jack Otter is Executive Editor of CBS MoneyWatch.com. Prior to the launch of MoneyWatch, he served as deputy editor of Best Life magazine and as features editor of SmartMoney magazine. Otter's writing has appeared in The Wall Street Journal, O magazine and The New Yorker. His new book, Worth It...Not Worth It: Simple and Profitable Answers to Life's Tough Financial Questions, will be published on May 1.

Related articles

• Where For Ought Thou Juliet? (Err...I Mean Social Security and Medicare) (interesting12.wordpress.com)
• Lowest Number Of Social Security Benefits Awarded Since 1976 (aarp.org)
• Social Security's Imminent Demise Greatly Exaggerated in Mainstream Headlines (newamericamedia.org)

The Power of the Post-Recession Consumer

An analysis of attitudes and spending reveals a return to traditional values, driven by consumers searching for quality, affordability, and connection.

strategy+business magazine
February 22, 2011 / Spring 2011 / Issue 62
by John Gerzema and Michael D'Antonio

Illustration by Lars Leetaru

Image via WikipediaThe wave of hyper-consumerism that propelled the U.S. economy through the last decades of the 20th century and into the first years of the 21st century has passed. …Consumer spending patterns are changing as part of a trend that has been quietly gathering strength over the past 10 years. …People are returning to old-fashioned values to build new lives of purpose and connection. They also realize that how they spend their money is a form of power, and are moving from mindless consumption to mindful consumption, increasingly taking care to purchase goods and services from sellers that meet their standards and reflect their values.

This change in consumer attitudes … is …, in part, a reaction to economic hard times. But it is also closely related to the civic dissatisfaction that is rocking the political establishment, and additionally has some roots in environmental awareness and changing aspirations. That is why this Spend Shift movement, as we call it, is here to stay. It will create opportunities for businesses that heed its message, and penalize those that do not. (For another perspective, see “Values vs. Value,” by Timothy Devinney, Pat Auger, and Giana M. Eckhardt, s+b, Spring 2011.)

Our view of the Spend Shift is based on two years of gathering and analyzing data, and traveling around the U.S. to discover how the recession has affected people’s lives. We started with Young & Rubicam’s BrandAsset Valuator (BAV), which is a poll of consumer values, attitudes, and shopping behaviors that goes back nearly 20 years. …

The BAV data revealed that even before the recession took hold in mid-2008, there were dramatic shifts in what people expected in the consumer marketplace and how they defined and pursued what they considered the good life. … More recently, the BAV surveys show sharp increases in the number of consumers who want positive relationships with marketplace vendors and who focus more on corporate behavior. Between 2005 and 2009, a growing number of people rejected status-driven values such as snobbishness and exclusivity, and embraced attributes related to bringing people closer together or making the world a better place. Among the once-prized brand attributes that declined in this period were: “exclusive” (down 60 percent), “arrogant” (down 41 percent), “sensuous” (down 30 percent), and “daring” (down 20 percent). On the opposite side of the scale, the brand attributes Americans found more important as they began to sense the impending recession and then suffered through the crisis were: “kindness and empathy” (up 391 percent), “friendly” (up 148 percent), “high quality” (up 124 percent), and “socially responsible” (up 63 percent).

… Between 2005 and 2009, U.S. consumers expressed a nearly fourfold increase in their preference for companies, brands, and products that show kindness in both their operations and their encounters with customers. This desire for companies to be more empathetic toward consumers is the biggest shift in any attitude that we have ever seen during the BAV survey’s two-decade history. …

1. United by Change

The Spend Shift is a far-reaching and inclusive phenomenon that can’t be defined by any particular demographic. According to our data, 55 percent of all Americans are part of this movement; in addition, about one-quarter of the U.S. adult population embraces many of the Spend Shift attitudes and characteristics (we call them Fast Followers). Although the word values tends to polarize U.S. citizens, the Spend Shift is blind to geography, education, age, and income. …

What unites all these Spend Shifters is a common sense of optimism and newfound purpose. As the shock of economic loss wears off for many people, they are redefining what it means to be successful and happy. They are living with less and yet feeling greater satisfaction. …

2. The New Thrift

…Consumer spending will no longer be able to grow faster than personal income, as it did during the 30 years leading up to the crisis. … If you look at historical savings rates in the U.S., people have on average saved 10 percent of their income going back as far as six decades. It was only in the mid-1980s that … ordinary people [ere encouraged] to get out over their skis. In only 20 years, average American households swung from being net savers to being net borrowers. Now, however, consumers are returning to traditional values that have long defined the U.S. ideal.

Image via Wikipedia… In the post-recession economy, resourcefulness and self-sufficiency are viewed as virtues, and excessive consumption as a sign of weakness. … We examined the 2009 performance of a basket of “retooling” companies — those that are in the top 10 percent of our data on being “helpful,” “reliable,” “educational,” and “durable,” such as LeapFrog, Weight Watchers, Craftsman, and DeWalt, because they help people help themselves. The performance of these companies against all others is notable: They performed 249 percent better than other companies when respondents were asked whether they would recommend these brands to a friend, 234 percent better when respondents were asked if they used the products regularly, and 210 percent better on whether the products were worth a premium price.

…[Many] people, … are seeking ways to experience a sense of competence, self-sufficiency, and accomplishment. … If you have an idea for helping people learn new skills and connect with others, your business has a good chance of success.

3. Transparency Breeds Trust

… Companies serving these customers, who know more and expect more, will need to continuously listen, respond, and innovate. They are in for a challenge: Our data shows that confidence in all types of big organizations, including big government and big business, has declined by nearly 50 percent in the past two years. …

Wary consumers are going beyond just reading labels to get the best products and the best deals. The most tech-savvy are using online services as they stand in the supermarket aisle to get instant access to information on prices and on a company’s social or environmental record. …

… Today, however, customers have equal (and sometimes superior) access to data. As a result, transparency becomes all the more crucial. Today’s stakeholders … crave a true, authentic story. They will be interested in how a company thinks and how it makes decisions. …

4. Companies That Care

… The ability of a company to identify with its customers is now a prerequisite for any brand in the post-crisis age. Today, openness, humility, and understanding are critical. Generosity binds a company to its community and its stakeholders.

The rising importance of generosity reflects the fact that the post-crisis era will be defined by inclusion rather than exclusion. … Spend Shifters are buying artisanal food because they trust companies that reveal how their food is produced and handled. They patronize cooperative small businesses because such businesses use their profits to build up their local regions. Passionate customer groups will also band together to fund niche offerings that speak directly to the areas about which they feel most strongly. Because 71 percent of U.S. consumers are now aligning their spending with their values, businesses that practice in a new way will find a vibrant marketplace. Instead of selling shoes, such businesses sell empathy and respect. … Instead of serving food, companies create communities of hope. Instead of making cars, they promise fairness, openness, and shared discourse.

Consumers will be looking for signs that companies care about their impact on communities and are investing in making things better. … The vanguard companies understand that showing kindness and humanity is now a competitive advantage.

Microsoft is a telling example. … In our BAV survey, Microsoft always scores high on measures of its reputation, exceeding Apple by a wide margin. … Despite its massive size, Microsoft is still widely associated with the single personality of its founder, Bill Gates. He gives Microsoft a human face and, more important, his philanthropy gives the company a heart. …

When we talked to Akhtar Badshah, Microsoft’s senior director of global community affairs, he told us that in its response to the recession, Microsoft pursued three main areas of focus: education, innovation, and jobs and economic opportunity. … The key point is that Microsoft uses both its money and its true areas of expertise to maximize the good it can do as a citizen corporation, showing how a company can be charitable by redeploying its existing assets and infrastructure as tools for social and economic development.

The Consumer Connection

… Although the growth of consumer spending appears to be slowing, we believe that people are simply reallocating the way they spend — looking for a connection to the creator of the product; banding together to get better deals; and pushing service and product creators to do more, price better, and connect more deeply to their wants and needs.

Image via WikipediaEven as people find themselves less rich, they are deploying their dollars in a more calculated and strategic way to influence institutions such as corporations and government. …

The most successful companies will respond to this shift by adopting a business model in which all three parties — the business, the customer, and the community — win in every transaction. Although the Spend Shift will dampen domestic demand for some products, the market for values-oriented goods and services offers opportunities for growth in what might otherwise be considered mature categories. We examined the performance of a group of companies and brands that scored in the top 20 percent in the BAV survey on the values we had noted were becoming increasingly important — self-reliance, adaptability, honesty, quality, and community. And we found that in aggregate they enjoyed nearly three times as much usage and preference as brands that did not represent these values.

We believe that the future face of capitalism will be defined by delivering value and values. Those that embrace this reality and adapt will find extraordinary opportunities. Those that ignore it will do so at their peril.

Reprint No. 11107

Author Profile:

• John Gerzema is president of Brand Asset Consulting, a Young & Rubicam Brands company. He is a pioneer in the use of data to identify social change and to help companies both anticipate and adapt to new consumer interests and demands. Gerzema oversees the BrandAsset Valuator, the world’s largest database of consumer insights. Follow him on Twitter at @johngerzema/Twitter.
• Michael D’Antonio is a Pulitzer Prize–winning journalist based in New York. He is the author of more than a dozen books, including Forever Blue: The True Story of Walter O’Malley, Baseball’s Most Controversial Owner, and the Dodgers of Brooklyn and Los Angeles (Riverhead Books, 2009).

Related articles

• Consumer confidence surges nearly 10 points this month (oregonlive.com)
• Talking to the Post-recession Consumer (fruitflyconsulting.com)
• Job growth is lifting hopes for consumer spending (sfgate.com)

Anchors Away

Risk & Insurance - April 2011
by Dan Reynolds
The economic downturn and the Great Recession led to the great thinning of the work force. Those that kept their jobs took on that much more. And they knew times were tough, they did the extra work, expanded their expertise and kept their mouths shut, even as their perks were cut, their wages frozen, and some of their colleagues ushered out the door.

A RESUME RIPTIDE
But the tide is always turning and it is turning now. … This time around, it's a different sort of a tidal movement, according to Jeff Schwartz, the McLean, Va.-based principal with Deloitte Consulting and leader of U.S. talent services for the company.
"I don't know that we're seeing a résumé tsunami, but we are certainly seeing a résumé riptide,” Schwartz said. In focused talent segments of the economy, there is talent on the move and there is hunger for that talent.
"Each industry and each sector has a small number of critical workers that have very important skills that are in very high demand and although the aggregate employment level isn't going up, the activity within these critical sectors is incredibly hot right now,” Schwartz said. …
According to study results reported by Deloitte in December 2010, 72 percent of executives surveyed said they foresaw either a moderate or severe talent shortage in their R&D ranks in 2011. The same study found that 56 percent of executives surveyed expected moderate-to-severe talent shortages in executive leadership. The survey reported that 52 percent of executives forecast a moderate-to-severe shortage in sales.
We all know that not all employees are the same. Some, … are more talented and double their value through their commitment. It's those 10 percent of employees who are the most engaged in their work that companies can ill afford to lose, Jane Kwon, a New York-based vice president in the talent and reward group for Aon-Hewitt said. Those are the employees that on the revenue-generation side of the equation, are your innovators. On the stop-loss side, they are the employees who know the business well enough to help you avoid catastrophic loss.

And if you bungle the relationship with that sort of talent? “You run the risk of not having the people who can drive the growth that you and your competitors are focused on,” Deloitte's Schwartz said.
And those sharper employees are the ones, just about right now in the scheme of things, that are evaluating their relationship with their employer and deciding whether they are being cultivated and nurtured, or whether they are being exploited and overworked.
"When we looked at the data, those that are in the highly engaged bucket, they are asking that question more seriously, ‘What is going to motivate me to stay here? “ Kwon, for Aon-Hewitt.said.
"We saw that more than half of them are saying that they are planning to go somewhere else and that is a huge cost to an organization,” Kwon said.
Mary Mosqueda, a St. Louis-based compensation practice leader with Lockton, says rather than focus on just one piece of the compensation puzzle, her firm advises clients to use a “total rewards” approach. … And don't forget, different generations want different things. …
Indeed, the Deloitte study found that Generation Y employees, those under age 30, valued company culture above all else. Baby Boomers, those aged 45 to 64, mostly wanted additional healthcare and pension benefits….
The level of motivation that U.S. employees had to help their companies succeed went down significantly from 2007 to 2008, Kwon said. The factor dropped even more significantly from 2008 to 2009, Kwon said. The Great Recession is likely to have played a part in explaining the 2007-2009 declines. …
… There was a recession - indeed a near depression, according to some - in the United States and Europe. But there wasn't anything close to that in Asia, and that has led to more intense international competition, not just for customers, but for talent as well. “As we come out of the recession we are realizing that it is not as if there is an easy set of markets to sell into right now,” Deloitte's Schwartz said.
Add to that the more intense regulatory environment that we are seeing in this country in the wake of the financial crisis, and that means that managers and senior executives with an effective knowledge of regulatory risk management are that much more valuable. …
"So, it is a different world and the economic state is completely different,” Kwon said.
"Employees are sending the message that it's no longer about what I can give to the organization, it is about what the organization is willing to give to me."

Related articles

• Trading Down: Long-Term Unemployed Often Settle For Less (huffingtonpost.com)
• Workforce Visibility: If They Knew, What Would They Do? (cloudave.com)

More Workers Staying Put During Economic Uncertainty

November 8, 2010 (PLANSPONSOR.com) - All three generations in today’s workforce are exhibiting a decreased propensity for change, according to the 2010/2011 PwC Saratoga U.S. Human Capital Effectiveness Report.

Image via WikipediaAn executive summary of the report says voluntary separation rates across the three generations continue to decrease, with steady declines among Baby Boomers, Generation X, and Generation Y since 2007. Baby Boomers continued to voluntarily leave the workforce at the lowest rate among the three groups - just 4.9% in 2009, compared with 5.9% for Generation X and 10.9% for Generation Y. The Baby Boomer voluntary separation rate has decreased 18% since 2007. …

The report said one key measure PwC Saratoga uses to measure quality of hire is turnover in the first year of service. After climbing in the two years prior to the recession, turnover rates in the first year of service are down by 16% since 2008. In 2009, less than one in four employees departed within the first year of service (compared to nearly one in three in 2007).
While employee compensation costs per full-time employee (FTE) remained flat between 2008 and 2009, the recession had a direct bearing on performance bonuses. The percentage of employee compensation made up of performance bonus pay has declined 55% in the past three years, from 8.8% of salary in 2007 to 4% in 2009. The past year alone saw a decrease of 44%, from 7.2% to 4%.
PwC Saratoga found increases in the cost of employee health care. Health care costs per active employee increased nearly 6% between 2008 and 2009 to an average of $8,335. While costs are increasing, the share of health care costs borne by employers has decreased by nearly 2% between 2008 and 2009 with employers responsible for 79.7% of health care costs.
After rising every year since 2005, workforce productivity fell in 2009. Revenue per FTE dropped 6%, from a high of $413,690 in 2008 to $387,993 in 2009. Nevertheless, 2009 results are 18% higher than 2006 results of $330,060.
Human capital return on investment (ROI), a key indicator of return on workforce investment, is down 23% to 43 cents in profit for every dollar invested in the workforce compared with the 2007 and 2008 result of 53 cents in profit for every dollar invested in the workforce. Additionally, PwC Saratoga results show that organizations have increased their investment in workforce compensation and benefit costs for each dollar of revenue generated. In 2008, organizations invested $221 for every $1,000 in revenue. In 2009, organizations invested $259 for every $1,000 in revenue.
The report includes data from nearly 300 organizations representing 12 industry sectors that provided information from the 2009 calendar year. The average company in the report has annual revenue of $5.7 billion and more than 19,000 employees.
Rebecca Moore
editors@plansponsor.com

Related articles

• Motivating a Changing Workforce (thinkup.waldenu.edu)
• Baby Boomers Become the New Employee, Again (workplaceculture.suite101.com)
• Employees May Have No More to Give as Engagement Makes Modest Gains in the U.S. Workforce (prweb.com)