new deal for 21 century

I M P R O V I N G T H E P R A C T I C E O F M A N A G E M E NT

A new deal for the 21st century workplace
By Kevin Aselstine and Keri Alletson
March/April 2006
Reprint # 9B06TB11

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A new deal for the 21st century workplace
As these authors write, a new paradigm is settling in
and occupying top managers’ waking hours. It’s one
that focuses on workforce effectiveness, managing
talent, and reinventing the core employment value
proposition. The companies that will win in this era
are those that deploy people in new ways to accomplish
their business objectives and deliver both personal and
organizational growth.

At the same time, the strategies they are using – such as
improving customer intimacy and innovation - are more

people-intensive than ever before. The result is increased
pressure to retain talent, to build succession plans for
current leaders, and to develop new ways of “incenting”
employees to achieve business growth objectives. Across
the board, organizations around the world are experiencing
challenges in maintaining the right mix of people, with
the right skills, available at the right time.

By Kevin Aselstine and Keri Alletson

Above all, there appears to be something of a crisis in
employee motivation and “engagement” at work. As the
new Towers Perrin Global Workforce study1 shows, less
than one in 5 Canadians are highly engaged by their work.
Globally, only 14 percent of employees are highly engaged.
Many more (62 percent globally and 66 percent in Canada)
are only moderately engaged, creating a substantial retention
risk and also affecting the organization’s ability to excel.
Moderately engaged workers are not only significantly
more likely to leave the organization (see Exhibit 1), but

Kevin Aselstine is the Managing Principal, Towers Perrin,
Toronto. Keri Alletson is a member of the global
research team that conducted the Global Workforce
study, on which this article is based. They can be
reached at or


T

he start of the century
has seen a number of discrete
changes in the workforceworkplace arena, varying in
size and impact. Considered
individually, these changes
present nothing more than
another bump in the road for
organizations. Considered
collectively, they add up to a
red flag for all employers, in
Canada and around the world.
This article will examine these
red flags, share new research
on the views of employees,
and propose a “new deal” for
workforce management.

Exhibit 1:
Highly engaged employees are more likely to stay

Highly Engaged
1%
2%

Moderately Engaged

8%

3%

Disengaged

10%
12%
9%

30%

9%

12%

26%
38%

63%

29%
48%

No plans to leave
Not looking, but would consider another offer
Actively looking for another job
Made plans to leave current job
Plan to retire in the next few years

The new workplace

Many mature organizations
are experiencing sharp

Source: Towers Perrin Global Workforce Study — Canada
increases in operating costs,
driven by legacy issues and
1
workforce programs such as pensions, benefits, and
The Towers Perrin Global Workforce study examines
current attitudes about work with over 85,000 full-time
salaries. At the same time, small and large employers alike
employees in 16 countries, on 4 continents.
are under pressure from shareholders to accelerate growth.

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Ivey Business Journal March/April 2006


are also considerably less likely to contribute to the
achievement of broad company objectives. This issue is
often characterized as poor morale, but it more likely
stems from an organization’s failure to create an engaged
workforce that encourages employees to exert the
discretionary effort required to help their company truly
succeed (see side-bar). This is a somewhat complex topic,
but the issue boils down to a fundamental lack of
alignment between what the employer and the employee
expect of one another. This can be thought of in a number
of different ways – the “employer promise”, the
“performance contract”, or the “employment value
proposition.”. For the sake of simplicity in this article,
we refer to this mutual commitment as “the deal”.

in joining an organization, and making a contribution.

What does the “old deal” look like?
For much of the last century, the “deal” was fairly clear.
In exchange for their labour, employees could expect a
high degree of job security and a slow but steady increase
in their expected total compensation. Learning and
development were provided, as long as they were specific
to the job. Career-long loyalty was rewarded with financial
support in retirement years (in the form of pension income
and/or retiree medical subsidies). Organization structure
meant that with annual increases and the gradual
accumulation of relevant experience, the best people could
climb the ladder within their units, and set their sights on
a management role. In part because there was essentially
just one career ladder/path available within a department,
organizational titles proliferated.

A simple illustration of this approach can be seen in
Exhibit 2. We use this model to examine both the

Exhibit 2:
Total rewards strategy should reinforce the human capital strategy
Employer perspective:
Increasing shareholder value

Strategy

Employee perspective:

Meaningful, rewarding work

Human Capital Strategy
Workforce demand
vs.
Workforce supply

Organization
capabilities

Competencies
Demographics

Staffing and
selection strategy

Organization
values

Values

Change management and
communication strategy

Total Rewards Strategy
Pay

External
influences

Benefits

Over the past decade or so, this deal
has been under significant pressure as
organizations have flattened, cut costs,
used technology to increase productivity
output expectations from existing staff,
and faced escalating competition both
for workers and for customers. We are
now reaching a point where constant
tweaks to the “old deal” no longer work
for either employers or employees. Let’s
examine some of the major changes and
stresses on the current workforce
management system.

Internal
influences

Red flag: Rising labour costs
Corporate pension plans designed in the
Learning and
Work
Development
Environment
mid-twentieth century are increasing in
both absolute cost and volatility,
Aligned employee behaviours that yield desired business results
influencing corporate cash flow and
long-term financial viability. Health care

2
© Towers Perrin
costs continue to increase in double digit
increments each year (in Canada, the
employer and employee needs from the “deal”
current annual average per-employee cost is about
perspective, factoring in external elements that will also
$2,5002). While individual salaries have increased only by
influence the strategy. The organization’s “human capital”
three to four percent each year for the last several years,
strategy basically looks at how to staff the business plan.
this figure does not reflect “real” salary inflation. The
The organization’s “total rewards” strategy, derived from
total cost of direct compensation for the employer is
that strategy, defines the value proposition for employees
higher, in part because many organizations are making
©Towers Perrin

2

Source: Towers Perrin Health Care Cost Study, Canada
2005-2006

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Ivey Business Journal March/April 2006


exceptions to salary structure and customizing “individual
deals” when they need to acquire specific talent.

Inadequacies in current salary systems are driving many
organizations to use alternative salary pools and/or creative
job titling to accommodate their real recruiting and
retention needs.

planning techniques, labour cost modeling, and involving
employees to “optimize” investments in total rewards, to
broader solutions such as off-shoring and other
workforce alternatives. Organizations that don’t employ
these or similar techniques that take a longer-term view
face potentials risks that could have drastic implications
for their workforces.

Over the past five years there have been many highprofile examples of companies in dire financial straits,
driven in part by the cost of legacy HR programs.
Fortunately, there are many solutions to managing this kind
of spiraling cost, ranging from sophisticated workforce

Red flag: The rising cost of stress
Canadian organizations are experiencing increasing
employee absenteeism and rising disability claims, both
of which are affecting productivity and driving up
insurance costs. Stress, to some extent, is a feature
of modern life, but the consequences of stress
The Towers Perrin definition of employee engagement
are now rising at a rate of billions of dollars in
lost productivity each year. In the Global
As employee engagement markers, Towers Perrin uses a set of nine key
Workforce study, employees expressed frustration
indicative responses that have been developed and tested statistically

that they are less and less able to realize work/life
over a number of years with many different employers. The items
examine both “emotional” and “rational” aspects of the employee’s
balance. In Canada, only a third (33 percent)
relationship with the organization.
believe their organizations help employees balance
work and life. Because this is a social issue as well
The first five items, the “emotional” aspects, relate to people’s personal
as an economic issue, work-life balance and stresssatisfaction and the sense of inspiration they get from their work and
related disease will continue to grab media
being part of an organization:
headlines, and be reflected directly or indirectly in
1. I really care about the future of my organization
financial results. For example, in 2002, Statistics
2. I am proud to tell others I work for my organization
Canada reported that employees missed an
3. My job provides me with a sense of personal accomplishment
average of nine days per employee per year - an
4. I would recommend my organization to a friend as a good place to
increase of almost two days per year over the
work
results reported in 19973. In some sectors, such as
5. My organization inspires me to do my best work
healthcare, the figures are even higher.
The remaining four “rational” markers relate to the relationship between
the individual and the organization:
6.
7.
8.
9.

Red flag: Increased employee mobility
According to the new Global Workforce study,
only about one third of Canadian workers plan
to stay with their current employers. Another ten
percent plan to retire shortly. This leaves about
57 percent that are either open to other offers or
are already on their way out the door.

I understand how my unit/department contributes to the success of
my organization
I understand how my role is related to my organization’s overall
goals, objectives and direction
I am willing to put in a great deal of effort beyond what is normally
expected to help my organization succeed
I am personally motivated to help my organization be successful

Recruiters are fully aware of the increases in
employee mobility in recent years, and the
consequent challenges in attracting and retaining
the right talent. More Canadians are starting their
own businesses, seeking more control over their
work arrangements. Perhaps more importantly,
employees now believe that they need to change
jobs more frequently to ensure continued salary
growth and career advancement. As the idea of a “job
for life” is fading, employees recognize they need to
build their “employability”. If their job doesn’t enable

High scores on all nine items indicate a state of true “high engagement”.

Organizations can benchmark all or part of their employee population
against industry, geography or other relevant norms, to determine the
extent to which their own workforce is engaged, and to understand
issues standing in the way of improving employee engagement and
productivity.

3

Statistics Canada, 2003: “Work Absences”, Perspectives
on Labour Income

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Ivey Business Journal March/April 2006


them to develop the skills that ensure they continue to
be “marketable”, they will seek learning opportunities
elsewhere. The whole area of career advancement, skills
development, and opportunity for growth is one that
most employers will need to examine more closely, as
this aspect of the “deal” is having a strong influence on
employee retention and engagement levels. As we saw
in Exhibit 1, the level of engagement has a significant
impact on retention, with highly-engaged employees
much more likely to stay.

what is being communicated internally by their own
management.
The erosion of trust in the employer-employee

relationship is a thread running through the Global
Workforce study results, with employees expressing an
overall desire for greater transparency and access to
information. Yet, at the same time, employees are willing
to volunteer their personal accountability for agreedupon performance goals. They expect the same of their
managers, as well as their senior leaders, but no longer
take trust for granted. For example, only 36 percent of
Canadians now believe that senior management
communicates openly and honestly with their employees.

Higher job turnover rates, and corresponding lower
average length of service increase direct costs for
replacement, and decrease the organization’s ability to
build long-term customer relationships and implement
long-term strategies that are people-dependent.

Red flag: A decrease in the supply of labour
For most of the 20th century, employers were able to
acquire the “talent” they needed, even if at times specific
Red flag: Transparency and the erosion of trust
skills were premium-priced. The reality of population
Mass lay-offs over the past decade started a decline in
demographics in North America and Europe means that
the trust that employees previously held in their
the ready supply of replacement labour that has existed
organizations and in corporate management in general.
since the end of the Second World War – including the
This was compounded by a spate of corporate scandals,
mass entrance of women into the workforce - can no
elevating the importance of corporate governance

longer be relied upon. Canadian birth rates are down,
initiatives. At the same time, the world-wide web allows
and clearly, as less young people are born, there are fewer
prospective job-seekers a unique window into the culture
new entrants in to the workforce. Our immigration
of organizations not available in the past; employees have
numbers are not sufficient to fill the gap. In one of the
easy access to the external “spin” on what is happening
possible scenarios we examined, Canadian organizations
in their own organizations and can easily compare it to
could be short by 2 million
workers, or 10 percent of our
Characteristics of the
Characteristics of the
working population, by 2017.
20th century “old deal”
21st century “new deal”
The situation is similar for our
“Job for life”
“I’ll work ‘til I’m bored”
largest trading partner –
Life-time loyalty
“I’ll go where I can learn and grow”
traditionally a competitor for
“People as cost or asset”
“Individual investors of human capital”
talent. In the U.S., estimates
based on Bureau of Labor
“Aspire to become the manager”
“Aspire to build my resume”

Statistics projections show a
Annual cost-of-living increases
Compensation tied to competencies
workforce deficit of 14 million
Guaranteed real salary growth through cost of living Opportunity for real salary growth through skillskilled workers and a further 7
adjustments and “annual raise”
building and career advancement
million unskilled workers by
“Holiday bonus” based on recognition and loyalty
Performance bonus based on impact and results
2020.
Executives accountable to shareholders for financial
results

Executives accountable to shareholders for financial
results – and for talent management

Training you need for your job

Skills you want to develop

Red f lag:
Changing
employee beliefs about their
rewards
Organization’s reputation for product excellence
Organization’s reputation as a good employer
One of the greatest areas of
change is in employee attitudes about their work
situations and their current rewards4. The current data

4
“Rewards” refers to the total compensation employees
show that employees do not believe that their rewards
receive, including all elements of pay, benefits, learning
are commensurate with their contribution. Particularly
and development, and work environment.

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Ivey Business Journal March/April 2006


in developed economies, many suggest that they have
put in significant extra effort over the past few years, to
help their employers survive a tough economic period.
Now that corporate results are starting to improve,
employees are expecting their rewards to improve in
tandem.
Interestingly, the majority of respondents are focused
on a broader array of rewards than we’ve seen in prior
years. While direct compensation remains at the top of
the list in attracting people to a new job, employees appear
to be relatively realistic about the level of pay overall.
Their focus appears to be more on “pay for
perfor mance” than in prior years; fairness and
transparency in pay and promotion policies is also more

A new deal: Where to start
The essential question that management must ask and
answer is: What is our fundamental belief about the role

of people in driving our success? One way of answering
this question is to start with a model such as the one shown
in Exhibit 3. Starting with desired business results (such
as revenue targets), one can establish the desired customer
behaviours that ensure financial success. Using customer
research, it’s fairly easy to understand what is needed from
the workforce, both in terms of employee behaviours
and in terms of staffing requirements. From there, it’s a
logical step to develop a total rewards strategy that
supports and drives the required employee behaviour.

To develop a strategy
that will be sustainable over
Exhibit 3:
the years to come,
People systems and programs should help drive financial performance
organizations need to
understand both what they
expect/require from their
People systems
Employee
Customer
Financial
workforce – and what
and programs
behaviour
behaviour
performance
employees expect from their
employer. Clues to the “new

„ Staffing
„ Engagement
„ Customer
„ ROI
satisfaction
deal” lie in examining the
„ Compensation
„ Values
„ Revenue growth
„ Customer loyalty
„ Benefits
„ Customer
„ Net earnings
employee perspective service
„ Customer value
„ People
„ Stock
particularly looking at which
development
performance
„ Productivity/
workplace
conditions
operational
„ Workforce
influence
employee
retention
relations
„ Adaptability

and
employee
engagement
„ Organizational
„ Retention
(see Exhibit 4). Interestingly,
management
„ Learning
what employees are looking
„ Work
environment
for in a new job is fairly
similar around the world,
© Towers Perrin
with some obvious variations
based on local market
practices,
different
age
groups,
etc. However, the factors
prevalent. This idea of equity in the exchange of labour
that
influence
retention
and
engagement
differ widely
for reward is key, and it shows that employees are realistic
across

countries
and
industries
in
relative
importance.
This
about producing more value if they expect more
is an especially important finding for multinationals that
compensation.
may need to rethink their approach to workforce
management, and develop strategies that, while globally
This employment value proposition – or “deal” – is
consistent, are customizable by workforce segment and/
at the heart of the changes we’re seeing, both in the
or country. A more complete examination of current
economy at large, and in the workforce itself. There is
employee views may be found in the Global Workforce
clearly something broken in the current notion of
Executive Report, which is readily available online.
employment. To resolve these issues, it’s time for a “new
deal” at work.

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Ivey Business Journal March/April 2006


Exhibit 4:
Top ten drivers of attraction, retention

and engagement in Canada
Pay

Benefits

1 Competitive base pay

4

Competitive benefits

6 Salary increases linked to
individual performance

8

Competitive retirement
benefits

Learning and
Development

Top 10
Attraction
Drivers

Career advancement
opportunities

3

Learning and development
opportunities

7

Work
Environment

5

Challenging work

2

Work/life balance
Calibre of co-workers

9

Reputation of the
organization as a good
employer

10

Pay
3
8

Base salary

6

Retirement

Fairly compensated compared
to others doing similar work in
my organization

Learning and
Development
2

Benefits

Top 10
Retention
Drivers

Opportunities to learn and
develop new skills

1
4
5
7
9
10

Work
Environment
Organization retains people with
needed skills
My manager understands what
motivates me
Satisfaction with the organization’s
people decisions
Senior management acts to ensure
the organization’s long-term
success
Appropriate amount of decisionmaking authority to do my job well
Reputation of the organization as a
good employer

Pay
6 Salary criteria are fair and
consistent

Benefits
10 In combination with
government programs,
benefit programs generally
meet my needs

Top 10
Engagement
Drivers
Learning and

Development
2 Improved my skills and
capabilities over the last year
8 Appropriate amount of
decision-making authority to do
my job well
5 Opportunities to learn and
develop new skills

Work
Environment

1 Senior management interest in
employee well-being
of the organization
3 Reputation
as a good employer
4 Input into decision making in
my department
focuses on
7 Organization
customer satisfaction
9 Employees understand how to
satisfy customers

Key principles of the “new deal”
Every organization has unique needs and characteristics,
and it would be simplistic to suggest a one–size-fits-all
solution. There are, however, a few predominant themes
emerging from this data which should inform those

organizations wishing to develop a 21st century approach
to “the deal”.
Vision and values
Employees currently express a fair amount of skepticism
about senior management’s vision, ability to inspire, and
interest in employee well-being. Employees want to see
the organization’s vision and mission put into practice by
visible leaders. They want to be proud of working for a
financially-strong organization that is recognized as an
“employer of choice” and also as an innovator – a
company with a future. They care about customers and
are frustrated when they don’t understand business
decisions, or can’t see how they can impact important
business metrics like revenue growth or profitability. They
want to be inspired to excel – and they realize that
performance is built one person at a time, so place great
importance on the “people” decisions made by senior
management.
Learning and opportunity to grow
Employees recognize we’ve reached the end of the lifetime
loyalty “old deal”, and that organizations need to be more
flexible about staffing levels, including considering
outsourcing and other non-traditional ways of staffing
business plans. They’re responding by acknowledging their
need to acquire the skills and experience they need to
remain marketable and ultimately “employable”. Personal
growth, the acquisition of new skills, and the opportunity
to increase one’s personal “employability” are critical, even
if the new skills are not necessary to fulfill the requirements
of their current role. Across all countries in the study, access

to career development and training opportunities were
critical in driving engagement – in fact, it could be said
that “maintaining my personal employability or
marketability” is tantamount to the new loyalty. For most
employees, career opportunity, by definition, includes
access to talented colleagues and to senior leaders.
Organizations that can’t retain their top talent may find
others following their leaders out the door.
Effective front-line management
The third main theme concerns front-line management.

©Towers
Perrin
e:
Towers
Perrin 2005 Workforce Study – Canada

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Ivey Business Journal March/April 2006


Employees rely on their immediate supervisor or manager
not only for advice, direction and support, but also to
provide context for the organization’s broader direction
and to interpret the actions of senior management. The
relationship with front-line managers plays a critical role
in determining whether or not employees are – or can be
– highly engaged. Most organizations today are providing
insufficient support to managers, at least in terms of their

“people-management” role. We foresee a flurry of
corporate activity here, as management acts in two main
areas: (a) revising the criteria for manager roles to include
“softer” skills and (b) developing more comprehensive
support for those in supervisory roles.

advertising, the ‘seventies saw the rise of the corporate
strategist. The ‘eighties saw the birth of sophisticated
financial re-engineering, followed by a decade-long focus
on technology starting in the mid-nineties. We believe
that the next cycle is already beginning, focusing on
workforce effectiveness, managing talent, and reinventing
the core employment value proposition. The companies
poised to win in this era are those that deploy people in
new ways to accomplish their business objectives and
deliver both personal and organizational growth.

Customized rewards
Instead of rewards systems that have built up as a hodgepodge of programs over time, organizations need to
develop systems that tie to organizational goals and drive
the right employee behaviours. What employees expect
from their employer can vary significantly by geography,
by role and by workforce demographic. Organizations
need to take the expectations of employee segments that
are critical to the delivery of the business strategy into
consideration and build rewards strategies that can be
customized as needed. Understanding what the different
groups value is a critical first step for employers to be
able to effectively optimize the investment in rewards.
Employer reputation

The fifth main theme is the emergence of a distinct
reputation as a good employer. Just as consumers choose
products based on brands, employees are starting to
choose employers based on their “employer of choice”
brand. Just as it takes time, discipline and effective
investment to build product reputations or brands, a
company’s reputation as a good employer is earned over
time by adherence to a variety of factors. These include
talent management practices, leadership behaviours,
effective front-line management, opportunities for career
development and relevant rewards. Employer reputation
emerges in the workforce data as a core driver of retention
or engagement in almost every country, and its importance
will only grow over time.

The human capital era has begun
The focus of the business world tends to shift as
management adapts to new ideas and possibilities. Just as
the nineteen-sixties saw a new focus on marketing and

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Ivey Business Journal March/April 2006


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