1. HR Challenges for Business in Unprecedented Times July 2009
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7. Employee Attitudes Top employee concerns Organizations that communicate openly and foster collaboration and innovation among their workforce will benefit most once the economy recovers “ ” Top employee concerns
Mercer conducted a survey in Nov 2008, to gauge executive sentiment on 2009 business outlook. Over a thousand HR and Financial professionals responded to the survey, representing organizations with operations in more than a 100 countries. The findings of this survey paint a vivid picture of the talent, compensation, benefits, and related investment strategy challenges that organizations are facing as a result of the current economic turmoil. It reveals that companies are being selective as they plan 2009 workforce, compensation and benefits cuts, despite anticipating a decline in overall business performance. The survey shows that by and large, most companies have refrained from taking severe and broad-based steps, such as very deep workforce cuts, across-the-board salary freezes, or elimination of certain health benefit programs. Globally, 81% of respondents in the survey expect their company’s business performance to decline in 2009. Differences exist by country. On the other side of the coin, despite the weak economy, talent shortages still exist for key skill sets and selective hiring remains a top priority for employers. While more than two-thirds of respondents (69 percent) will likely curtail overall hiring to below replacement levels , 69 percent will likely hire top talent at originally planned levels. 1/3 rd of respondents (35%) expect to make significant reduction in their workforces . At the high end, the manufacturing and technology firms expect to reduce their workforce by a significant level. This compares with the professional services, retail and wholesale firms, which are not likely to reduce workforce significantly. This also varies from country to country; for example, we know the US has seen the highest levels of unemployment in the last 25 years and is estimated to have lost more than 5 million jobs over the last 16 months. In Europe, Italy and in Asia Japan are experiencing significant levels of workforce reduction. Where there may not be significant work reductions, a trend towards selective and strategic trimming of staff by reviewing staffing specific workforce segments, business units, or geographies. 70% of respondents do not expect to reduce the number of staff on international assignments as these employees are often sent to high growth markets, though these programs will undergo scrutiny based on an expense control strategy.
The majority (73%) are likely to reduce salary increases in 2009 from those originally budgeted. 60% respondents expect to reduce 2009 bonus payouts based on 2008 performance. This figure is likely to increase based on their latest business forecasts. A substantial 75% of the respondents from the financial sector expect to reduce 2009 bonus payouts (highest of any industry). 48% of respondents do not expect to change their Variable Pay programs ; of those that are likely to change or develop new Variably Pay programs, an overwhelming majority comprises of the Financial Services sector. Only 12% said freezing wages at 2008 levels was a likely course of action but it is a stronger possibility in some industries, notably banking and technology.
We conducted a quick cross-industry survey from amongst our annual Remuneration survey participants earlier this year. This included companies from the Oil&Gas, Telecommunications, Consumer Goods, pharmaceutical, and manufacturing sectors. In our findings, although companies may have implemented a hiring freeze, we have not seen major workforce reduction in our local market overall. Very few companies have implemented a wage freeze and overall annual increments averaged between 12-16% cross-industry. 45% of companies have collapsed financial authorities to one level above, perhaps as bid for stringent cost control and increasing accountabilities at the more strategic level. Generally speaking, given the global economic uncertainty, we see management take a cautious approach. Pressure on HR to reduce cost; but play a more proactive role in ensuring that and improving operational effectiveness.
In Charles Dickens’ epic novel, A Tale of Two Cities, set against the backdrop of the French Revolution, the author shows that economic and social turmoil can bring out the worst … and the best … in people. Surviving through uncertain times takes courage and wisdom. Reduce cost and manage risk How to generate top-line growth under the current economic environment. This will require companies to be creative and to differentiate their customer value proposition. The third area is looking at sustainability of their businesses. More than any other, this is a time for company leadership to test its conviction of the business model and revisit its long-term goals.
The most effective compensation programs should be designed to meet a range of objectives. By “programs” we refer to all of the elements of pay – salary, short- and long-term incentives, and benefits. Compensation programs must be competitive enough to attract and retain the right talent, and incentive plans must motivate executives to achieve the most critical near-, intermediate- and long-term priorities of the business. Program payout levels should be reasonable in the context of performance delivered. The compensation programs also must be responsive to shareholder interests by providing a meaningful relationship between pay and shareholder value creation. In our view, a balanced program will deliver balanced results, which means it will be much more effective at meeting the full range of the aforementioned objectives. A well-balanced executive compensation program helps mitigate the biases in any single compensation plan or measurement approach. For example, “all or nothing” plans that evaluate results using only one or two performance metrics or hold executives to rigid performance criteria year after year fail to recognize the context in which performance occurs. Additionally, a compensation program that overemphasizes short-term performance over long-term performance may encourage inappropriate risk-taking or actions that compromise longer-term goal attainment. Finally, a compensation program that does not consider meaningful retention attributes may leave a company exposed to unanticipated executive turnover. Companies should examine their programs to ensure that the balance is appropriate and that payouts delivered under a range of performance outcomes are reasonable and defensible. The concept of balance should be applied to many aspects of compensation program design Performance metrics: Choose metrics that provide a balanced picture of performance results and capture the range of relevant dimensions of performance – growth, profitability, returns and shareholder experience – so that the program does not inappropriately emphasize performance along one metric that would have unintended consequences on the company’s overall financial picture. Target setting: Incorporate a wide range of internal and external perspectives into the target-setting process – including the annual budget and management estimates, strategic priorities, performance forecasts from external analysts, historical industry performance and macroeconomic indicators – to ensure the objectives are meaningful and appropriate. measurement approach: Consider the appropriateness of a mix of absolute and relative performance measures. Absolute measures enable the executive team to unite behind shared goals, while relative measures allow for an alternative assessment of performance by recognizing external conditions impacting the industry
Using segmentation as a basis for making rewards decisions is another way to increase the return on your human capital investments. Using segmentation broadens the concept of differentiation to ensure that compensation programs are tailored to reward employee populations based on the impact of their businesses, geographies and functions on the enterprise. This macro approach allocates rewards opportunities, so that they are directed to those areas that will contribute the most to business success. Rewards for executives should be considered in this scheme as well. Some key questions to consider are: What talent is the most critical to the business? Not all employees contribute the same amount to value creation at your organization –even at the executive level. With limited rewards available, companies increasingly need to identify the types of jobs (and particular individuals) that contribute more to the company’s success and then provide them with incentives to perform. This may take the form of differentiating the magnitude of pay (e.g., targeting the 50th percentile for some segments and the 75th percentile for others) or rebalancing the mix of pay to motivate and retain (e.g., orienting the mix of some employees to focus more on variable pay while others are oriented toward fixed pay). Also succession plan. What are your talent needs today, and how do you expect them to change in time? How should reward strategies be tailored to each business? Each business in the portfolio likely has a different impact on enterprise success and different business economics and profit models For example, some businesses early in their evolution may call for a rewards strategy that is oriented toward long-term growth –focus, perhaps, on more leveraged incentive programs, a mix weighted to focus more on long-term incentives and performance measures that reinforce the importance of growth. On the other hand, a mature “cash cow” business in the portfolio may call for a rewards strategy determines rewards for current profitability and returns, so that incentive programs may be less leveraged, the mix may provide more weight toward annual incentives and the performance measures might focus on profitability and expense control. What do your executives value? The accounting costs of compensation are not always correlated with the perceived value to executives, and executive perceptions are not stagnant over time. Managing perceptions.
Mercer conducted a survey in Nov 2008, to gauge executive sentiment on 2009 business outlook. Over a thousand HR and Financial professionals responded to the survey, representing organizations with operations in more than a 100 countries. The findings of this survey paint a vivid picture of the talent, compensation, benefits, and related investment strategy challenges that organizations are facing as a result of the current economic turmoil. It reveals that companies are being selective as they plan 2009 workforce, compensation and benefits cuts, despite anticipating a decline in overall business performance. The survey shows that by and large, most companies have refrained from taking severe and broad-based steps, such as very deep workforce cuts, across-the-board salary freezes, or elimination of certain health benefit programs. Globally, 81% of respondents in the survey expect their company’s business performance to decline in 2009. Differences exist by country. On the other side of the coin, despite the weak economy, talent shortages still exist for key skill sets and selective hiring remains a top priority for employers. While more than two-thirds of respondents (69 percent) will likely curtail overall hiring to below replacement levels , 69 percent will likely hire top talent at originally planned levels. 1/3 rd of respondents (35%) expect to make significant reduction in their workforces . At the high end, the manufacturing and technology firms expect to reduce their workforce by a significant level. This compares with the professional services, retail and wholesale firms, which are not likely to reduce workforce significantly. This also varies from country to country; for example, we know the US has seen the highest levels of unemployment in the last 25 years and is estimated to have lost more than 5 million jobs over the last 16 months. In Europe, Italy and in Asia Japan are experiencing significant levels of workforce reduction. Where there may not be significant work reductions, a trend towards selective and strategic trimming of staff by reviewing staffing specific workforce segments, business units, or geographies. 70% of respondents do not expect to reduce the number of staff on international assignments as these employees are often sent to high growth markets, though these programs will undergo scrutiny based on an expense control strategy.
high level of anxiety regarding their job security. Employee concerns can lead to a decline in engagement and productivity and so need to be closely monitored and addressed. Employee communication efforts should specifically and consistently address economy-related matters to help companies and their workforces through these unprecedented economic times.
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