Precision Planning

Employers need to keep long-term goals in mind when implementing short-term workforce strategies.

The economy has cooled down to uncomfortable temperatures, but Canadian employers are still taking a considered response when it comes to salary freezes, workforce reductions and cuts to compensation and benefits. And rightly so—keeping a watchful eye on the long term is just as important as finding short-term solutions.

According to the Salary Budget Planning Poll conducted earlier this year by Mercer, more than half of the 197 Canadian employers that participated plan to curtail overall hiring, reduce 2009 salary increases and cut bonus payouts. However, less than one-third are resorting to salary freezes. Only 17% of respondents say they have implemented a salary freeze. Another 13% are considering doing so.

As expected, the manufacturing industry is taking a particularly hard look at compensation cost increases and staffing levels. Retailer responses to the poll were mixed, with low-cost retailers being more optimistic than their higher-end counterparts. Interestingly, the high-tech sector expressed extreme caution toward 2009, which will certainly affect the labour market—particularly in Ontario.

Respondents from the oil and gas industries are among the most optimistic. However, with no immediate rise in oil and gas prices expected, these companies will likely need to tighten their belts through either reduced compensation increases or reduced settlement payouts.

In Mercer’s global survey of 1,000 HR and finance professionals, Leading Through Unprecedented Times (conducted in November 2008), 81% of respondents expect their company’s business and financial performance to decline in 2009 compared to 2008 levels. Similarly, in Canada, 78% of participants feel that a decline in business is likely or very likely. However, most have refrained from taking drastic measures such as deep staffing cuts or major changes to benefits provisions—at least so far.

Even with this potential business decline at the forefront and uncertainty about where the bottom really is, organizations should not take their eyes off the longer term. Retaining a highly skilled and engaged workforce is an investment in the long-term viability of any company. But without the compensation budgets of the last decade, how can companies survive the current environment while strategically positioning themselves for recovery and future growth?

Take a surgical approach – Companies need to identify which of their business units will create value going forward, both in terms of strategic workforce reductions and planning for future talent needs. Make sure that those who are making a disproportionate contribution or are in mission-critical jobs are rewarded properly. If cuts are necessary, make them with surgical precision.

Communicate total rewards – Employers need to tap into their total rewards proposition to control costs and ensure that employees don’t leave the company for a perceived better offer. Introducing or reminding employees about the non-monetary benefits, such as flex time, workplace training, career advancement and mentoring by senior leaders, can differentiate the company’s brand. Offset reductions in pay with a holistic and well-communicated rewards package that embraces employees’ broader values.

Keep employees in the know – In the Leading Through Unprecedented Times survey, almost one-quarter of Canadian respondents said that employees had expressed significant concern about the health of the company, and 23% said that employees had a high level of anxiety regarding their job security. Anxiety and uncertainty are often triggers for a decline in employee engagement, productivity and loyalty. Communicate openly, honestly and frequently to clarify the company’s direction, the actions that are critical to its success and how employees can help.

Strike a balance – Employers must balance the cost-cutting actions they take today with the longer-term view of their human capital investments. Employers that are guided by strategic workforce requirements—and that openly share information with employees in a direct and personal manner—will be in the best position to maintain their competitive position and quickly gain ground when the economy improves.

Iain Morris is a national partner with Mercer.
iain.morris@mercer.com

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