The Impact of Economic Uncertainty on Reward Programs

With the downturn in the economy, organizations around the world are becoming more and more concerned about the impact on their business. In response to the downturn, organizations are cutting costs and reconsidering the value and expense of many programs, including their staffing levels and cost of their reward programs.

As organizations review these programs and consider changes, benchmarking is a key component in helping organizations make these decisions. Hay Group recently conducted a global research study in order to assist organizations in understanding the extent to which companies have altered or are considering altering their reward programs.

Summary of Canadian findings

Of the 2,589 participating organizations, 151 (6 percent) were from Canada. Overall, Canadian findings are generally consistent with the global findings.

Canadian business results

The Canadian survey results showed a similar percentage of organizations expecting business results to be significantly worse than targeted levels for 2008 as did the global feedback–31 percent in Canada versus 31 percent globally and 39 percent in the U.S. As may be expected Canadian results differed significantly by sector and geography, as follows:

Market Segmentations
Business results will be close to targeted levels
Business results will be significantly worse than target
Business results will be significantly better than target
Financial sector 46% 50% 4%
Industrial sector 69% 25% 6%
Public sector 81% 19% 0%
Western Canada 77% 6% 17%
Eastern Canada 67% 31% 2%

Canadian base salaries

A higher percentage of Canadian organizations are planning to reduce their 2009 base salary increase budgets from the forecasts that they offered in June 2008; 71 percent in Canada versus 58 percent globally.

  • In Canada, budgeted base salary increases for 2009 are significantly lower than 2008 actual figures.The median increase in 2008 for all employees was 3.9 percent while the survey’s 2009 median estimates are 3.0 percent.
  • Forecasted median base salary increases for high performers/potentials are 4.0 percent. These numbers indicate that organizations are attempting to provide some degree of differentiation for their high performers.
  • The median value of Western Canadian forecasts is 4.2%, while that of Eastern Canadian organizations is 2.8%.

Canadian variable pay plans

68 percent of Canadian organizations expect their variable pay programs will pay less than target awards for 2008, while the same is true for 73 percent of the organizations in the global study.

Canadian staffing levels

16 percent of Canadian organizations are planning to decrease staffing levels (versus 15 percent global), however, the median Canadian decrease is 5.0 percent of their total work force compared to the global median decrease of 7.5 percent. So while a higher percentage of Canadian organizations are planning to decrease staffing levels, they are cutting a smaller percentage of their total work force than their global counterparts.

Concerns of Canadian employees & employers

Canadian employees and employers share the same concerns as their global counterparts in that employees are most concerned about job security and reduced compensation, while employers are most concerned about retaining and motivating skilled employees during times of economic downturn.

Implications

In this period of economic uncertainty, organizations must take care to avoid knee-jerk reactions that may seem to help the organization in the short term, but may compromise long term viability. Rash decisions without careful thought may do more harm than good, especially when it comes to impacting employee engagement. There are five areas organizations can focus on to help ensure success through these trying times.

  1. Communications. If employees are left in the dark wondering if they will have a job tomorrow, then morale, engagement, and motivation suffers dramatically. Clear and frequent communications from senior leaders builds trust and credibility and will help employees understand and believe in the company’s direction. If employees are aware of the state of the business, they will worry less and trust that the company will make it through the downturn.
  2. Careful cost cutting. In the rush to cut costs and stay afloat in challenging times, organizational leaders can forget that their people are the lynchpin in helping the company get though the crisis. When cutting salary budgets or headcounts, keep the future of the company in mind. Who will you need to help turn the company around? Consider key roles, past performance and future potential in the cuts. Don’t ignore or alienate high performers/potentials and risk losing them.
  3. Top performers. Don’t make the mistake of assuming that a tight market will retain top performers; they are always in demand and can always find other opportunities. The first step is to identify who the organization’s top talent is and then ensuring that their needs and objectives are known and addressed. Do your high performers know that they are indeed high performers? Do you tell them? Do managers have frequent, meaningful conversations with high potentials to know their needs and wants and to keep them engaged? When additional financial rewards are not possible, emphasize and leverage the core intangible rewards offered by the organization: career development, interesting and impactful work and nonfinancial recognition can markedly improve engagement with top performers.
  4. Total rewards. Do employees understand the total value of the reward programs that the organization is offering them? Research has shown that employees are more satisfied with their reward programs the better they understand them – not necessarily the more they are paid. Organizations can get significant mileage in communicating the value and costs of the total remuneration programs and intangible rewards. More and more organizations are implementing total rewards statements to help employees understand the value of their benefits as well as their compensation.
  5. Solid reward foundation. With the increased focus on cost cutting for many organizations, now is a good time to take a close look at the rewards programs you are offering employees. Understand what programs your employees really value relative to their cost and increase/decrease programs as appropriate. Employees may or may not value certain benefits, perquisites, work rules, or compensation programs. Consider what employees value as cost cutting decisions are made. Making changes to these programs often comes with low cost from the organization and good will from employees.

It is critical to keep employees engaged and motivated during these times so that the organization can weather the storm. In the current business environment, organizations have the opportunity to take a hard look at the intent, design, and implementation of the organization’s reward programs. The organizations that think strategically and creatively will emerge in a position of strength to take advantage of the future upturn.

www.haygroup.com

Mark Jackson and Dan Caird are presenting Strategic Succession Management as part of the Organizational Effectiveness track at the 47th Annual BC HRMA Conference & Showcase in Victoria. For more information on this and other sessions, please visit the official conference website at www.bchrma.org/conf2009.

Contact: Tracy Bosch, Prinicpal, Hay Group,

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