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Companies Hitching Belts Tighter
As the economy continues to slouch along, and experts predict dark days throughout 2009, organizations seem to be responding by revising their HR programs. A recent study by global consulting firm Watson Wyatt showed that companies sharply increased cost-cutting measures in the fourth quarter of 2008 -- mere months after a previous study by the firm. The survey of 117 companies showed that, while 19 percent of those polled in October had made layoffs, that figure jumped to 39 percent when the survey was reissued in December. In addition, 23 percent of those responding said that layoffs were planned within the next 12 months. In an attempt to spread the cost-cutting moves, employers are also instituting hiring freezes; reducing or eliminating training; restructuring; and taking other measures. And forget about bonuses and salary bumps in 2009. In the December survey, 61 percent said they were revising their merit-increase budgets for the coming year, up from 28 percent in the October survey. Laura Sejen, global director of strategic rewards consulting in Watson Wyatt's New York office, says she thinks the reduction of merit-increase budgets is particularly significant. "Base pay for the large majority of broad-based employees in corporate America is the single biggest piece of their total compensation," she says. "The annual merit increase is heavily built into the culture of corporate America." While this recession is unprecedented, for most, in its depth and reach, many companies have become savvier and more flexible about cutting costs, however. Recognizing the dangers of a slash-and-burn layoff approach, Sejen says, some companies appear to be approaching layoffs with a surgeon's care, trying to anticipate ways to preserve necessary skill sets and key performers for the day when the company emerges from the recession. "My own view is that there's a certain extent to which they're trying to avoid doing massive layoffs," she says, by paring costs in a broad swath of programs to help save money. On average, she estimates, companies are reassessing five or six HR programs from which to trim costs. In the survey, in addition to layoffs and revised merit budgets, the most common actions companies have either taken, or will take, within the year include greater restrictions on travel (64 percent), hiring freezes (65 percent) and raising employee contributions to health premiums (37 percent). "I think it's going to be a fairly lean year, in terms of pay and bonuses and any kinds of supplements," says Sejen. Laird Post, a principal with the global management consultancy Booz & Co. and leader of the company's human capital management team in the United States, says some organizations may find an unintended benefit in the dour economy by reconsidering programs that may not have added value to the organization. "It's a chance for HR to do what they may have been wanting to do for a long time, but didn't have the right circumstances," says Post, based in the company's San Francisco office. Declaring "things are not going to be the same, no matter what" when the economy begins to heal, Post says, it's imperative for HR to make strategic cost-saving measures now. He suggests organizations construct road maps based on multiple projections, such as whether the business begins to thrive, remains flat or contracts. HR should consider the way time, money and staff are poured into each of the scenarios. While layoffs may be unavoidable, he agrees that companies appear to be more selective about how they're structuring reductions in force, particularly compared to previous economic downturns when some companies performed across-the-board layoffs, only to rehire talent when the economy regained steam. HR should also be cautious about across-the-board reductions in merit pay, either in salary or bonuses, he says. Doing so potentially penalizes the high-performing employees who bring disproportionate value to the organization. The job market may be tight, Post says, but for high performers, there's always the risk of flight toward a better opportunity. Barry Gerhart, department chair and professor of management and human resources for the University of Wisconsin's Madison School of Business, agrees that employers must maintain focus on keeping key employees, whether through merit pay or other rewards programs. "If you expect employees to work hard and perform their best in the company interests, then you want to treat them as well as you can," he says. That's easier said than done, when organizations have to drill new notches in their belts during tight economic times, but, Gerhart says, companies can spread out the cost-cutting measures to include mandatory vacation time and reduced work hours. He cautions, however, that reducing work hours may not reduce benefits costs.
January 13, 2009 Copyright 2009© LRP Publications |
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