Recovery Bound
The most pressing post-recession task for HR leaders at the nation's largest companies will be to focus their attention on securing and keeping the talent capable of executing new business strategies.
By Scott Flander
So you thought the economic downturn was tough?
Get ready for the next big challenge for HR: the post-recession.
As companies ramp up production and put new business strategies in place to compete in a changed landscape, they'll need the best employees, all at the top of their games.
Yet the recession has taken a grievous toll on many organizations. Those who have survived rounds of layoffs often feel beaten down and stretched too thin for too long. The number of disengaged workers has doubled during the recession -- to a startling 20 percent, according to a recent study by the Washington-based Corporate Executive Board.
Just as ominously, many high-potentials -- workers who can hold the key to a company's ability to rebound -- are itching to leave their organizations, just waiting for the employment logjam to break up. Nearly one-quarter of high-potentials are already actively looking for new jobs, according to a separate study by the CEB.
Although the board does not have comparable figures from past recessions, a spokesperson there says that while one-fourth of hi-pos are on the hunt for new jobs, one in 10 employees in the broader workforce are currently looking for other opportunities.
To make matters worse, employees at many organizations are ill-prepared to carry out the new business strategies CEOs and their executive committees are now working so hard to develop. Experts who have studied the situation say that, in recession-altered workplaces, employees are often adrift, without well-defined roles or managers who know exactly how those new strategies should be executed.
Human resource executives clearly have their work cut out for them. But interviews with a variety of HR leaders and experts suggest there are a number of specific actions that can be taken today to pave the road ahead.
Many of the nation's largest companies (see the list of this year's
Top 100
) are now exploring new ways to attract the best employees, keep them engaged and prevent the cream of the crop from jumping ship. Initiatives range from making it easier for employees to move within the company to sending positive messages to employees, the public and shareholders by putting in place executive-compensation structures that match pay to performance and minimize risk.
A variety of experts offer a number of other ways HR can get the engaged, productive workers they'll need for the post-recession world. Their suggestions include on-the-job coaching of middle managers by seasoned executives and more clearly defined employee roles.
The common thread running through all of these initiatives and suggestions is that, while the recession may have forced many companies into a defensive posture, they can't stay that way. They can't sit tight and hope the end of the recession will solve all their problems.
HR must move now -- and quickly. Companies that survived the recession by cutting back may have won the battle, but they will lose the war if they can't match the intense competition that's soon to come.
Interviews with a number of HR executives in recent months suggest that keeping top performers -- the heart of the lineup -- from leaving when the recession finally does end is at the top of the priority list.
Adding Attractors
As Ian Ziskin of Northrop Grumman Corp. puts it, "The one thing we all worry about is the pent-up demand as people think about shifting jobs or companies as the economy starts to pick up."
The Los Angeles-based aerospace and defense firm is attacking the issue on a number of fronts. For example, it is now trying to make it "as seamless as possible" for employees to transfer to other in-house positions, says Ziskin, Northrop Grumman's corporate vice president and chief human resource and administrative officer.
For example, at one time, the company had about 40 different vacation policies, arising from its various acquisitions over the years. Employees risked losing vacation time if they transferred to another unit. There are now only about a half-dozen such policies.
In addition, the company has begun a program aimed at assimilating new employees (with three years of experience or less) into the company. The program includes professional-development sessions, run at the local level by the new employees themselves, in which senior-level executives discuss company strategy and how employees play a critical role.
Says Ziskin, "The more people who feel connected to each other and to the company -- and [to] how what they're doing fits in with the bigger picture -- the easier it is to have a sense of belonging and feel engaged."
Northrop Grumman has also stepped up the use of flexible work arrangements, such as telecommuting, office "hoteling" and "9/80" schedules, in which employees work nine-hour days during a two-week period, and take every other Friday off.
"People tell us, 'If you can help me better manage my work life and personal life by my not having to sit in traffic or commute, or if I can participate in a 9/80, that gives me flexibility and freedom I might not receive at other companies,' " says Ziskin.
He notes the growing shortage of engineering talent in the country -- particularly important to his company -- and says, "For many [of these] employees, work/life flexibility is important. If they can't get that at Northrop Grumman, they will seek it elsewhere."
Some companies, however, may find it difficult to change their ways and become more flexible -- a failure that could be costly when it comes to talent retention. Rose Stanley, the work/life practice leader at WorldatWork, the Scottsdale, Ariz.-based HR association, notes that many managers simply don't trust their employees. And she offers a possible solution.
During the recession, she says, many workers who have been furloughed, or have been on shortened or compressed work weeks, have voluntarily done work from home. Managers willing to recognize this may be more willing to trust their workers -- and be more inclined to allow some to telecommute, she says.
Another daunting task for HR will be rebuilding workforces that have been decimated by cutbacks. And the highly competitive post-recession environment will make it critical that companies hire the best people.
With the current high unemployment rate, there will no doubt be a massive wave of job applications -- but that's not necessarily an advantage for HR, since it means sifting through a potentially unmanageable candidate pool.
A number of companies, such as Palo Alto, Calif.-based Hewlett-Packard Co., are now using pre-employment assessments in a relatively new way.
Marcela Perez de Alonso, executive vice president of human resources, notes that HP has put together a "best-in-class profile" of the qualities of top-performing managers, based on a variety of factors. When external candidates for managerial jobs take the assessments, the company attempts to identify those individuals with the highest probability for success by matching their scores with the profile. Executives and director-level employees, meanwhile, are given assessments to see how they match up with the profile, thereby giving HP the ability to identify those in need of development.
HP is also more aggressively training both current and new employees, says Perez de Alonso. "We're going to have to compete in the new environment, and people need to be prepared, regardless of whether they're new or old," she explains. "We need to hire the best, but once they're onboard, we have to make sure they're as productive as possible."
Though retaining and developing top talent will not be easy, some experts say that boosting recession-battered employee engagement could prove to be an even more challenging undertaking.
The critical question for HR executives is how engagement can be improved, while companies are still operating pared-down staffs and perhaps even continuing to cut back.
Seymour Adler, a senior vice president in the Human Capital Practice at Chicago-based Aon Consulting, says it's important for HR leaders to distinguish between actively and passively disengaged workers.
"Actively disengaged" employees are the ones who hate coming to work and have an overall bad attitude. These people may be beyond reach, and should not be the focus of the bulk of engagement efforts.
Instead, says Adler, HR should pay attention to the far greater number of workers and managers who are less-obviously disengaged.
These are often among an organization's most valuable employees, but the workplace strains brought on by the recession have left them unhappy, frustrated and pessimistic about any career advancement. They're keeping their heads low, contributing the minimum needed to hold on to their jobs, and the moment something better comes along, they're gone. If they're boomers, as soon as their 401(k) portfolios improve, they'll retire.
If these employees are to be re-engaged, HR leaders must have a thorough understanding of what went wrong. Yet here is another problem area.
Research by the Corporate Executive Board found that some of the top drivers of employee commitment have shifted significantly. As the recession has limited opportunities for development, workers have come to consider other things more important, particularly individual recognition. According to the study, employee desire for recognition jumped 15 percent from October 2008 to March 2009.
Jean Martin, executive director of the board's Corporate Leadership Council, says many senior managers are not aware of these shifts -- particularly the need for recognition. During the recession, many managers have often taken the position that workers shouldn't worry about rewards and recognition; they should just be lucky to have jobs.
At the same time, some companies have stopped differentiating between high and low performers, since they have had fewer resources to spend on rewards, such as merit raises.
Martin believes that lack of differentiation has hurt engagement levels.
The board's research has found that, when employees believe the best people will be rewarded, discretionary effort by a company's workforce rises by 11 percent.
Instilling Faith in Pay
While it is clearly important to recognize and act upon the many individual levers of employee engagement, HR cannot forget the big-picture lessons that the economic crisis has taught. One of the most sobering is the degree to which a company's reputation -- among both employees and the public -- is tied to executive pay and bonuses.
To a large extent, the recession marked the emergence of executive compensation as an employee-engagement issue, experts say. If employees believe company executives are getting excessive pay and bonuses -- particularly when they're asking workers to cut back -- their trust and faith in their bosses may be obliterated.
Charles Tharp, the executive vice president for policy at the Washington-based Center on Executive Compensation, says it will be particularly important in the post-recession era that executives earn the faith of their employees with fair compensation policies.
Such policies must embody the right balance between rewards for short-term and rewards for long-term performance, so that most of the payouts don't come "before you know whether what you've done will stick," says Tharp. And there should be a requirement that executives keep, for several years, a significant portion of the stock shares they receive -- so they have a real stake in the company's long-term success.
HR must do more than develop good executive-compensation policies, says Tharp; its practitioners also must do a good job of communicating those policies to employees and the public.
Tharp cites Oak Brook, Ill.-based McDonald's Corp. as one employer that is doing executive compensation right.
Rich Floersch, executive vice president and chief human resource officer at McDonald's, says the company has worked hard to develop a sound executive-compensation plan, and communicate it to employees.
Employees at all levels need to know that executive pay and performance are aligned, he says. "Otherwise, people will ask, 'Is this really a company I want to work for?' "
It's key, says Floersch, that any plan be straightforward enough to be easily understood by people without a financial background. "It should be simple," he says. "If it takes you more than a couple of minutes to explain your incentives, you're overcomplicating it."
One of the more important elements of McDonald's plan is that, if the company doesn't increase its profits from the previous year, none of the executives get bonuses.
That sends a strong message to employees as well as shareholders, says Floersch. "We communicate to our employees that continuous improvement is one of our values. If we're not improving year-to-year, either individually or collectively, we're not doing our jobs."
Lisa Emerson, McDonald's vice president for global total compensation, says the company's executive-compensation structure has a number of other elements to make sure rewards are tied to the company's long-term health.
For example, the majority of stock incentives -- two-thirds -- are stock options at McDonald's. There is also a cap on annual bonuses -- 250 percent of the incentive opportunity. And, the company's cash-incentive plan is based on performance over three years.
Says Floersch, "You want people to take risks, but you want them to take a balanced set of risks."
Defining Bold Directions
Smart HR leaders know that, if employees are to be truly productive, engagement alone is not enough -- they must also have clear direction. This is yet another area that has been severely weakened by the recession, and needs HR's close attention.
A study by the Corporate Executive Board found that, since the recession began, managers have become less effective at defining employee roles. Prior to the recession, about 60 percent of employees said their managers were able to effectively communicate their expectations. But that has dropped to about 45 percent.
"Before, managers told employees how they fit in with the overall objective to grow market share," says Martin. "Now they just tell the employees to buckle down and get the work done."
The study found that, when managers clearly define employees' objectives -- and connect the individual's work to the overall objectives of the organization -- discretionary effort in the workforce can increase by 10 percent.
Not only should objectives be defined, Martin adds, but they should be bold -- something she says has also become an area of concern in the recession. A separate study by the board found that managers have become significantly more risk-averse during the downturn. As many as one-third of employees surveyed said their managers are now less likely to encourage them to become innovative.
The post-recession world will require companies to be particularly innovative, Martin says, and HR must play a key role here as well.
Martin says both customers and employees will make decisions differently. Customers will seek a greater emotional connection with the products they buy. Workers, meanwhile, will want to see an explicit acknowledgment of their personal priorities in employee contracts.
HR leaders, Martin adds, must take the lead in guiding managers on how to boost innovation without creating excessive risk.
Indeed, says Adler of Aon Consulting, middle managers hold the key to both re-engaging employees and helping them implement the organization's post-recession business strategies. However, he says, many don't have the necessary skills.
"Companies look at strategy creation, but they hit a wall when they get to the middle managers," he says.
Adler advocates developing middle managers through highly targeted coaching by experienced executives from either inside or outside the organization. The coaches -- who have "walked in the shoes" of the managers -- can help the managers they're working with learn people and business skills as they implement a specific objective.
For example, he says, a manager in a business unit with 150 employees might be charged with making the unit more customer-centric. The executive will coach the manager over several months as he or she works at the task.
"It's not a theoretical discussion," says Adler. "Don't think of it as training; think of it as implementation support."
The coaching, he says, has to be focused and cost-effective, with measurable results. "It's much less about management education and more about having an immediate impact on performance and engagement," says Adler. And the coaching, he adds, has to take place over a limited period -- a few months at most -- because managers usually must implement strategies quickly.
For such coaching to succeed, the HR leader must take ownership of the program, and must be directly involved in setting the guidelines for who will be coached and which executives will participate. Further, the HR leader should also help determine the standards that the coaches will be held to, and how the coaching results are to be measured.
"HR plays a role in defining accountability," says Adler.
And this role must be lasting. In Martin's estimation, it would be a mistake to believe that, as the economy improves, most of the engagement and productivity issues brought on by the recession will simply fade away.
"Coming out of the recession will have an impact, but it will not repair the damage," she says. "Recovery is not restoration. Many companies will never achieve pre-recession performance. Only the organization can heal itself."
See also:
Foes of Future Performance
Avoiding Excessive Risk
Best Practices for Rehiring Laid-Off Workers
Aligning Managers for Organizational Change
Driving Employee Commitment
January 1, 2010 Copyright 2010© LRP Publications
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