HR in a Turbulent EU

HR executives find themselves on the front line of economic and political upheaval in the Eurozone.

Tuesday, July 17, 2012
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It's always been something of a challenge for Pierre Botteron, vice president of human resources at the global Swissotel lodging chain, to recruit and retain the best talent for a career in the firm's Zurich, Switzerland headquarters or its nine hotels located within the Eurozone.

"We definitely have trouble attracting people who have a passion to work in a hotel today," says Botteron, citing the long hours -- frequently at night or on the weekends -- that are involved in managing a European luxury hotel. In recent years, Botteron has frequently needed to look beyond Central Europe -- to neighbors such as Eastern Europe, for example -- or shift personnel from other continents to fully staff Swissotel properties in Germany, Switzerland, the Netherlands and Estonia.

Now, the economic crisis roiling Western Europe -- with soaring unemployment in some once-booming nations and fears that the Euro currency could collapse -- has complicated Botteron's task in ways that one might not immediately expect. Because of rising joblessness, some European nations -- including the chain's Zurich home base -- have imposed immigration restrictions such as reductions in work visas, thus limiting the hiring pool. And, with the Eurozone crisis deepening and several governments toppled or facing likely electoral defeat, Botteron fears cross-border talent recruitment will grow even harder.

"The immigration laws are quite challenging," says Botteron, who, as Swissotel's chief human resource officer, oversees a workforce of roughly 7,500 employees at hotels in 17 nations around the globe. One particular problem, he adds, is moving key employees between hotels. "It's difficult now to get people transferred, even for six or 12 months."

The worker immigration roadblocks faced by Swissotel is just one of the many consequences for employee management resulting from a downwardly spiraling economic and political situation in the European Union, where key nations are sliding back into recession and political unrest is rising -- even as the U.S. economy shows mild improvement.

Like much of the rest of the world, Europeans suffered in the worldwide slowdown that occurred after the largely American-originated financial crisis of 2008. But in Europe, the meltdown also brought into focus massive levels of government debt in some EU nations -- most notably Greece, where failed efforts to achieve a political solution have sparked fears that the nation will default on its loans later this year.

There is also mounting evidence that a wave of government austerity programs launched in response to the debt crisis have backfired. Several nations in southern Europe -- most notably Spain -- are experiencing Depression-era levels of unemployment, as high as 24 percent. At press time for this issue of HRE, speculation was still looming over whether Greece would abandon the euro for its own currency, creating a climate of uncertainty and fear for investors and employers.

In many ways, human resource executives are on the front lines of the Eurozone crisis. In a region with some of the most restrictive labor laws and practices in the world, HR leaders are often forced to contemplate reductions in workforce while seeking, at the same time, to retain those employees with unique skills or knowledge. Meanwhile, rapid turnover in political leadership is leading to changes or proposed overhauls in tax policy and other areas that pose new HR challenges.

Many top HR executives say they are taking a proactive approach to Europe's economic woes. That means taking steps to continue to recruit top, young talent -- even in a stagnant labor market -- and groom a new generation of corporate executives. Due to the high costs associated with layoffs, aggressive HR managers are working with government to craft retraining programs to keep displaced workers on the payroll. And in many cases, with pay raises less of an option in the down economy, they are developing other incentives -- as simple as iPad breaks for younger workers or as elaborate as a company trek on Mt. Kilimanjaro -- to keep employees happy.

Years in the Making

HR experts say the effect of several years of economic turmoil is taking a toll on what was once one of the world's more stable workforces. Jay Doherty, a Richmond, Va.-based partner with Mercer Human Resources who specializes in workforce planning, says officials at the HR consulting group were surprised by the results of its 2011 global survey of 30,000 workers, titled What's Working, which shows increasing apathy and unrest in the European workplace.

The survey found more than 32 percent of workers across Europe reporting they were seriously considering leaving their jobs -- up substantially from the prior survey in the mid-2000s; that figure was even higher in certain areas, such as the United Kingdom, and substantially higher among workers under age 25.

"The reality is that these businesses are not growing, and that is impacting their internal labor market," says Doherty. Several years of stagnant wage growth and elimination of in-house training programs -- made necessary by the slowdown in the broader economy -- have taken a steep toll on morale. What's more, those survey results predate the latest news about the crisis in Greece and the double-dip recession in many EU members.

Interviews with human resource experts pinpoint a range of difficult issues for HR executives that have either arisen or have been made worse by the Eurozone crisis. These include:

* Delayed retirements. The European economic upheavals have led to a pension crisis, largely because of diminished returns on the annuities upon which retired workers had long been planning to live on. The result of this pension-system breakdown is that employees are now deferring their retirement. Europe once had some of the world's earliest retirement ages -- with averages ranging from roughly 59 in France to nearly 63 in Great Britain -- but these figures are now rising, either by worker choice or because of government mandates.

In a region with an aging population, thanks to a post-war baby boom that was followed by low population growth, the fallout for HR executives has included clogged pipelines for career advancement for younger and middle-aged professionals. That has placed more of an emphasis on creative succession planning and other incentives for up-and-coming workers whose path to promotion has been blocked.

Pete Sanborn, the Atlanta-based global practice leader of Aon Hewitt's talent and organizational practice group, says delayed retirements have had both positive and negative impacts. The trend has been a plus for some companies to retain their older, skilled employees, but slowed turnover has probably worsened unemployment and job dissatisfaction among the young. "The rate of unemployment coming out of schools is pretty significant -- it's definitely lagging in Europe," Sanborn says.

Still, some companies are placing an emphasis on hiring and training young workers as future executives. At the UK-based food company VION, for example, 11 new hires were recently placed in an 18-month management-training program and were appointed mentors -- at the director or senior-manager level -- to provide support, advice and guidance. CHRO Mark Thomas told Poultry World magazine the firm "takes its responsibility of developing and growing our management talent of the future very seriously."

* Tax changes. Some HR experts say that after a long period of fairly stable tax rates and regulations across the European Union, rapid changes are taking place across the region either to address declining revenue or because of ideological changes in the political leadership. In France, for example, just-departed President Nicholas Sarkozy and lawmakers overhauled the corporate tax structure and raised a value-added tax on goods earlier this year, but now, new President Francois Hollande wants to increase levies on the highest wage-earners.

"The expectation is that governments are going to be trying to push back austerity now," says Michael Broomhead, director of the international consulting group at Towers Watson. Broomhead says those changes will have major impacts on multinational firms as they decide whether to expand or contract in Europe. More importantly, he said, the looming changes could affect human resource executives in several ways. They could impact receuiting, since differences in personal tax rates may influence the decision of executives whether to stay in a job or relocate across borders. Also, he says, higher personal income taxes in a nation such as France might reverse the trend of later retirements, which could actually help HR leaders by increasing turnover and mobility, allowing for the hiring of younger workers.

* Worker retraining. While severance laws vary across the nations of Europe, labor law in many EU countries require both significant advance notice of a layoff or severance pay of as much as six months to a year. Europe's restrictive labor laws therefore make it difficult to manage sudden changes in economic conditions. Experts say the sharp downturn that followed the 2008 financial crisis brought into clearer focus an already existing problem in the Eurozone: a mismatch between worker skills and company needs.

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Sanborn of Aon Hewitt believes there's a clear need for more public-private partnerships on retraining, such as an effort undertaken in Germany in 2009, in which workers in large firms were educated in high-tech skills where the firm had worker shortages, reducing the need for wholesale layoffs. This is one reason Germany has lower unemployment than other nations within the Eurozone.

Indeed, experts such as Towers Watson's Broomhead stress that it's critical for HR executives at multinational companies to understand that the economic stressors are not evenly distributed across the Eurozone. Generally speaking, the highest unemployment and greatest turmoil is in southern Europe -- most notably, Greece, Spain and Italy.

"We've seen declines because of defined-benefit packages -- and the volatility of the bond market and of interest rates," says Broomhead, which has exacerbated the vicious cycle of older retirement ages and youth unemployment in the Mediterranean countries. But leading economies in the northern half of the Eurozone -- most notably, Germany and the Scandinavian countries -- are faring much better, in part because of sounder government fiscal policies.

Confronting the Problems

The economic unrest in Europe has complicated matters for large employers, such as the multinational manufacturing giant 3M. The firm -- which currently employs some 18,000 people across western Europe and has its headquarters for the continent in Amsterdam -- was planning to hire about 4,500 new workers over the next couple of years because of growth or turnover. It recently created a Centre of Expertise for Talent Solutions to develop a five-year-plan that would address issues such as delayed retirement and rising demand for skilled labor in an era of shrinking population. The Centre, whose leaders report directly to 3M's senior vice president for human resources, develops strategies for improving employee performance and adopting talent-management solutions that best reflect the diverse cultures of the countries where the firm operates.

Henk Spitsbaard, the Amsterdam-based talent-management director for 3M in western Europe, says labor practices in the region -- ranging from mandating severance of one month for every year of service in the United Kingdom to rigid union contracts in France -- make avoiding redundancies, or layoffs, essential and thus create a challenge in matching employees to the right opportunity for them.

"We are facing an aging population and -- for other reasons -- a challenging labor market," he says. "We have to do, as a company, everything to retain people so they do not leave. If they do not fit, we should find them another role."

Spitsbaard says he is an enthusiastic supporter of the so-called Danish model (sometimes called "flexicurity") of managing the labor market, which provides employers with more flexibility to hire and fire, but also offers worker security through government benefits and active retraining programs to match employees with the needed skills to the right jobs in the labor market. "The employer should invest in the skill set of its employees -- for all parties, that's the best," Spitsbaard says.

Of course, the big problem facing HR executives in the Eurozone in 2012 is the current cloud of uncertainty about economic conditions going forward. The prospect of diminished revenue due to the ongoing economic crisis makes it difficult to pay for the traditional tools of employee retention: pay raises and training for career advancement. "We are seeing companies that are much more focused on engagement of employees," says Aon Hewitt's Sanborn. "In this economic environment, employers are pushed to provide a lot of incentives but not a lot of money."

One company that's been especially innovative is London-based Emailvision, a leader in email-marketing software with offices in a number of European countries. Because of the competitive nature of its growing high-tech business, CHRO Marc-Andre Rainon says, the firm places a special emphasis on rewards and perks such as on-site fitness centers, massage therapists and breakfast.

He says Emailvision rewards teams that exceed their in-house goals with trips to unique locales such as Peru or Thailand, and has a yearly mountain-climbing program -- this year, Mt. Kilimanjaro -- that "represents the goal of conquering new territories and markets while working together."

Another example is at Swissotel, where Botteron says recent in-house discussions about attracting and retaining young talent -- a growing concern -- has sometimes turned to ways to make the working environment more comfortable and familiar to Europe's 20-somethings. That may mean allowing the first fully wired generation more access to mobile devices and online social networking than their elders might be accustomed to in the workplace.

"We always say the young are energetic -- but they're less loyal," Botteron says. "We're trying to design a program to give them change, and a variety of possible avenues."

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