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Investing in Talent, the German Way

Germany's strong focus on the quality of its workforce, the loyalty between company and employees and the inclination to think ahead has yielded the lowest unemployment rate the European powerhouse has seen in the last two decades.

This article accompanies HR in a Turbulent EU.

Monday, July 16, 2012
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The financial debt crisis in Europe continues to worsen, as does the unemployment rate. In May 2012, unemployment rose to 11.1 percent, the highest since the euro was established in 1999, far worse than the U.S unemployment rate of approximately 8 percent. While the labor market in the Eurozone is still suffering and appearing to worsen, Germany's economy has remained resilient and has one of the lowest unemployment rates on the continent.

When the financial crisis started in 2007, the German government reacted immediately. It offered companies support, such as attractive financial benefits if they did not lay off employees and create a more long-term strategy in talent retention. Employees were given fewer hours or even none at all for a limited but set period of time. The German federal labor agency, Bundesagentur für Arbeit, then paid compensatory payments in addition to the remaining salaries or unemployment benefits.

If the employer invested to qualification and development programs, the German federal labor agency would cover the additional cost for the social insurance, which is the German version of social security and unemployment benefits, for the duration of the work time reduction ? fostering the education of the workforce. For example, employer and employees could agree to reduce the work time to zero hours and use it for development and training instead, still leaving the employees with 60 percent to 67 percent of their last net salary.

This program has been one of the reasons why Germany managed the crisis better than most other European countries. The program enabled German companies not only to retain their qualified employees and talents during times when employees were laid off in other countries, but also enabled the companies to better position their employees after the crisis ended. A survey done by Forsa during the height of the crisis found that 56 percent of German companies did not cut their development budgets, while 12 percent even increased it. Another survey conducted by the temporary workforce leasing company Randstad asked HR managers how they dealt with the crisis. More than 40 percent of respondents stated that they used reduced work time to secure workplaces instead of laying off employees. Qualifying activities and trainings were ranked third among the surveyed companies to use work time more flexibly.

These findings show the strong German focus on the quality of the workforce, the loyalty between company and employees and the inclination to think ahead. With only 2.85 million unemployed workers, the rate in Germany is now 6.7 percent -- the lowest Germany has seen in the last two decades.

Overall, the German government offers financial support from various institutions. For example, the program WeGebAU, which launched in 2006, pays between 25 percent and 80 percent of the training and development cost of lower qualified or elderly workers. The European Social Fund is devoted to promoting employment in the EU, helping member states make Europe's workforce and companies better equipped to face new, global challenges. In Germany alone the ESF spends about $1.5 billion per year for various development and training programs.

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The demographic trends in the Western world ought to have been worrying companies for years. Laying off employees in times when talent, and specialists, in particular, are in short supply has negative long-term effects. This case is especially true as those employees who leave first are normally the high performers who have the best opportunities in the market. Keeping the focus on employee education has led to almost stable engagement levels that have even started to rise slowly in Germany today.

Engagement refers to people speaking positively about their organization, whether they want to remain a part of it and the extent to which they are willing to exert extra effort to contribute to business success. Based on an Aon Hewitt global analysis of more than 3,100 companies and 9.7 million employees across a broad range of company sizes and industries, engagement levels are stabilizing globally, but are still shifting across regions and countries. For the fourth consecutive year, globally -- as well as across all regions -- career opportunities have remained the top driver for positively impacting engagement, followed by recognition, organization reputation, communication and managing performance. Based on these findings, programs in Germany have hit exactly the right spot to meet both the companies' and employees' needs.

Employers in other European countries have different and sometimes broad statutory responsibilities to invest in the training of employees, showing that the Germans aren't alone in recognizing its importance. The current crisis states are restricted to conserving their money, but without investing in their workforces, these countries will not be able to recover properly. Strong national political maneuvers are required to support companies and employees in equal measure. While investing in talent is not a one-size-fits-all model for Europe, Germany has paved the way with a strong and effective program.

Wolf-Bertram von Bismarck is the EMEA talent practice leader at Aon Hewitt.

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