Rapid Change and Prolonged Employment

The volatility of the past year has resulted in a temproarily frozen workforce. Those that have jobs are focused on maintaining them; those without remain largely shut out. Several recent studies I have been involved in all point in the same direction, although from differing perspectives.

The well reported impression that the boomer generation will now be working longer in order to recoup investment/retirement savings losses isn't really the news. Rather in the absence of tools to encourage movement of workers into new roles or into retirement there is little room for adequate internal organizational change to promote innovation and fresh ideas. Tools also need to provide for managed retention capabilities to avoid unplanned departures.

The demise of Defined Benefit plans has left workers and executives to rely primarily on their own savings or equity in the business enterprise - retirement income sources that have been uniformly flattened by the market downturn. The increased public scrutiny and government intervention combined with the need for retirement savings vehicle replacements will drive new approaches to wealth creation for the near term.

New wealth creation vehicles are likely to be less transparent supplemental retirement plans or external market offerings in the form of savings or dividend appreciation plans. As an example I recently had the opportunity to work with a mutual benefit insurer of physicians providing rebate credits into a fund with long-term wealth accumulation capabilities.

Top performers who are frequently the ones left standing after several previous rounds of reductions in force are increasingly losing their engagement with and loyalty to their employers. For employers the challenge will be to find vehicles that promote job flexibility combined with organizational affiliation as the employment markets slowly begin to expand. Merely providing compensation will not be sufficient. Organizational affiliation will be needed to avoid excessive turnover while phased retirement and other forms of job flexibility will be needed to promote proper workforce management.

The Recesssion is Dead. Long Live the Recession.

Ben Bernanke's was quoted yesterday as saying the recession is "very likely over." he went on to say though that the recovery was not likely to yield a rapid return to job growth. Watson Wyatt has been reporting for several months in its ongoing polling of large employers that workforces will be smaller in the future than in the past.

Next week Watson Wyatt will release the 14th Annual Strategic Rewards survey. This survey which I had the pleasure of initiating and leading from 1995 to 2005, is the premier measure of employer attitudes as contrasted with employee attitudes in the U.S. It also is uniquely correlated to business performance metrics in order to identify the people actions that drive business results. The survey this year highlights the impact of the recession and the changes employers are making to address the downturn and the resulting recovery, including:

• Organizational restructuring has been pervasive and deep
  –Many rounds of layoffs have occurred since the downturn began
  –Multiple cost-cutting measures were employed to avoid layoffs and to augment them
• Reward programs have been affected
  –Merit budgets low and incentive funding reduced
  –Benefits reduced
• Plans are in play to begin reversing pay cuts but not benefit cuts
  –Most companies plan to begin within next 12 months
  –Incentive eligibility offsetting pay increases in some instances continues as a trend
• Negative impact on employee engagement has resulted
  –Greatest impact on high performers
  –Retention risks loom as we move toward recovery
• Adverse impacts may be occurring on Quality and Customer Service
  –Employees believe recent changes affecting quality and customer service
  –Employers are not as concerned and believe they can make do with fewer employees

Looking forward as we have often advocated; employers need to focus on sources of productivity especially with reduced workforces. Restoring employee engagement can create a compelling bond and increase productivity. Companies must proactively address employee morale AND productivity.

Recession Aftermath

I recently was interviewed for an article in Smart Business magazine on the changes facing business leaders as we begin the process of recovery and renewal post recession. The link to the article can be found at http://www.rickbeal.net/NCA_Watson_0809final.pdf. Key touch points include increased transparency, enhanced articulation of the employee value proposition and heightened emphasis on risk mitigation.

It's also worth noting that the most recent data I have seen continues to indicate that pay programs will return to a new normal with a healthy incentive component associated with downside protections and risk mitigation. Don't however count on rollbacks of the recent cost shifting in benefits programs. The trend is here to stay.

Finally while the aftermath of employment actions will be felt for years to come, employers are cutting back on their recession-oriented communications. The best advise is to continue with enhanced communications regarding business performance and the link to the employment deal rather than dropping the level of communication. Watson Wyatt's forthcoming 2009/2010 Communications ROI study highlights this trend.

Conventional Wisdom

The long-held conventional wisdom that people won't leave over benefits but they will over compensation appears to be playing itself out in organizational responses in these later stages of the current recession. As the economy turned south the majority of organizations took compensation cash saving actions in the form of layoffs, furloughs and pay decreases along with benefit cash saving actions in the form of higher deductibles, co-pays or out-of-pocket maximums and increased premiums.

As the economy appears to have bottomed out and employer concern shifts to retention of top performing employees the trend is also shifting to returning salaries to levels approximating pre-downturn. In addition the reduced headcount has provided opportunities for expanded roles and responsibilities for high performers as a means of engaging and retaining their services.

Despite these improving trends on the compensation side their appears to be little to no improvement in trend on the benefits side. Many of the cost shifts that occurred recently are likely to be retained. Going forward the employment deal has employees owning a greater proportion of their health care and retirement costs. In order to manage expectations and keep people engaged, a large majority of the participants in a recent Watson Wyatt study inidcated they have significantly increased their communication with associates.

Watson Wyatt bimonthly report on HR trends digs into this reality and tracks the trend over the last 10 months. http://www.watsonwyatt.com/news/pdfs/WT-2009-13301.pdf

Merger Announcements

In the course of consulting to clients on their issues with total rewards in a down market and industry consolidation post financial meltdown it has come to pass that Watson Wyatt has announced a proposed merger with Towers Perrin. While consultants frequently handle the high paced analytical and redesign processes associated with restructuring in a merger environment they rarely experience the process of sitting quasi-idly by while a merger occurs “to” them. A number of my clients have justifiably had some fun with the notion of consultants consulting to themselves. As all of us know intuitively the real learning’s that affect associates aren’t in the analytical building blocks of an organization (although critical to be completed correctly) but rather in the internal communications that allow continued focus on clients as the structural transformations take place.

Watson Wyatt’s communication team recently supported a major automaker in their communications as their market fell apart. Leadership communication was deemed critical to keeping the organization focused. Key messages to Leaders were:

• Be a Leader. Leaders don’t have to have all the answers. Tell employees what you know and what you don’t explain the steps the organization is taking to identify and resolve issues. Knowing their leaders are in the lead through uncertain times is crucial to keep employees engaged.
• Show your strengths. Reinforce the core competencies and values that make your organization successful. Talk about how they will help the new organization thrive in the future.
• Be visible. Credibility, conviction and passion are important messages that only actual presence can convey. Employees can benefit from seeing engaged and informed leaders.
• Use your team. Make sure managers who report to you know how and what to communicate, and that no one is a bystander. Limit potential damage from informal, uninformed conversations that are overheard and ripple through every organization.
• Be timely. Employees should hear your perspective and not someone else’s. Encourage employees to visit the approved sources of information often to keep up to date on news and the company’s perspective.
• Share responsibility. Be clear about what you want people to do. People want to help – tell them how. It’s never a bad time to reinforce customer focus.
• Give up the myth of message control. Find ways to listen to what is on employees’ minds. Monitor the press and social media for what is being said about the company and industry. Commit to quickly distributing answers to rumors and clarifying inaccurate statements.
• Be humane. Some employees are also experiencing personal trauma from the changes. Acknowledge it and help them move through it.
  
  As consultants we have spent years saying the most elegant design is wasted if the communication is given short shrift. We now have the opportunity to eat our own cooking and show that it is much better to have an adequate design with great communications in order to drive results.

Post Crash / Pre Recovery

As we approach the dog days of summer the landscape continues to shift underneath and we ask the question what next? When do things return to normal? Our answer a la Gertrude Stein's reference to Oakland is that "...when you get there, there isn't any there there". Returning to normal is no longer possible as few organizations will truly be the same going forward. This includes my own company Watson Wyatt and my prior company Towers Perrin who have recently announced a proposed merger. Today's topic is about the broader external landscape and I will be addressing the process of change from inside a merger in a separate set of posts.

Watson Wyatt's June release of its bimonthly report on the Effect of the Economic Crisis on HR Programs clearly captures the absence of a consistent expectation of a return to normal. Despite showing trends that indicate a bottoming out of the economic cycle and the expectation among many employers of a restoration of salary levels; a number of employers are indicating no expectation of a return. Out of a sample of 179 large U.S. employers:
* 45% don't intend to reverse salary reductions in the next 12 months
* Of those restoring salaries 22% aren't restoring back to the former levels
* More than a third are unsure when they will reinstate 401k matches
* Many are unsure when they will reverse furloughs or hour reductions
* 31% do not know when travel restrictions will be lifted
* Long-term changes are expected to impact staff size, employee age and health care

How we address this new reality will be the key to organization success in the future. A post on the new reality and the topics that Boards and Executives must address now will follow shortly.

The Business Tipping (Pitchfork) Moment

In the past weeks since my post on the Pension Tipping Point, the business landscape has begun to solidify into an overall Business Tipping Point for the future post crash. Today's appointment of a Compensation Czar on top of the recent restructuring of the auto industry are the markers we can use to shine a light on the future. See the attached Wall St. Journal article http://online.wsj.com/article/SB124464909136002467.html and there is a similar New York Times article.

About four years ago Ira Kay and I met with the corporate governance leaders and CIOs of the largest holders/managers of US defined contribution and defined benefit assets including CalPERS, Fidelity, TIAA/CREF, Legg Mason and others. The topic I helped broker was a discussion about the importance for corporate boards and their advisers to better manage executive compensation in order to avoid what they perceived as the inevitable day that government would intervene. While we all agreed to disagree on many aspects of the problem, there was no disagreement that we were headed for the "pitchfork moment" as Ira has been quoted on recently.

In the coming weeks I will address some of the key issues as I see them and conclude with an interview in the August issue of Smart Business on this tipping (pitchfork) moment in American capitalism.