Recent inquiries I have field from the media - print, radio and television - have been focused on changes employers are making to weather the economic storm. Fortunately Watson Wyatt is a research rich environment and has been conducting a bi-monthly flash survey that is capturing the curve of changes in this challenging environment. The link to the February press release is http://www.watsonwyatt.com/news/press.asp?ID=20684.
The short story is that companies are managing as rationally as possible. I have been counseling employers since last summer to be very careful about making significant reductions in force and about communicating and managing the survivor needs if a reduction is implemented. The data to date seems to indicate that among large employers the sizable reductions have already been completed and that cost saving actions are now taking the form of reductions in other people related expenses.
Why is this rational? Cuts were made early and quickly to adjust to falling demand with the largest cuts occurring in industries tied to consumer demand and of course to financial services and among contingent labor pools.
Why are substantial further cuts less likely? The last recovery cycle from 2002 to 2005 was referred to as the jobless recovery. Companies grew revenues from 2002 to 2008 based on increases in productivity with revenues per employee rising substantially over the past. Headcount management continued and contingent labor and consultants were often used to supplement internal staff and to implement significant initiatives.
So there really isn't really much in the way of further headcount cost savings to achieve before employers damage their ability to function. What's left are opportunities to reduce other people related costs such as 401k contributions, training and tuition reimbursements along with freezing salaries and shrinking bonuses.
In other words reducing the components of total rewards that are variable. The area that is relatively new to the variable equation is fixed cost base pay or salaries. This was previously considered a fixed cost. Now salaries are on the table with many employers going beyond simple pay freezes to actual base pay reductions. The current working assumption is that once the economy recovers these items will be returned to their previous levels but that is by no means a given.
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Yes, the "salary-reduced/good-solider" employees will have expectations that their pay levels will return to what they were prior to their company's financial issues. I could see trust issues, and quickly retention issues, arising if the company doesn't speedily address this upon their economic recovery. The good employees, the ones who remained engaged, will always have options on other places to go.
ReplyDeleteIn the end how you treat people relative to your emploment deal creates a lasting impression and companies will differentiate based on the difference.
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