HR ‘tempting target’ in downturn

But expertise needed with cutbacks, layoffs
By Sarah Dobson
|Canadian HR Reporter|Last Updated: 12/02/2008

The headlines are not encouraging: Global Insight Canada is predicting a “mild recession” that could cost Canada 100,000 jobs in the first quarter of 2009 and the International Labour Office says the global financial crisis could see unemployment rise by 20 million people by the end of next year.

So what does this mean for the job security of HR professionals? If a company has to downsize, HR is an attractive place to go, said Robert Zampetti, London-based principal in HR effectiveness for Towers Perrin.

“There are areas of interest to businesses in a downturn,” he said. “HR, being a support function, a cost centre not a centre of revenue generation, is a tempting target in a downturn.”

And there is the issue of the ratio of HR to staff — often cited as 100 to one for a mid-sized company, though different industries have far different ratios.

“Clearly if you’re working off the ratio argument and you reduce your overall staff, you would think HR would be reduced by a similar amount,” said Zampetti.

However, those two arguments might not hold true across the board because HR has undergone a series of trimmings in the past five years.

“If you’ve already outsourced or streamlined or automated — we see a lot of self-service — that means the ratio trigger has changed. So it may be harder to simply say, ‘Take 10, 20 per cent off,’ because you are already operating leaner,” he said.

HR is typically the first to get cut, along with other infrastructure jobs, said Liz Wright, Toronto practice leader of compensation at Watson ‑Wyatt.

“There are relatively few organizations that are really starting to value the strategic aspects of HR,” she said. “Many companies are still looking at HR from a cost perspective.”

And while it’s good to drive efficiencies and to do outsourcing where needed, the concern is these cuts could add up to “shooting yourself in the foot, especially if the economy starts to improve at the end of 2009, 2010,” said Wright.

While companies are stuck between a rock and hard place, with growing recessionary pressures and a potential looming talent shortage, HR can help organizations think through some of these big macro issues, said Wright.

“We’re suggesting companies act in a very level-headed perspective primarily because it costs so much to attract and retain key talent,” she said.

Downsizing decisions can depend on the HR department itself and what the HR team is doing, said Jim Thomson, vice-president of human resources operations at Ceridian in Markham, Ont. A department with streamlined processes and a good HR technology system, and probably not doing a lot of administrative stuff, could be okay.

“However, for HR departments that aren’t there, that’s where they could get in trouble because that’s something an employer could do is outsource that piece of HR.”

If a company has training staff, that would probably be one of the first areas hit, said Thomson.

“It’s unfortunate, it’s the wrong way to do things, but when you’re being hit, management has to make those kinds of decisions, and they would say, ‘Training and development has to wait, we have to go on life support and then come back in.’”

However, there is also the folklore that says HR turns the lights out and is the last person standing, he said.

“There’s a lot of truth to that, because if (major layoffs) happen, there’s a lot of human issues that have to be addressed for obvious reasons — legislative, compliance, employee relations — you name it.”

Many companies will be scrambling but clearly need someone in the HR team, on-site, who knows the drill, especially in a downsizing when there are all kinds of things involved, such as notification, severance packages, employment standards, legislation and outplacements, said Thomson.

In periods like this, there could be an increased demand for parts of HR expertise, such as adjusting the rewards mix or reducing staff, using the right processes or assessment tools, said Zampetti.

“They may be overstaffed in recruiting or aspects of administration, or understaffed in some of the workforce planning activities or total rewards optimization activities they’re going to have to undertake to really help the business trim itself,” he said. “So if you’re already lean in HR you might actually find you don’t have enough resources to safely guide the reorganization change and staffing realignment and the things you need to do to keep running in a harsh environment.”

Senior HR leaders could be more in demand because of their expertise, he said, while those practicing in other areas of specialty, whether it’s benefits, rewards, compensation design or pension expertise, could also see increased demand “because they’re hard to grow, you can’t build one of those overnight. Those people are scarce. But the local generalist could be facing a tough time this year.”