Recessionary cutbacks could become new reality
While there has been plenty of activity around HR cost containment, with staff levels diminished, benefits restrained, workweeks reduced and salaries frozen, talk of recovery is starting to emerge. Predictions about the end of the recession suggest sunnier times could emerge by the end of 2009 and the worst has already passed, at least in Canada.
While many of the cutbacks will be reversed as the economy improves, some compensation and benefits may not return to their original state. When it comes to changes made to training programs and restrictions to travel policy, about one-third (29 per cent and 36 per cent, respectively) of 92 Canadian organizations responding to a survey in June said they do not plan to bring those initiatives back. And while 50 per cent and 29 per cent said they would reinstate the changes to training and travel, respectively, 40 per cent of those reversing travel restrictions will keep some in place, found the Watson Wyatt survey.
“Companies are always looking for efficiencies and things that add value as opposed to not, so if there has been excessive cost allocated to travel in the past, they will certainly scrutinize it more today,” said Liz Wright, compensation practice leader for central Canada at Watson Wyatt Worldwide in Toronto.
“Companies are looking at the recovery very positively and wanting to take the right steps because, ultimately, it’s about employee engagement.”
Employees completely understand it is not and hasn’t been business as usual and they are looking for their employers to behave differently, to be vigilant in the management of business, said Stuart Monteith, senior vice-president of group benefits at Sun Life Canada in Toronto.
“We’re not going to see a return to normal, we’re going to see a new normal,” he said. “What’s being done now is a total reset. I see it as a recalibration of compensation and benefits and other things.”
The recession has provided an opportunity for organizations to take a look at everything and put in place what they believe is the right answer for the future, said Ofelia Isabel, a Toronto-based principal with Towers Perrin.
Organizations that have made changes to pension or benefits programs or introduced more variable pay, for example, will not reverse those steps, she said.
“They’re going to be the wave of the future,” she said.
There are likely some employers that took cost-cutting actions and eliminated plans that may have had a relatively high cost but potentially low perceived value by employees. Those are unlikely to be reinstituted, said Iain Morris, a Toronto-based principal with Mercer.
On the other hand, those perks that have more of a symbolic value, such as events or holiday parties, will likely be reinstituted because they have a relatively high value in the eyes of employees and “the cost is not significant from a total employment cost perspective,” he said.
Employers will certainly be mindful in terms of their approach, knowing the best talent could be at risk of looking elsewhere if cost-cutting measures negatively impact the overall employment value proposition, said Audrey O’Connell, a Toronto-based principal in Mercer’s human capital business.
“I can think of some cost-cutting measures, like the implementation of flexible working arrangements, that can actually be perceived as benefits to employees that might be good cost-cutting measures even when the economy recovers,” she said.
“There will be a balance and employers will have to assess the degree to which their cost-cutting measures either had a big impact and can be reversed in order to maintain their employment value proposition or maybe can be maintained because they went relatively unnoticed.”
Some reversals a given
The Watson Wyatt survey did find hiring freezes (53 per cent) and salary freezes (44 per cent) will be reversed in the next 12 months for most companies that instituted them. Only six per cent and seven per cent, for hiring freezes and salary freezes respectively, said they do not expect to reverse those changes at all.
“Companies have communicated, by and large, some of those things are going to be temporary and, in those cases, they will definitely reverse some of the actions, whether shortened workweeks, reduced salaries, as we emerge out of the recession,” said Wright.
“Companies are looking at the recovery very positively and wanting to take the right steps because, ultimately, it’s about engagement.”
As tempting as it may be to continue with fewer staff numbers because of the improvement to the bottom line, the increased stress for employees is something to watch for, as these impact engagement and commitment, she said.
“You have to be very careful as to how you purge because there’s a legacy that stays behind,” she said.