CREDIT CRUNCH
Ten principles for managing reward in recession
With falling profits, downward pressure on costs, fast changing trends in inflation and uncertainty about economic prospects, the need for organisations to keep a tight focus on reward will be more important this year than ever before, according to Watson Wyatt.
“In times of rapid change and uncertainty, HR professionals need to be flexible, but they must also remain focused on the underlying principles behind their approach to managing reward and talent,” said Carole Hathaway, head of strategic reward consulting at Watson Wyatt. “Stressed organisations could be in danger of making employee reward decisions that they come to regret, if they abandon too readily the principles that underpin their people strategies.”
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Watson Wyatt sets out ten key underlying principles for organisations when managing reward in a recession:
1. Focus on key talent: “Focus limited resources on keeping and rewarding your key talent. These are the people you need most now to get you through the difficult times and later when the economy recovers.”
2. Be careful what and who you cut: “Don’t make harmful short-term cuts. Conduct strategic workforce planning to understand your current and future talent requirements, and ensure your business has the necessary resources and skills for the upturn.”
3. Ensure performance management is understood: “Ensure your performance management process is effectively understood by your employees and delivered well by line management. It should not be seen as simply a process for identifying and culling underperformers, but instead as a way to raise performance throughout the organisation.”
4. Don’t abandon bonuses: “Don’t abandon performance pay and bonuses but instead target them on your top performers and refocus them on realistic but stretching targets that will promote the right behaviours in this new environment.”
5. Review sales targets: “Review sales targets and territory strategies to focus your sales force on the largest opportunities. For many businesses, now is not the time to reduce investment in sales - a recent Watson Wyatt survey found that 85% of companies are looking to maintain or increase their total sales investment in 2009.”
6. Look for cost savings: “A review of business processes, HR policies and tax and administration could reveal untapped efficiencies. Examples include shorter working weeks, changes to travel policies, and salary sacrifice for pensions contributions, where savings can come through within a few months of implementation.”
7. Promote the total reward message: “Keep communicating the value of your total rewards. A tendency to focus on base salary means that employees generally underestimate the full value of their total reward package. Ensure employees know just how valuable their total reward package is to them.”
8 Review executive reward: “Review executive compensation to ensure the package is aligned to shareholder requirements, but still retains key executives.”
9. Don’t damage your employer brand: “Don’t harm your employer brand by not delivering on your employee value proposition the moment things get tough. Live it through tough times and you will maintain an engaged and productive workforce.”
10. Keep talking: “Be as open as you can with employees about your current HR and reward strategies. Silence breeds fear and reduces employees’ engagement with the organisation. Employees know you don’t have all the answers and cannot offer guarantees about the future.”
A final word
“The rapid deterioration in the economic outlook creates a huge test for the robustness of HR strategies that were largely formulated in the good times, and often implemented with limited regard to integration with existing processes. However, those organisations that have gone furthest towards integrating their reward and talent strategies are likely to be best placed to come through the recession with a productive and engaged workforce.” - Carole Hathaway, head of strategic reward consulting at Watson Wyatt.
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Watson Wyatt is the “trusted business partner to the world's leading organisations on people and financial issues”. The firm’s global services include: managing the cost and effectiveness of employee benefit programmes; developing attraction, retention and reward strategies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,600 associates in 32 countries and is located on the web at www.watsonwyatt.com.