2010: Back to the future?

The Christmas and New Year period is usually a time for reflection and a chance to take stock. The transition into 2010 will be no different, but many predict that not only will employees be reflecting, they will also be acting. After riding out 2009, many will be looking to greener pastures and taking steps to move there.

So where should HR be focusing their efforts? One comment posted here at www.hcamag.com succinctly sums up the concerns of many:

"We are extremely concerned about the 'mass staff exodus' on the horizon. After a year with no salary increases, reduced bonuses, mass redundancies, cost cutting and a focus on leave reduction in order to survive the GFC storm, we are anticipating a spike in resignations. In fact, after a year with zero resignations, we have received three in the past month."

The more things change...
Rightly or wrongly, one of HR's most daunting challenges - retention - was put on the backburner throughout 2009. In 2010 the experts predict it will return with a vengeance.

"2009 was about hanging on. In 2010 people will have the confidence to move and will be considering opportunities elsewhere," says Peter Tanner, managing director of Randstad's HR consulting division. "However, I think HR professionals need to be cognizant of the fact that this happens every year."

Tanner is hesitant to predict how quickly the economy will recover, but with a steady labour market, two consecutive interest rate rises by the Reserve Bank of Australia and a possible third rise predicted in December, workers may start to consider new job opportunities in order to secure the salary they need to cover higher household costs.

Deb Loveridge, CEO of Randstad, believes that despite a small increase in unemployment in October there are signs of an improving employment market. She believes this will lead to increased movement in the job market over the coming months.

"We're already seeing signs that the employment market is starting to open up, as employees begin to look for new opportunities after 12 months of holding tight and riding out the economic storm," she says.

"Over the last year, many employees took the decision to remain in their roles and sacrifice pay increases in return for job security. But with two rate rises in as many months and economists suggesting another in December, people may start to worry about their household finances and feel it's time to look for a role with a better remuneration package."

Loveridge advises employers to revisit their retention and remuneration strategies, with a particular focus on high performing individuals, to ensure the business remains competitive and prevent a flight risk from those looking for better paying roles.

This is easier said than done when budgets are still tight. Indeed, Tanner believes only a moderate 2-3% pay increase should be expected in most organisations in 2010. "People haven't had increases at all over the last 12 months, but if they've been on four days they can reasonably anticipate going back to five days and being paid accordingly," he says.

Fortunately, Tanner also believes there will be plenty of residual goodwill from employees towards their employers.

"Organisations had to make tough decisions in 2009. In most cases they were the necessary decisions, and during this downturn there was greater reluctance to shed numbers. If they've survived this long, employees must be reassured that things will turn around. It's about building those expectations: 'we will get through it together, and when we get through it these rewards will be there'. That's what will bind people together - after weathering the hard times, the good times are coming," he says.

The wider issues
At the broadest level, HR will need to align talent plans to a new economic environment but will also need to seek greater clarity in the employment environment as the Fair Work Act gains traction and the first round of cases pass through the Fair Work Ombudsman.

The skills shortage will re-emerge as the unemployment rate has not risen as high as expected, while the pressures presented by an ageing population have of course not eased. Staff turnover will accelerate as 'post restructure prisoners' stop thinking about changing employers and start acting.

Finger on the pulse
Over the past year, many organisations have restructured, downsized, right sized or rebalanced. Some things went well, some things not so well, but one thing is certain: the employer/employee relationship has been impacted.

"In order to move forward and re-engage their workforces, first movers - those who invest in growth as close to the bottom of the economic cycle as possible - are acting on the outputs of exit interviews, employee satisfaction surveys or employee engagement surveys. In many instances, this means running a survey which had been cut as a cost-saving move during the economic downturn," says Bridget Beattie, regional general manager, Right Management.

Inevitably, as employees sense a turnaround, they will demand the return of whatever was sacrificed to steer through the economic turbulence. As a prime example, HR will need to be aware of the triggers for when to pull people from four days a week back to five.

"If organisations can't meet these expectations just yet they need to communicate to the people: 'we said this, this is the reality, and this is what we'll do in the future'. People need to feel assured that something is happening. Open communication is the key - you need to talk to people. HR has the role of providing senior management with the keys to go and communicate to people openly and candidly," explains Tanner.

"Retention isn't all about money," adds Rabieh Krayem, managing director, IPA. "It's about offering work-life balance, understanding your workforce and understanding why the workforce wants to stay with you. Why do people stay with you for five or 10 years? Candidates and existing employees are asking what the company can do for them."

Re-engaging
Nonetheless, HR should not be lulled into believing that it will be smooth sailing. Top of the priority list will be recapturing the hearts and minds of tired and jaded employees.

However, re-engaging employees takes inspirational leadership. Again, Tanner stresses open communication is the key. "It's about being candid and open. Talk finances with people. An organisation cannot hide whether they are successful or not - people know. Stress what you're doing and what it means to the employee. Thank employees for their efforts. It could be a simple thing - it doesn't cost much to have a BBQ or half day off to celebrate that you've done something to be proud of."

Tanner adds that many companies have not offered any training or development throughout 2009. He suggests it may be time to reintroduce some cost-effective training such as peer coaching or mentoring, or involvement in projects outside someone's normal work scope. "Interesting things might be happening in the business as they pull out of the tough times that would really benefit from project work," he says. "Get people involved, interested and passionate about improving the company."

Executive remuneration
Executive remuneration remains an extremely sensitive issue emphasised by the GFC fallout and public response. 2010 will see outcomes from the Productivity Commission's review of executive remuneration in Australia and a number of legislative changes are pending. Due to these regulatory and governance reforms boards will face greater public accountability for executive remuneration decisions.

The extreme volatility of 2009 exposed executive remuneration programs around the globe. For example, tremendous value has been created and lost very quickly through equity incentives, calling into question the link between executive reward and company performance.

A recent Mercer survey of executive pay trends among the top ASX listed companies (for the period July 08-June 09) found a decline in executives receiving long-term incentive (LTI) grants this year and lower LTI values reflecting the decline in share prices in the earlier part of 2009.

"Organisations reviewing executive pay programs will be looking for ways of balancing shareholders' interests with the need to attract and retain top executive talent," says Ken Gilbert, Mercer's head of human capital. Mercer anticipates the following trends in executive remuneration:

• A renewed call for balance in executive compensation delivery - including a balanced focus on retention and reward, a more holistic approach to performance metric selection and target setting, and even-handed use of short- and long-term compensation elements.
• Organisations will rethink the relationship between risk and reward and, in particular, look for ways to ensure that rewards reflect sustainable performance results so that excessive risk-taking is not encouraged.
• As reward resources continue to be scarce, differentiation of key contributors through rewards and career opportunities will be even more critical.
• Organisations will look for ways to apply the concept of segmentation to remuneration actions and maximise the return on limited reward dollars.

Back to basics
Beattie believes personal accountability is back on the agenda. A 'back to basics' sentiment is creeping back into business - how to run an effective meeting, how to run an inspirational performance discussion, how to help direct reports manage their careers and how to have real performance management conversations.

"First movers have recognised that some of the basics have been forgotten during 2009. They're rolling out development activities to drive strategy execution," she says.

The 2009/2010 budget cycle has seen many support functions (for example, HR, IT, sales) stripped of budget in support of short-term profitability. This is playing out in two ways: business initiatives focused on cost reduction are prioritised, while decisions to invest in talent are delayed.

When it comes to recruitment, HR will remain extremely cautious. Tanner suggests the two key questions to be debated will be: Do we really need that person? And if the answer is yes, how do we know they're the right person? "We'll go back to where we were in the late 1980s/early 1990s when we were much stricter on who came through the door. We'll move back to psychological assessments and stricter reference checks and verification," he says.

Talent management
Invariably, HR will also need to consider strategic talent plans and work closely with other business leaders. Krayem stresses that, at the very least, HR should already have talent plans in place for the next three and six months. "It's very hard to plan after the event so do some crystal ball gazing based on certain assumptions and scenarios. The businesses that will tick along quicker will be those with plans in place," he says.

Although most organisations discovered the hard way about how best to handle economic pressures, the tough lessons have already been covered. Companies will now look to upsize and downsize in a quicker manner, placing infinite pressure on HR to get the right mix of full-timers and contingent (contract, part-time, outsourced) workers.

A recent survey by Manpower Australia indicates that more than half (51%) of Australian employers do not view contingent labour as a strategic part of their workforce, despite the fact that the economy's recovery phase will require employers to use contingent staff when demand begins to increase.

"The winners in the post-recovery world will be the companies that leverage contingent workers as workforce accelerators. These employers have mastered the art of managing a flexible mix of permanent and contingent workers to optimise performance, increase speed of execution, build talent capability, keep fixed costs low and do more with less," says Lincoln Crawley, managing director, Manpower Australia and New Zealand.

Manpower's survey, Rules of Engagement: Harnessing the Potential of the Contingent Workforce, suggests that almost 23% of companies in Australia use contingent workers primarily to complete work during peak seasonal periods. Other reasons for the use of contingent labour include to cover for employees on leave (9%), to source talent that requires specialised training quickly (7%) and to 'test drive' candidates for permanent positions (5%).

According to Tanner, it's only now that employers are realising the benefits of contingent workers. "It used to be that you had one or two temps when someone was off sick. Now I think there will be more of a temp workforce being used to skill up or skill down as demand requires. You'll have that core intellectual property that you'll need to keep in some employees, and the rest will be onhire workers or contractors," he says.

Crawley adds that a more strategic approach, and one that also serves to enhance the experience of all employees looking to match work with lifestyle, is to start leveraging the contingent workforce strategically to gain access to people with scarce, specialised skill sets, outsource non-core business functions, try out candidates before hiring for full-time positions, and provide longer-term workforce flexibility.

Not done yet
Many believe that HR's battle to stake out their position on the executive team has been won. Now the challenge is to prove why they should remain there. 2010 will be a critical testing ground for this.

"Finally HR are there, and now it's about ensuring they still offer value to the organisation. How they do that is with the human capital piece. I believe HR professionals will have a better go of it in 2010. They've been the bearers of bad news and they were usually the ones who fired the bullet. So it's about them understanding that while it had to be done, now is the time to get on with it and put the business back together," says Tanner.

To do this, HR will need to be change leaders, and also have the ability to grow and develop these skills in others. "Leadership has always required a socially, economically, and business-aware mindset. Now, the breakneck pace of change, increasing numbers of direct reports and 'flatter' organisational structures demand a new type of leader: one who can drive, lead and navigate change," says Beattie.

Beattie adds that 'first movers' have recognised that every people leader, from the CEO to contact centre team leader, must be change agile. Change Tool Kits have been developed and change agility has become an assessment criteria when promoting, recruiting or redeploying.

"Everyone looks to HR and the leadership they give at that boardroom table," says Tanner. "Having that enthusiasm, and demonstrating the ability to ride with change, is critical."