HR in 2009
2008 was a year full of surprises. In the first half of the year, oil prices soared to record highs coupled with rises in cost of living. HR practitioners focus at this time was to assist employees cope with the impact of rise in cost of living. Companies in Thailand took steps to either provide adjustments to compensation or to provide employees with additional allowances to help cushion the rise in cost.
Subsequently in the second half of the year, the global financial crisis sparked an economic meltdown across the world. As the economic turmoil continues, companies are facing a growing list of challenges.
One of the main challenges facing HR practitioners today is how to manage their current compensation packages and at the same time continue to reward and retain key talent. With change being the norm today, the role of HR in managing this impact to a company is especially challenging, and critical to ensuring that the company stays ahead in the game.
Compensation
Compensation budgets that were set months ago are suddenly coming under closer scrutiny. Hewitt’s annual ‘Salary Increase Survey’ conducted in September revealed that the average projected salary increase in Thailand for 2008 is at 6.8%. A subsequent pulse survey conducted in November revealed that a majority of companies were not making any drastic changes to their salary increase budgets, therefore the expected increases at the end of 2008 were still in the range of 6.8%. This is possibly due to the fact that most companies were still in ‘wait-and-see’ mode.
In Thailand, it may be difficult to cut salaries from both legal and employee morale perspectives. Therefore most organisations are looking at variable pay instead to relieve the pressure from overall compensation spending. While providing the greatest income opportunity for most employees, variable pay should also be linked to organisational performance. Hewitt’s recent survey indicated that overall bonus payouts in 2008 declined at almost all levels as the failing economy saw companies struggle to meet their targets and therefore find immediate means to cut costs. The biggest losers are senior and top management levels, where a large portion of their rewards package is linked to performance.
From an economic perspective, the Bank of Thailand has revised its growth forecast downwards to between zero and 2% in 2009, as the global economy is expected to slide further. The central bank had previously forecast economic growth in a range of 3.8% to 5% this year. It predicts inflation this year will range between minus 1.5% and plus 0.5%.
With the lower expected inflation, the good news is that this will put less pressure on increasing salary levels as increases are typically linked to inflation. Therefore we can anticipate the projected salary increase for 2009 could fall to about 4% to 5%, or even lower, if the economy continues its downward spiral. We could also expect bonuses to further drop this year, depending very much on companies’ ability to weather the storm.
Retaining Talent
High quality talent continues to be a scarce and valued resource, especially so in Thailand. Therefore, it is essential for companies to be able to accurately identify, differentiate and reward their high performers. These employees are likely to be in demand in the market and losing them can have an enormous impact on companies. Organisations are counting on these talented people to help pull through the difficult times ahead. Interestingly smart organisations are capitalising on the crisis and turning it into an opportunity by continuing to realise their growth strategies and expansion plans. They have kept steady with their recruitment plans, especially selective recruiting of some of the very best talent that’s available in the market.
Top performers require top rewards. Despite more conservative salary forecasts by companies in the past few months, organisations should continue to invest in top performers, and take greater measures to retain their best people. Several companies clearly indicate a totally different package for top performers, ranging from higher salary increases to higher bonus payouts for exceeding targets, which are usually set at a higher bar than the average employee. But, what if financial rewards are limited? Then it’s crucial to provide other motivation to these employees. Communication is vital, top talent should know that they are valuable to the organisation and that the organisation is committed in helping them achieve their career goals.
While top performers are critical, it is also important to build engagement among all employees as engagement has a positive impact on the bottom line. Employees are beginning to feel anxious about the economy and what implications this will have on them personally. Managers should constantly communicate openly and honestly to employees about the situation and steps being taken by the organisation. It's time for employees to be more proactive and to help their companies pull through. Employees now have more stake in the game; their future, both from a career and financial perspective, is very much dependant on their organisation’s success.
Like the stock market, workforce planning is about buying low and selling high. Too often, companies let their hiring and retention efforts rise and fall directly with economic conditions. Following this pattern leads to sub-optimal returns. On the contrary, down markets represent an opportunity to ‘buy’ talent strategically in the open market to build a long-term pipeline that can withstand future demand. Retention is still important in down markets, because once you have ‘lost’ this talent it may be more difficult and cost more to get needed skills back.
With most companies putting a freeze on recruitment, there are less job opportunities in the market. Therefore, we could also expect to see a drastic drop in employee turnover. This is coupled with the fact that employees will begin to value job security.
Downsizing
With lower demand for goods and services, companies are realising that they have excess headcount and are faced with difficult decisions if they downsize. Retrenchment typically results in low employee morale and a negative image of the company. The exercise alone can be quite costly, especially if the companies have very long service employees and the time taken to recoup these additional costs could take several years.
Therefore, retrenchment is typically and inevitably the last measure taken by companies. Companies generally start by cutting down on outsourced work and on overtime payments. Some organisations have also started reducing working hours as a measure to avoid retrenchment and to reduce cost.
The hardest hit segment is the workforce employed on a contracted basis as they are the first to be let go, as we have seen in many instances recently where automotive plants and other manufacturing companies have started laying off their contractors. The hospitality industry too has resorted to combat this crisis by first laying off their contractors. After the Suvarnabhumi airport closure incident, tourism has been hit hard and we have seen the hospitality industry try to stay afloat by providing unpaid leave to their staff, freezing salary at all levels and providing no bonus to combat escalating fixed costs.
In Thailand, one of the hardest hit industries is the auto parts industry, which currently employs about 200,000 workers. It is expected that about 40,000 permanent employees are at risk of losing their jobs due to shrinking demands and high inventories.
What’s in store in 2009
In 2009, HR should focus around the fundamentals. This includes, restructuring the organisation, re-evaluation of the compensation philosophy and strategy, delivering on staffing and ensuring all basic HR processes are in place.
We expect HR will come under intense scrutiny since personnel costs represent a substantial portion of the company’s total cost. If cuts have to be made, HR must act quickly and implement effectively. If need be, HR must also be able to stand up to senior management as substantial cost savings can be achieved at the top, especially with regards to perquisites and other discretionary spending. Job reductions should start with the highest paid and lowest value.
HR should consider alternatives to job cuts, for example getting employees to take unpaid leave, reduce work time and ensure all leave entitlements are taken. For companies that have allowed employees to accumulate their leave balance over the years, now is the time to make employees utilise them. Cost cutting initiatives could also be done by getting suggestion from the employees, which also helps with motivation.
Downturns provide opportunities to gain market share, acquire weaker companies, and strategically recruit and retain top talent to position for the recovery. A nimble HR organisation can speed integration and the ROI of an acquisition or free up resources quickly in a divestiture. A strong talent strategy can ensure that you keep your top talent and develop stronger leaders who can lead through the recovery and future turmoil.
As external hiring is expected to slow down, this will provide greater opportunities for HR to facilitate internal moves and job rotations. In times like these, it's particularly important that HR shows itself to be about more than cost cutting and firing. It is more than ever a time to engage employees, especially key talent.
HR challenges differ from company to company. For a successful HR strategy, it is crucial for each company to put them in the context of their own business. Organisations can come out of the downturn in great shape - and HR can make the difference.
