After resorting to harsh methods to reduce labor costs during the downturn, it is time that companies revisit their compensation and rewards plans as the economy is now picking up, and keeping in mind that the new rewards strategy should be flexible to economic fluctuations.
One of the studies by Hay Group and World at Work Institute suggests that the recent corrosion of financial capital has paved the way for an increased focus on the human capital management. Rewards and talent management programs together normally focus on attracting, retaining, motivating, developing employees as well as aligning employees’ behavior and action with the organizational strategy. The recent financial crisis made many rewards managers get away from the adaptive changes to their rewards practices and come up with out-of-the-box programs that are more appropriate to meet the challenges of now and the future. Focus has shifted now to the alignment of the cost of labor with the realities of the economy. Business strategies have been relooked at for the bottom-line to remain protected while focusing on driving productivity.
About 44% global companies took harsh cost-cutting measures during the economic slowdown. Reducing labor costs through layoffs, hiring and salary freezes, reduced working hours, and bonuses were a few ways adopted to reduce labor costs. With these and restructuring, the focus has been on aligning labor costs with reduced revenues and profitability. Rewards specialist are now focusing on higher performance linked variable pay in alignment to the business strategy; flexi benefits, co-pay in health care programs and reduced financial rewards are practiced. All this has led organizations to rethink the way they design and manage their rewards program for the future. The slowdown was a great learning experience for reward specialists as post recovery, rewards have come under the lens with organizations across industry evaluating their rewards strategies rigorously.
Countries like India, Brazil and China have fast recovered from the slowdown. US, Canada and some of the European countries are now looking stable. The Indian job market has recovered sharply from the forecasts of early 2009 and the hiring in 2010 was stronger; it is expected to be even stronger in 2011. After a long hibernation, 2010 saw headhunters actively out in the market as talent requirements started trickling in across sectors. Sectors reliant on domestic consumption have recovered faster and sectors dependant on global economies are expected to gain traction during 2011. In one of the most recent annual reports, the Ministry of Labor and Employment of India has talked about targeting employment growth at 2.5% per annum.
With the improved financial conditions and upward trend of the economy, organizations now have the challenge to provide competitive pay and benefits, employee well-being, respond to employees’ demands, career management, et al. This implies that designing a rewards strategy which is flexible to economic fluctuations, has become vital.
Several survey reports suggest that organizations have started moving from external benchmarking to a more holistic view of the rewards program management. Organizations are aligning reward programs to business strategy, talent management strategy and performance of the organization. The needs of the employees are being aligned to the needs of the business. Communication is also considered important while implementing rewards strategies.
Focus for many organizations has also moved towards creating a sustainable reward strategy that focuses on basics like competitive base pay, challenging work, career advancement opportunities, retirement securities, et al. Differentiating rewards based on performance and different elements of total rewards for different sets of employees is also becoming popular.
The gap between highest paying and lowest paying industry has narrowed significantly with the projection of improved business sentiments in 2011 and most of the industries are projecting a double digit increase in 2011. Economic growth in many countries continues to drive increases in the real value of rewards.
Debadatta Baxi is Rewards Manager (People, Learning & Development) at Wrigley India Pvt. Ltd.