Proactive companies with formal plans may weather an economic downturn better than those who do not, says an author of a new study on the workforce and the economy.
Some good news in an uncertain economy: U.S. employers say they will keep pay raises steady next year. Yet, one-third of employers report that they have no formal contingency plans for their workforces in the event of continuing economic woes.
In 2009, U.S. companies are planning to give workers merit increases averaging 3.5 percent next year, identical to the increase workers received this year, according to a recent study by Watson Wyatt Worldwide, a Washington-based global consulting firm.
And they plan to give larger raises to their better-performing employees, according to the survey. Employees whose performance ratings exceed expectations will receive an average merit increase of 4.4 percent, while those who far exceed expectations will receive an average increase of 6 percent.
But at the same time, the study found that 33 percent of respondents have no formal contingency plans for future economic downturns.
Two of three U.S. employers say they have at least one formal contingency plan in place. The most common include: layoffs (52 percent), followed by plans to restructure (46 percent), freeze hiring (39 percent), give smaller pay raises (27 percent) or freeze salaries (13 percent).
"This doesn't imply that companies have their heads in the sand," says Laura Sejen, global director of strategic rewards consulting in Watson Wyatt's New York office. "They are aware of what's going on and they'll respond as they see fit."
Talks with some HR leaders confirm Sejen's view.
According to James Flanagan, executive vice president of human resources for GSI Commerce, a leading provider of multi-channel retailing and interactive marketing services headquarted in King of Prussia, Pa., "We have somewhat of a contingency plan," even though business is currently growing.
Still, Flanagan describes the company as being "thoughtful" about hiring decisions, keeping its eye on economic news. "We're lucky we're in a growth business, but we do ask ourselves, 'Should we grow a little slower? Be a little more conservative?' Let's say I want a performance-management system; maybe I'll wait six months."
If there is attrition, he says, the company may wait a few months to fill the position.
Holly Powell, HR specialist at Crompco, a Plymouth Meeting, Pa., firm that tests underground storage tanks at gas stations, says, "We do not have any contingency plans. We are a pretty steady business."
Nonetheless, she points out that a rising number of independent gas stations that hire Crompco are failing to include checks with work-orders for inspections that are normally C.O.D. "[The economy] is on my mind," says Powell. "It's on everyone's mind. We're being more cautious, but we're continuing to grow."
That's not the case for every industry. A recent report from Challenger, Gray & Christmas, an outplacement consultancy firm based in Chicago, indicated that planned job cuts announced by employers in July jumped 26 percent to 103,312, from 81,755 announced in June. It was the second time in three months that job cuts exceeded 100,000.
The Challenger report showed job-cut increases in 17 of the 25 industries tracked by the firm, compared to a year ago. In releasing the findings, John A. Challenger, CEO of the firn, noted that the downturn had been "isolated to the housing and financial sectors just a few months ago, [but now] has spread throughout much of the economy."
Financial firms are the leading job cutters, having announced 100,775 job cuts through July. The other top job-cutting industries are automotive (63,090 job cuts this year), transportation (54,411), government/nonprofit (51,952) and retail (39,097).
Sejen warns that informal contingency plans -- or merely keeping an eye on the news so you can throttle back if things get bad -- may be a liability to employers.
"Businesses need to think creatively about how to manage these downturns," she says, noting that half of employers are relying on layoffs as their contingency plan. "Then, if the business picks up in 12 months, you'll be competing for talent," she says.
On the other hand, says Sejen, only 8 percent of employers cite a reduced workweek as a contingency. She points out that reducing workweeks takes careful planning in advance.
"The risk is in being reactionary," she says. "If they don't do advanced planning, they are behind the eight ball and they'll react instead of respond. It takes time to think these things through."
Additionally, Sejen says, HR leaders can take the time to consider potential legal risks, especially when contingency plans aren't well thought out in advance. Actions could be misinterpreted by employees. "The last thing you want during layoffs is a lawsuit."
[Human Resource Executive Online | August 12, 2008]
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