The same war - different weapons

By Johan Ericsson, head of Centre of Excellence, Compensation and Benefits, IPS EMEA, Mercer

The economic upturn, which has already started in some countries, may happen so quickly it will catch many companies out. In many industries salary freezes and redundancies have been the norm, bonus payouts have been slashed and the value of long-term incentives has fallen. Organisations will remain under pressure to contain their costs next year, yet, as they seek to take advantage of the upturn, they are likely to find themselves fighting again in the war for talent – but without the weapons they have had in the past.

But lack of funds to attract, motivate and retain talented individuals won’t be the only pressure on reward professionals. Remuneration – particularly executive reward – will come under growing media scrutiny and be subject to greater regulation and demands for increased transparency. The pressure for more equal pay for men and women will put additional pressure on salary bills, as will demands from employees themselves, who are having to work harder than ever before.

Given these pressures, organisations will need to adopt a very different approach if they are to attract, reward and retain the individuals they need to help them survive and thrive into the future. Taking a ‘total reward’ (TR) perspective is an obvious solution.

Organisations have been saying their employees are their ‘greatest asset’ for many years, but they now have an unprecedented opportunity to practise what they preach by giving their people the rewards that those people really value, rather than the rewards the organisation thinks they will value. And for growing numbers of employees, non-financial rewards – from dental insurance to learning and development opportunities to flexible working – are more valuable than compensation, which can be little more than ‘a hygiene factor’.

Choice is, in itself, motivating: it gives people a sense of control. Brands understand that – witness the range of different bottled waters and take-away coffees on the market. And communicating that choice is very important too, to ensure people understand what’s available to them. But the additional advantage to an employer, particularly when under pressure to maintain fixed costs, as they are at the moment, is that development and career opportunities, work lifestyle choices and cafeteria benefits not only motivate individuals, but can also be much cheaper to provide than additional compensation.

Benchmarking data is invaluable, but every company and every individual is different, so it is critical that organisations frame their TR strategy in the context of their own particular business. They need to take into account factors including country, market, competition, sector, maturity of the business, individuals’ career stream, age and gender, for example.

The stage in the economic cycle is important too – and while different organisations and different people might want different things at different times, employers are likely to find an unprecedented coincidence of interests between their own requirements at the moment, and those of their staff. Many employees have been asking to work more flexibly – including part-time – for years, but many employers have deemed it ‘too difficult’. What better way of keeping a lid on costs than allowing them to do it now?

People are an organisation’s last remaining source of competitive advantage: all other assets can be replicated. So it makes sense to think laterally and creatively in order to give them the opportunities and incentives that will allow them to realise their full potential. Taking the holistic and integrated approach embodied in Total Reward will increase your chances of a happy, fulfilled and productive workforce, even in challenging economic and regulatory circumstances. If ever there was a burning platform for change, this recession and incipient recovery is it.

The prevailing – and unfamiliar – economic uncertainty means many reward specialists are delaying decisions on pay awards next year for as long as possible. Some headline trends derived from Mercer’s 2009 Total Remuneration Surveys (TRS) in EMEA might help.

In 2010 we expect around 11% of companies in the EMEA region to freeze salaries.
Salary rises generally are likely to be higher in 2010 than they were in 2009.
Companies that imposed salary freezes in 2009 are likely to give higher increases in 2010 to remain competitive.
Companies that increased salaries in 2009 are likely to give smaller increases next year to avoid the risks associated with over-paying.
Companies are increasingly segmenting pay increases to get a better return on their investment.

About the author

Johan Ericsson is a principal in Mercer's information product solutions business, responsible for the Compensation & Benefits Centre of Excellence in EMEA. Based in Stockholm, he can be reached at +46 8 505 308 36 or johan.ericsson@mercer.com.