Employers across the world, especially the most successful companies, are trying to manage people costs without cutting staff. Companies are now focusing more heavily on employee engagement as business strategies become more people-dependent, according to a new Towers Perrin global survey of 1,300 large and mid-sized organizations in 24 countries, including North America, Asia, Europe and Latin America.
"Employers are facing the dual challenges of cost management and retaining talent. The study shows that they recognize the need to consider new approaches to managing and rewarding the workforce," said Christopher Hatch, national leader for Towers Perrin's Rewards and Performance Management practice, based in Toronto.
The Towers Perrin 2003 Rewards and Performance Management Challenges study found that around the world, employers are now increasingly focusing on three key tactics:
* Segmenting the workforce by high-performing individuals and the functions with the greatest direct impact on business results.
* Designing customized programs for these groups.
* Introducing more variable pay into the reward mix.
While 36% of companies identify reducing or controlling labour costs as a priority today, only 19% say it is a priority for the next three years. Additionally, 35% of respondents want to be recognized as an "employer of choice" over the next three years, compared to only 24% who are concerned today. Retaining and rewarding top talent remains steady at 75% today and in the future.
"We're seeing a switch in focus from three years ago," Hatch said. "The good news is that we're going into a growth mode, and attracting, retaining and engaging the best talent are again top-of-mind business priorities for the foreseeable future. Interestingly, there's remarkable global consistency in how organizations think about their people and reward issues."
The renewed drive to attract and retain top talent may be due to the fact that the world's most prevalent business strategies are becoming increasingly people intensive.
Second only to earnings growth (54%), customer satisfaction (51%) is most often cited globally as the top business driver in how companies define success. In Canada, the study found that while operational excellence still ranks as the dominant business strategy of the future (38%), customer service is ranked a close second (33%), above innovation leadership (16%) and cost leadership (6%).
"The data shows that companies understand there is more to business success than cost competitiveness," said Michel Tougas, leader of Towers Perrin's Montreal practice. "For example, Canadian employers are increasingly focusing on customer service excellence as a growth strategy -- which means that every customer interaction must be managed by an engaged employee. To attract and retain customers, companies need motivated talent.
While attracting and keeping top talent is the priority among HR departments, the company purse strings still remain fairly tight when it comes to employee rewards. Respondents in Canada, Europe, Asia and Latin America identified the need to control costs without reducing staff as the top people cost issue. In the United States, the top people cost issue was health care.
Other cost issues that are causing concern in Canada include the impact of budget pressures on an organization's ability to reward high performers, and the negative impact of cost-control efforts on employee commitment and engagement.
Companies are attempting to meet these challenges by segmenting their workforce according to performance, and reserving the most significant rewards for the roles or functions most critical to business success. Fifty-six per cent of respondents in Canada identified this as the top tactic for managing people costs (versus 52% globally).
Another important tactic that will become more prevalent in the coming years includes shifting a larger percentage of compensation costs from fixed to variable (i.e., incentive compensation). Interestingly, however, survey respondents report that performance management and variable pay programs have not had the anticipated success in delivering maximum value to the business.
These results are troubling because study participants have high expectations for their performance management and variable pay programs. The overwhelming majority of respondents (82%) say the objective of their organization-wide variable pay plans is to improve overall business performance. Sixty per cent feel it is very important for non-management employees to understand how their individual performance affects business results, yet more than a third of respondents (37%) say that employees in non-management positions have low-level or no understanding at all. So, as more emphasis is placed on variable pay, it's even more critical to "get performance management right" and to implement it effectively.
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