Co-operators

Ken Adams,

History is a strange teacher. It never repeats itself, but you ignore its general lessons at your peril.

Back in 2008-2009, I remember wondering whether some of the learnings from the financial downturn would come in handy down the road. This was a period when companies were reducing (and even eliminating) annual salary increase budgets, facing lower incentive payouts, and those with LTIP dealing with underwater stock options. At the time, I was in the HR consulting industry, and my clients were asking for advice in figuring out what they needed to do to ensure talent retention while facing fiscal belt-tightening. Sound familiar?

Over the last few months, in speaking with my peers in different companies, it is clear that similar issues are top of mind for HR leaders.  What’s different now is that inflation is higher than it was in 2008 – although that looks like it’s starting to make its way down to more familiar levels – and the stock market keeps going up. The underlying economy is also showing continued resilience with low unemployment rates and continued strength in consumer spending.

As with many decisions that senior business leaders face, there are different time horizons over which to consider talent-related issues:

● Near-term: what should be done now to address immediate needs?

● Longer-term: what should be done to best position up for success when the economy –and job market–strengthens?

Note that these time horizons aren’t mutually exclusive, as near-term decisions can have longer-term impacts.

Understandably, when economic times are tough, discretionary spending is closely scrutinized –and HR programs are easy to put under the expense management spotlight. We’ve all heard it before: concerns about training budgets; concerns about the relative cost-benefit of IDE initiatives; and concerns about costs for team-building and cultural initiatives. 

Sure, cutting in these types of areas is an easy way to find savings and may be justified in the near term. However, what’s the long-term impact (both direct and indirect) of cost-cutting in these areas? Further, will cost cutting in these areas say a lot about the company’s priorities and values? What’s the impact on the company’s culture, employee engagement, and the ability to attract talent? While the outcomes are not easily quantifiable, it can constrain the company’s ability to attract, retain, and engage the talent it needs to execute the business strategy. That’s a high cost.

The reality is that everyone, from customer-facing functions to support functions, has a role to play in finding opportunities for savings and efficiencies. Drawing on my learnings from 2008-2009, three questions come to mind as we collectively navigate the current economic environment:

How do we allocate limited dollars like tighter salary increase budgets and bonus payouts to employees?

In 2008-2009, salary increase budgets went from 3.5 percent to 2 percent, and lower in some cases. Now, we’ve just come off a year when employee expectations were in the range of a 7-10 percent increase, compared to the reality of 3 percent. The decisions were similar: do we allocate the salary increase budget evenly across the organization or provide significantly more to differentiate key talent?

At first, there was a school of thought to provide increases only to key talent. However, it became clear that in doing so, companies ran the risk of disengaging the remaining 80-90 percent of the employee population, most of whom still made strong contributions during the year and some of whom could be potential talent. Within a pool of limited funds, it’s still possible to provide some meaningful degree of differentiation while ensuring top talent understands what they are getting and why.

What signals are being sent by the actions that are being taken?

I was recently reminded of the phrase “You can’t cut your way to prosperity”.  What employees value continues to evolve, including well-being, IDE, and flexibility, and are now towards the top of the list and can be seen as table stakes. However, if existing and prospective employees see drastic cuts or changes in these areas or initiatives being de-prioritized, it will be noticed. Employees will continually assess whether companies are walking the talk, checking to see whether companies are putting their money where their mouth is.

What can we do for the talent now while being ready to pounce when the economy picks up and we see increased talent mobility?

The headline of a recent article that I saw said: “Don’t ignore growing the top line during a downturn”. I would argue that we also shouldn’t ignore growing our talent capabilities, from both the internal talent pool and the exceptional external talent.

I remember hearing that one of the global luxury hotel chains didn’t have any layoffs during the Asian Financial Crisis when hotel occupancy cratered. The company had invested so much in employee training that it would be short-sighted to let them walk out the door. Instead, it used this slow period to develop the skills of their employees and redeploy them where needed, as best as they could. This long-term planning, rather than short-term decision-making, sent a great signal to prospective employees about how employees are treated, and validated to employees why it was a great place to work.

This won’t be the last economic slowdown in many of our careers, so let’s be mindful of not wasting the learnings from this economic slowdown (and prior ones) to ensure we’re poised to attract, retain, and engage the talent in our businesses.