Aileen MacMillan

In the U.S., economic pressure is forcing layoffs. Reports, such as those by CNNMoney.com that “employers slash jobs for third straight month while unemployment jumps to 5.1%, a nearly three-year high, 1 demonstrate the depth of the situation.

Yet, intense competition for skilled talent remains, making it imperative for business to attract and retain top performers. Companies are not responding to economic factors by simply cutting costs and employees. A Towers Perrin survey of 650 Canadian and U.S. HR executives showed that “most companies are pursuing a dual agenda of growth amid cost management and increased operational efficiency. 5

A 2008 Manpower Inc.report suggests that organizations not only focus “on the top 10 percent of talent categories, but rather on the entire talent spectrum. 2 And it appears that many organizations are doing just that. Summarizing a Mercer survey with 400 North American companies, Charles T. Scott – worldwide partner and global leader – reports that “64 percent intend to maintain their budgeted staffing levels, 87 percent are not considering any change to their compensation budgets and 93 percent are not instituting any salary freezes at this point. 4

Nonetheless, questions about how compensation will be affected come to mind. According to Watson Wyatt, “organizations that do not balance financial imperatives and employee reward preferences risk losing their best talent. 6

What role will pay for performance play? The same Watson Wyatt report indicates that 51% of managers in “high-performing firms” “link organizational performance to rewards” compared with 38% of managers in other organizations. 6 In addition, Hudson reports that “seventy-nine percent of employees who perceive that their company pays for performance say they are satisfied with their compensation, while 60 percent of those who believe that their company does not reward based on performance are satisfied. 3

If pay for performance is the answer, then a consistent, equitable performance management process that not only helps identify top performers, but can support compensation decisions will be a necessity. Even if pay for performance is not the proposed solution, decision makers must be able to rely on the performance management process to correctly identify skill gaps, top performers and projected skill shortages.

References:

1 Isidore, Chris. “80,000 jobs lost, unemployment spikes.” CNNMoney.com [www.money.cnn.com]. April 4, 2008.

2 Manpower Inc. Confronting the Talent Crunch: 2008. Milwaukee, WI: Manpower Inc., 2008.

3 McGowan, Sharon. 2007 Compensation & Benefits Report. U.S.: Hudson, 2007.

4 Mercer. HOW TO: Steady as you go: Managing Human Capital in an Economic Downturn. “Human Capital Perspective” [www.mercer.com]. March 18, 2008.

5 Towers Perrin. “Taking the Pulse of Business and Workforce Challenges” [www.towersperrin.com]. April 2008.

6 Watson Wyatt. “Playing to Win in a Global Economy – 2007/2008 Global Strategic Rewards® Report and Canadian Findings Executive Summary” [www.watsonwyatt.com]. Obtained April 28, 2008.