A new survey by HR consultancy Mercer, Leading Through Unprecedented Times, reveals  that a significant majority of multinational companies are trying to be selective in planning 2009 workforce, compensation and benefit cuts, even as they anticipate a decline in their company’s business performance next year.

Eighty-one percent of those surveyed – 1,028 human resource and finance professionals representing organisations with operations in more than 100 countries – expect a decline in their own company’s business performance in 2009, and 35 percent are likely to make significant workforce reductions.

No drastic action yet
Only a deep or prolonged economic downturn could force more drastic action, however companies are expressing caution.

“Many multinational companies have been facing rising cost pressure throughout 2008 and in recent months have been managing compensation costs and workforce levels aggressively while working to keep employees engaged and productive,” says Patricia A. Milligan of Mercer.

 “Our survey shows that—at least as a group—most of these companies have refrained from taking severe and broad-based steps. Such drastic actions may include very deep workforce cuts, across-the board salary freezes, reductions in defined contribution plan contributions, or elimination of certain health benefit programmes.”

“It is also likely that companies learned important lessons in previous economic downturns about the importance of talent in creating competitive advantage, and so are reluctant to take actions that could hamper their recovery once the economy improves.”
 
2009: A tough year ahead
Globally, 81 percent of respondents in the Mercer survey expect their company’s business performance to decline in 2009.

The most pessimistic feedback came from companies with operations in Japan and Hong Kong – 90 percent expect such a decline. The most optimistic respondents have operations in Canada, with 72 percent expecting their company’s performance to decline in 2009, and the United States with 82 percent expecting such a decline.
 
Merger and acquisition (M&A) activity has also felt the impact of the economic slowdown. Two-thirds of respondents view an increase in M&A activity as unlikely. However, 47 percent of respondents in both France and Australia expect that M&A activity will likely increase in 2009; a tough economy can force mergers or create acquisition opportunities that might not arise in a more prosperous economic environment.   

Compensation: Cold but no freeze
Worry about retirement investments tops the list of employee concerns, which outweighs employee anxiety about job security. However, employees needn’t fear.

Regarding defined contribution retirement plans, 83 percent of respondents do not expect their company to reduce the level of employer contributions.

Health benefits are also not likely to be affected. As many as 84 percent of the respondents to the Mercer survey said their company is unlikely to eliminate any current health or group benefit programmes to cut expenses. Instead, companies are more likely to intensify efforts to understand the root causes of increasing costs (77 percent) and add wellness programmes to improve health-related behaviours and increase employee engagement (76 percent).

The majority of respondents (73 percent) are now likely to reduce salary increases in 2009 from those originally budgeted. Only 12 percent of respondents said freezing wages at 2008 levels is a highly likely course of action, but it is a stronger possibility in some industries, notably banking and technology.

Focus on filling shortages in key skill sets
Despite the weak economy, talent shortages still exist for key skill sets and selective hiring remains a top priority for employers. While more than two-thirds of respondents (69 percent) will likely curtail overall hiring to below replacement levels, 69 percent will likely hire top talent at originally planned levels.
 
Seventy percent of respondents do not expect to reduce the number of staff on international assignments, as these employees are often sent to high-growth markets. However, 42 percent expect to review international assignment programmes and policies as part of expense control.

HR to cope with fewer resources
In an environment in which they are asked to operate with reduced resources, 62 percent of survey respondents said they are likely to reduce planned investments in HR services. Thirty-eight percent said that they planned to maintain the level of HR investments while 21 percent said that they are “highly likely” to make such cuts. As many as 75 percent of survey respondents said that their company is not likely to invest more to outsource HR functions in 2009. 

Expatica 2008