How to turn crisis into opporutnity by avoiding restructuring

By Simon Ferry

So here we are again — with the recent credit downgrade of the U.S. federal government, austerity programs being introduced by many western governments and huge volatility global equity markets, we could well be heading for part two of the 2008 global economic slowdown. So if companies are planning for further hard times ahead, what can be done from a people perspective to help control costs over the coming months?

Managing wage increases

This is an obvious way to control people costs, but is typically easier said than done. Although salary increases have been generally lower in 2009 and 2010 than historically, rates in 2011 had begun to rise again.

Having conversations with employees and unions over granting lower increases again based on longer term financial uncertainties would be hard in the face of recent times. However this short term pain may be necessary to prepare for the times to come. Having clear open communication between companies and employees will be key to a successful outcome for all concerned.

Changing pay mix

There has been a continuing trend toward increasing the proportion of pay which is based on company and individual performance. Again, this is not an easy route to take, since employees may often prefer the security of guaranteed wage components rather than the uncertainty of performance related.

Practice also differs significantly by industry and in some cases it may not be feasible to move more toward a greater performance element in the pay mix. However, where possible this will allow companies more control over people costs, while also targeting the limited resources toward those who have contributed most to the business through their input.

Changing working practices

In tough times, changing work patterns or reducing hours can lead to savings for the company, while being positive for employees. Although the strong work ethic in Korea may mean that some employees are reluctant to take this option, it may be seen as positive compared to more extreme alternatives. Changing work practices can also been an effective tool for improving work/life balance and ultimately leading to improved productivity for the time employees spend at work.

Review benefits package

There are a range of ways in which benefits can help manage company cost. The easiest is to see where companies have any discretion and tighten up the process of granting benefits where such discretion exists.

If benefits are provided by a third party (e.g. an insurance company providing life insurance) it’s worth testing the market, when renewal allows, to make sure these benefits are being provided in a cost efficient way.

Also reviewing company benefit spend and how these benefits are perceived by employees can help make sure the company gets best value in terms of employee perception, protection and engagement. After all, if a company is providing an expensive benefit program which most employees do not value highly, then it may be better to provide an alternative benefit which employees prefer.

Consider flex

Flexible benefits are a developing area in Korea. Such programs allow employees a certain amount of choice in the benefits they receive — option to extend medical cover to family members or pay higher pension contributions.

Although this may sound more complex and perhaps more costly to the company in the very short term, there are excellent administration systems and flex platforms available. Also, in the medium to long term flex provides a good mechanism to control increases in benefit costs through the flex budget given to employees and the pricing of each benefit option in the flex plan.

This means that when times are good, a company can provide greater increases, but if times are challenging and resources are limited, the company can better manage benefit costs..

Total rewards viewpoint

In practice, it may be necessary to combine several of the approaches above to help manage costs through the potentially tough times ahead. By taking a holistic view of rewards it is possible to change the underlying mix of people costs and achieve something which allows more control for the employer, while actually being more relevant and valuable to employees.

The “impact diagram” (right) helps to illustrate some of these potential changes, among others — considering the impact on cost and whether the change is positive or negative for employees. The ideal is to be able to better manage employer cost, whilst having a positive outcome for employees — this may sound challenging, but there are certainly some changes which can potentially achieve this.

By taking a close look at rewards and getting smarter about how people costs are managed, companies may be able to avoid more extreme measures, such as pay freezes and restructuring — thus turning the current financial climate into an opportunity rather than a calamity.