For those of us who can remember the “Asian financial crisis” or the “dotcom bubble” this “financial tsunami” has been little more than business-as-usual in many of Asia’s dynamic and ‘bouncy’ economies. Organizations and economies at large have obviously been affected but this cycle of stellar growth followed by a stabilising downturn is all too familiar.
The questions many of us are asking in Asia are more subtle than the soul searching being done in the US and other Western economies. What are the lessons to be learned from the recent crisis?
How quickly can we make changes before we are again being stretched by growth?
Employee pay and “rewards” in general — particularly in the financial sector – have been in the spotlight in recent months. Hewitt has been working with a number of large organizations in this area and there are some key lessons for both business leaders and HR professionals that have emerged.
As rewards consultants, it is always pleasing to see pay discussions getting the attention of the senior business leaders. This is typical in a downturn but the speed of this collapse was such that survey data was meaningless and it forced a different approach. Quick decisions were needed and we saw business leaders using their judgment of the business outlook to make pay and other reward decisions.
Pay freezes and even pay cuts became commonplace and a whole raft of cost cutting measures were implemented; training budgets were cut, benefit programs were rationalized, basically every dollar of employee spending was being justified.
Was this reactionary in a time of crisis? We hope not. Our view is that this type of rigor around reward spending is simply a good practice.
We also believe that market data is only one reference point and internal factors are equally important when setting rewards budgets. It has been refreshing to go through a rewards cycle without being slavish to the survey data.
We are helping our clients to embed new reward review processes within the DNA of the organisation.
Reward discussions with business leaders are built in early on and tied to the business planning cycles. Benefit programs are put on a cycle of regular benchmarking and provider review. The performance management system is hard-wired to the pay-rise and bonus cycles.
Essentially we need to see a continuation of the diligent processes that companies have been spurred to follow through this downturn.
Time to get close to ground level
Educated decision making has been critical. This downturn hit many companies hard and fast causing panic amongst all affected. Many companies took drastic actions and took them quickly. The differentiator that we’ve seen between organizations is the process to get to the action.
This has been a time for leaders to roll-up their sleeves and get down on the shop floor to understand where the pain points are within their business. The best leaders have spent quality time with management teams working on business scenario planning and aligning actions with these scenarios. These leaders have involved key stakeholders, been open to cost-cutting ideas and ultimately looked at the business from the bottom-up.
In contrast, we have seen some leaders operating from a distance and being driven by shareholder demands or other external influences to cut costs. These organizations have typically cut costs across the board without recourse to the relative performance of business units or high performers. This type of action is short sighted and typically perceived badly by employees.
The lesson here is for business leaders to keep those sleeves rolled up! In good times or bad times, the influence of senior leaders is important. Responsibility needs to be delegated but leaders need to understand the dynamics of the business. As discussions for 2010 switch to investment and growth a good leader needs to stay just as close to the action.
Rewards Lessons for HR
This crisis highlighted an over-reliance within the HR industry on compensation surveys. The speed and dynamic nature of this crisis meant that surveys were largely irrelevant.
The data was outdated by the time it had been collected!
What was striking was the paralysis this lack of survey data created. This was a shame as the crisis presented a golden opportunity for us as HR professionals to lead the business through these difficult decisions on pay and rewards.
Going forward, HR needs to take responsibility for building pay and rewards review processes on more than survey data. Business leaders need to be involved, internal factors need to be considered and performance differentiation is critical.
As mentioned earlier, survey data is simply one reference point in this process.
Make sure we know the business
With many companies facing drastic cost pressures many pay and/or people related actions were not being determined rationally. The best HR professionals were often able to push back on their boardroom colleagues by arguing that these rewards actions didn’t make long or short term business sense.
The best client example of this is a company where raw materials make up 70% of the business cost whereas overall salary costs are less than 10%.
The natural reaction in the boardroom was to implement a pay freeze but our HR counterpart was able to argue that the positive business impact of this pay freeze was far outweighed by the negative impact on employee productivity and long term retention.
In another example, our HR counterpart was able to avoid pay cuts for employees by suggesting a review of costs associated with the HR function; vendor costs were cut, training was brought internal temporarily and retainer fees with headhunters were cancelled.
“HR as a business partner” is a well used Hewitt mantra and this crisis has again shown this to be critical. As individuals we need to make sure we invest quality time in understanding our businesses and then stepping up during boardroom discussions to help drive the business forward.
In conclusion
As economists ponder this recovery as a “V” or a “W”, the question for many of us is: Are we prepared for either scenario? As we’ve seen over the last 12 months, the underlying HR processes followed in a crisis are equally valid in a rapidly growing economy.
Asia will remain a dynamic place and so all of us — business leaders and HR professionals — need to understand our businesses and stay close to the action. Reward decisions cannot be based solely on survey data and the active input of business leaders is critical.