New Zealand businesses trade-up their workforce

Media Release

Deep cuts to staff and pay on hold for rest of 2009 as New Zealand businesses trade-up their workforce – Mercer global survey

Tuesday June 23, 2009

Australian and New Zealand companies are containing employment costs but have hit pause on making deep workforce or pay cuts for the rest of 2009 – instead, they’re looking to ‘trade-up’ their workforce in these tough economic times, according to Mercer’s latest Leading Through Unprecedented Times global survey.

The survey revealed that almost half of all Australian and New Zealand (ANZ) respondents plan to hire key talent while at the same time reducing their overall workforce for the remainder of 2009. Fifty-seven per cent of ANZ respondents plan to make further workforce cuts in 2009, but only 1.2 per cent will make cuts of 10 per cent or more. Additionally, in the next six months 46.5 per cent plan to freeze salaries at 2008 levels, but 53.4 per cent will make 2009 pay increases as planned. However, more than two thirds (62.5%) said their 2009 bonus payments will be reduced.

The survey, conducted in May, includes responses from more than 2,100 organisations with employees and operations in more than 90 countries, with 88 responses from companies with operations in Australia and New Zealand.

Mercer’s Chief Executive for Asia Pacific, Mr Peter Promnitz, said the survey indicated that although Australian and New Zealand companies were containing employment costs they were also being opportunistic in trading-up their workforce in an economic downturn.

“Companies are taking the opportunity in a downturn to reduce staff in under-performing areas and replace them with higher quality people, more experienced and more productive people that they may not have been able to afford in a tighter labour market.

“The War for Talent is still fresh in people’s minds and we’re seeing companies managing their key talent a lot more closely in tougher economic times,” he said.

The survey also revealed companies are not yet confident of a recovery; 85 per cent of respondents from Australia / New Zealand said it was very likely or somewhat likely that they will experience reduced business and financial performance in 2009 when compared with 2008.

“Australia and New Zealand have not escaped the global economic turmoil, but we have not been as deeply impacted as many other developed nations, and despite lingering uncertainty in our market, companies are generally not slashing employment expenses such as pay and benefits in response to the economic downturn,” said Mr Promnitz.

“We’re seeing lessons learnt from the past about the medium to longer term risks of cutting too deep – and I mean both workforce and pay cutting – which we believe will hold our local companies in good competitive stead when we do reach a recovery,” he said.

Despite the fact the survey shows employers are taking a wait and see approach to workforce cuts, job security tops the list of employees’ concerns. Eighty-four per cent of ANZ respondents said their employees were concerned about job security – 45.5 per cent of those were significantly concerned.

“High levels of job insecurity is really not all that surprising in the current climate, however it can have some serious implications for a company’s bottom line if not appropriately dealt with.

“Job insecurity in the workforce can impact productivity and these results should be a timely reminder for employers that open communication and strong leadership are potentially more important than ever,” Mr Promnitz said.

Global Survey Results

Talent management
Some 58 percent of organisations worldwide plan some cuts to their workforce in the remainder of 2009 compared to 66 percent that had implemented workforce cuts in the six months prior to the survey. Significantly, however, only 5 percent of these organisations plan deep cuts (more than 10 percent of staff) in the remainder of the year, compared to 13 percent that made such cuts in the six months preceding the survey.

The percentage of companies planning layoffs in the next six months varies by region, with less of a change expected in Europe compared to the prior six months. Some 71 percent of European survey respondents said their companies made workforce cuts in the prior six months and this pace is expected to hold steady for the remainder of the year at 70 percent. But in Europe, as in other regions, the number of companies planning substantial cuts (more than 10 percent of the workforce) is expected to drop to 10 percent of the companies represented from 16 percent who had such cuts in the prior six months.

US-based companies were more likely to have made at least some workforce cuts in the prior six months (74 percent), but fewer companies (64 percent) plan cuts by the end of the year. Some 59 percent of Asian companies responding to the survey made cuts in the prior six months and are also less likely to make cuts in the next six months (45 percent of respondents). The number of Asian companies planning significant cuts of more than 10 percent falls sharply from the number that made such cuts in the prior six months—from 14 percent to 4 percent.

About three-quarters (76 percent) of manufacturing and technology/computer services companies reduced staff this year compared to firms in finance/banking (69 percent) and professional services (67 percent). Manufacturing firms (68 percent) and technology/computer services firms (67 percent) are most likely to reduce their workforces throughout the remainder of the year.

Despite the impact of the weak economy, many companies remain focused on their most valuable employees. More than one-third of organisations globally (37 percent) say they will continue to hire key talent even as they reduce their workforce overall. Approximately one third of organisations (35 percent) plan to hire talent to replacement levels only, while 15 percent expect overall workforce reductions, while 12 percent expect to expand their workforce in 2009.

Mercer’s study also shows that organisations are beginning to use or consider alternative work arrangements to control workforce costs. Ten percent globally have already instituted voluntary reductions in hours with a corresponding reduction in pay, while 12 percent have instituted such a program on a mandatory basis. An equal number of organisations are considering similar actions in the remainder of 2009. Popularity of these programs varies by industry. Twenty-nine percent of manufacturing firms have instituted mandatory reduced hours compared to 13 percent of technology/computer services firms and 3 percent of finance/banking firms.

Compensation
Organisations globally are almost equally divided on whether their 2009 base pay budgets will be higher than their 2008 budgets (31 percent), equal to 2008 budgets (33 percent) or less than 2008 budgets (36 percent).

They have been more likely to freeze pay levels or defer pay increases than to implement pay cuts. In the past six months, 51 percent froze salaries at 2008 pay levels for at least part of their employee population; 32 percent froze pay enterprise-wide. Just 30 percent deferred 2009 pay increases and even fewer (13 percent) decreased salaries from 2008 levels. Interestingly, more than half of organisations (54 percent) in the technology industry froze pay company-wide while only 28 percent of finance/banking firms did the same. For the remainder of 2009, most organisations plan to freeze salaries at 2008 levels or make 2009 pay increases as planned.

Regarding annual bonus payments, 57 percent of organisations globally awarded smaller bonus payouts for 2009 (based on 2008 performance) compared to 2008 awards (based on 2007 performance). Just 20 percent granted higher bonus payments in 2009 compared to 2008.

Retirement benefits
With respect to defined contribution retirement plans, 73 percent of organisations globally do not plan to reduce the level of employer contributions in the remainder of 2009. Notably, 14 percent have already done so in the past six months. To date almost one third (32 percent) have reviewed their overall fund line-ups, and reviewed both investment and administrative fees (33 percent), while 43 percent are likely to take these actions by year-end.

Employee attitudes
According to Mercer’s survey, job security tops the list of employees’ concerns - 50 percent of organisations said employees expressed significant concern about their jobs. This high level of anxiety is fairly consistent worldwide. Organisations in Europe, Asia and the United States ranked the concern of job security slightly higher (54 percent) while Canada and Australia/New Zealand ranked slightly lower (42 percent and 46 percent, respectively).

Forty percent of organisations said employees expressed significant concern about how the economy is impacting the overall organisation. Australia/New Zealand does not share this level of concern (24 percent), however more organisations in the United States and Asia do (43 percent).

Just 12 percent of companies said employees expressed major concern about the current economy’s impact on the cost of health care and 37 percent said employees were worried about how the economy is affecting their retirement plan investments. Most organisations said employees showed a moderate level of concern about 2009 promotions and merit increases.

Other findings
Only 10 percent of the organisations surveyed think increased merger and acquisition activity is very likely in 2009. Organisations indicating the greatest likelihood to increase M&A activity are those within the technology and finance/banking industries (13 percent).
ends

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