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In 2010, Hiring Goes Hand in Hand with Targeted Workforce Reductions, Towers Watson Survey Finds

Source: Towers Watson

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Posted on 29 Jan 2010

The U.S. employment picture looks mixed at best in 2010, with hiring picking up at a majority of U.S. organizations even as some plan to continue making targeted workforce reductions, according to a new survey by Towers Watson, a leading global professional services company. The survey did find signs of optimism, especially predictions that employee productivity and engagement will improve over the next year.

The Towers Watson survey found that 92% of respondents plan to hire in 2010. However, 36% are also planning targeted workforce reductions, down from the 58% that have done so since the financial crisis began. The survey, based on responses from 118 mostly large employers in the United States and 459 employers globally, was conducted in early January.

Not surprisingly, given employment patterns both pre- and post-crisis, 41% of the survey respondents agree that it’s easier to retain talent now than it was before the financial crisis. However, 51% think that retention will be more difficult a year from now. Respondents also noted a rise in productivity over the past year, with just over half (55%) agreeing that employee productivity had risen compared with pre-financial crisis levels, and 48% expecting it will continue to rise by next year. Interestingly, the recession’s impact on employee engagement has also been mixed: While 30% report lower engagement today, 28% believe employee engagement has risen since before the financial crisis. For 2010, far more companies expect engagement to rise (39%) than decline (5%).

“Without question, the last 18 months have been challenging for employers and employees alike, and while there are signs of improvement, it’s clear we’re not going back to ‘business as usual’ anytime soon,” said Laura Sejen, global rewards practice leader at Towers Watson. “While it’s heartening – and a testament to employer focus and employee commitment – that productivity has increased, that’s also part of the reason for slower hiring and more caution about increased investments in workforce programs. As always, the question is how lean can companies run – especially as demand for products and services rises? Those slower to reinvest in their workforce could find themselves at a competitive disadvantage.”

The survey confirmed the toll the past year has taken on employees in terms of pay and benefit cuts, and how employees have responded. For instance, more than half (52%) of respondents said the percentage of their employees working past their desired retirement age is higher than it was before the financial crisis, and 31% expect it will be even higher a year from now. Thirty-two percent of the respondents said their employees’ cost of health care coverage is higher now than it was before the financial crisis, and 38% think it will be even higher a year from now.

Employers are acknowledging their employees’ concerns: Twenty-eight percent expect that, in a year from now, they will put more emphasis on ensuring benefits provide a desired level of security for employees. Much larger numbers of respondents, however, expect to increase their focus on controlling and reducing benefit costs (53%) and managing the risk and volatility of those costs (49%).

“While employers are clearly hopeful that 2010 will bring healthier balance sheets and bottom lines for their businesses, they also seem mindful their employees might not share that optimism,” said Ravin Jesuthasan, global talent management practice leader at Towers Watson. “With unemployment numbers still high and health care costs continuing to rise, many employees will not be able to shake off their concern for the future. How a strengthening global economy will affect these trends remains to be seen. The good news, based on our client experience, is that many companies already recognize the need to make thoughtful investments to retain and engage their existing talent despite the continuing uncertainty about the business climate and the resulting caution about taking on added workforce costs.”

Other findings from the survey include:

* Almost a third (30%) of companies report employees have on average reduced their contributions to 401(k) plans from pre-financial crisis levels, and 51% have seen an increase in employees’ hardship withdrawals from pre-financial crisis levels.

* Almost half (48%) of U.S. respondents said employees had shifted 401(k) plan allocations out of equities; however, 37% expect employees to shift back toward equities a year from now.

* Respondents expect to fund their short-term incentive plans at 100% this year, compared with 80% in 2008 and 60% last year.

The Towers Watson analysis can be found at http://www.towerswatson.com/research/960.


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