Win over employees Featured

8:00pm EDT October 26, 2009

Many employers have undertaken dramatic cost reductions since the start of the recession. But in the process, they may have inadvertently created consequences that will linger well into the recovery period.

In the minds of many employees, reductions in staff and total rewards packages have breached the promises of their employers. The result has been a nearly 10 percent drop in employee engagement levels since last year and, among top performers, a precipitous decline of 23 percent, according to a recent survey by Watson Wyatt Worldwide. To prevent diminished productivity and high turnover, employers must take immediate steps to re-engage top performers by reinventing their employee value proposition (EVP).

“Employees place a great deal of emphasis on employer promises, whether those assurances are explicit or implied,” says Laurie Bienstock, U.S. practice director for strategic rewards at Watson Wyatt Worldwide. “Unfortunately, a diminished EVP is a blind spot for many employers, because they fail to recognize the gap between what’s promised and delivered and the EVP’s role in motivating employees.”

Smart Business spoke with Bienstock about the impact of cost reductions on employee engagement and the steps employers should take to eschew the fallout.

What is an EVP and why is it significant?

An EVP is the total value an employee receives for working for a company and it influences his or her decision to join or stay with an organization. It is composed of tangible remuneration like salary and benefits as well as intangible rewards like a positive work environment, job security, promotional opportunities, and training and development programs. Some employers strategically design their EVP, so it attracts the right candidates and delivers maximum return, while in other companies, the EVP may have evolved over time. Although employers often view an EVP as an informal agreement, 74 percent of employees consider it to be a formal pledge according to our survey, so when their deal changes, it alters an employee’s commitment.

What’s been the impact from cost reductions?

According to Watson Wyatt’s ‘2009/2010 Strategic Rewards Report,’ which surveyed 1,300 employees, there was a 26 percent decline in satisfaction with advancement opportunities and a 14 percent decline in likelihood that they would remain with their current employer, while the number who would recommend others take jobs at their company has declined by nearly 20 percent. Top performers are particularly frustrated by their inability to deliver quality work or adequate customer service due to staff reductions, and many say these conditions are impeding their company’s ability to recover from the recession. In fact, 36 percent say their employer’s situation has worsened in the past 12 months.

Another byproduct of widespread layoffs is a 15 percent increase in employee discrimination claims (based on claims data filed with the EEOC in 2008). And the recently passed Lilly Ledbetter Fair Pay Act places an additional burden on employers to ensure evidence/records of methodology for compensation administration and decisions (both in the past and future) as well as to review past compensation decisions.

Was the impact similar for all employers?

Financially high-performing organizations took the fewest actions in response to the downturn, mostly freezing programs as a preemptive measure and reducing fewer core components of total rewards such as salary, benefits or bonuses, and high-performing organizations averaged staff reductions of just 7 percent. Lower-performing organizations were forced to make deeper cuts in staff, averaging 9 percent, and total rewards, and they were less effective at using performance data to conduct layoffs. As a result, firms entering the recession in a stronger financial position are likely to emerge in better shape aided by a largely intact staff that is more highly engaged and productive.

How can employers reverse the trend?

Employers need to redefine their EVP and restore pay and benefits packages and rehire employees where appropriate as soon as business conditions allow. Bonus plans and performance metrics need to be aligned with current business goals to make sure they motivate employees. Permanent head count reductions or industry changes need to be considered, as they may render previous performance expectations unachievable. Closure of an on-site child day care center or elimination of telecommuting opportunities requires employers to reassess their tangible and intangible benefits in rebuilding their EVP so they aren’t making promises to employees they can’t keep. Focus expenditures on benefits that are most relevant to employees so your EVP delivers the maximum impact.

How does EVP redesign relate to changes employers may be making in response to the Lilly Ledbetter Act?

The actions needed to redesign your company’s EVP and set a foundation for compliance with the underlying laws affected by the Lilly Ledbetter Fair Pay Act (e.g. Civil Rights Act, ADA) are similar. Employers can respond to the legislation by using a systematic and documented approach to govern pay plans, assign job classifications and titles and to assess and document employee performance, especially for promotions. While a systematic approach to pay does not ensure pay discrimination will not occur, it provides a foundation for analysis, review and audit. Clearly outlining and governing an approach to defining jobs and setting and administering pay not only will assist managers in hiring and retaining employees but also engenders employee engagement through increased understanding of pay and career opportunities.

Laurie Bienstock is the U.S. practice director for strategic rewards at Watson Wyatt Worldwide. Reach her at (415) 733-4311 or Laurie.Bienstock@watsonwyatt.com.