People power

The bad news is the national economy is
in a down cycle; the good news is Bay-area CEOs learned valuable lessons during the last downturn, so this time, the regional impact should not be as deep nor as long.

Not only has the local economy continued
to diversify away from its Web-tech dominance since the slump of 2001 and 2002, but
more technology companies are offering
goods and services globally, which helps
cushion the impact from slowing U.S. markets. Companies are much leaner going into
this downturn. With fewer anticipated layoffs, CEOs should embrace the glass-is-half-full attitude and find ways to emerge from the
downturn quickly by motivating workers and
reaping productivity benefits.

“CEOs should avoid knee-jerk retrenchments because what we learned during the
last downturn is that broad-based layoffs not
only make it harder to recover, they actually
delay the process because they negatively
impact morale and restrict opportunities to
capitalize on rebounding markets,” says Rick
Beal, managing consultant for Watson
Wyatt’s San Francisco office. “Instead, CEOs
should focus on engaging their people to help
the company pull out quickly.”

Smart Business spoke with Beal about
how CEOs can maximize human capital during turbulent economic times.

How can CEOs maximize human capital during downturns?

In the past, new technology helped the
economy emerge from recessions because it
drove productivity improvements. This time,
it is more likely that productive human capital will set the pace. To achieve ROI, CEOs
should review best practices for aligning talent with business plan achievement:

  • Align human capital with areas that drive
    the business model and make sure you are
    adequately staffed to support improvement.
    Shifting even a few hours a week from
    administration to selling activities, for example, could lead to as much as $225 million in
    additional revenue for a company with 1,800
    new business developers.

  • Focus employees on metrics that reward
    achievement of the business strategy. You get
    what you measure so measurements are the
    key to driving productivity improvements.

  • Develop talent. Employees who acquire
    new skills are more productive, so revisit
    your talent management strategy and make
    certain all employees are in the right roles
    and are developing the right skills.

In sum, motivate and reward employees to
achieve the business plan by creating line of
sight between the plan and their actions,
development and rewards. Make sure to
communicate progress often.

What are the best ways to engage employees
when times are tough?

Watson Wyatt’s Work USA study finds that
employers with highly engaged employees
report $276,000 productivity per employee,
compared with $236,000 per employee for
those with low engagement. For a company
with 20,000 employees, high engagement levels translate to $800 million more in revenue.

CEOs can motivate employees by linking
pay to individual and company performance,
so now’s the time to set revised goals and
review the effectiveness of compensation
plans. Also, use enhanced metrics to measure and monitor performance improvements, supported by software if possible.
Even though software is an investment,
today’s talent management tools are enablers
of the business plan and CEOs will get a
return many times over in the long run.
Remember cash isn’t the only key to motivating employees. Some are motivated by work-life balance or other lifestyle benefits, so provide the flexibility to managers to engage
each individual on terms meaningful to them.

Should CEOs cut bonuses rather than reduce
head count?

While it’s tempting to think the point of variable pay programs is to allow employers to
simply cut bonuses when times are tough,
retaining and motivating top-performing individuals can pay huge dividends. Try to first
make sure to use your compensation dollars
to differentiate based on performance. Then
find other ways to save money, for example:

  • Look for health plan savings; dig deep to
    find hidden savings opportunities tied to
    employee wellness and productivity.

  • Run a financial analysis on all open positions to assess whether they increase revenue or overhead and only fill positions that
    positively impact revenue.

  • Use more consultants and contingent
    workers for specific short-term projects.

  • Increase opportunities for employees to
    implement ideas to increase efficiency.

What are the best practices if head count
reductions become necessary?

During the last recession, CEOs thought
that retained workers would have increased
loyalty regardless of the severance provided
to those terminated. In fact, the opposite was
true. Many of those remaining felt their coworkers had been treated unfairly, morale
was poor and, when combined with a lack of
resources, only delayed the companies’
recovery. If you must reduce head count,
treat people fairly and have a consistent severance policy. Be surgical in your reduction
approach and don’t make deep cuts in areas
that generate revenue or influence the company’s future, such as R&D. Also remember
to pay attention to the people who are left
behind, or as soon as times get better, they’ll
be the next ones out the door.

RICK BEAL is the managing consultant for Watson Wyatt Worldwide’s Northern California offices. Reach him at (415) 733-4100 or
[email protected].

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