One of the biggest concerns is that the West is following the experience of Japan in the 1990s and will see a 'lost decade' of stagnating demand, stock market decline and financial instability. Japan's lost decade was triggered in 1990 when overinflated credit, financial and property markets imploded, leading to a prolonged period of economic decline. The Nikkei Index fell by 63% over the following 10 years and Japan's economy has lurched between stagnation and recession ever since.
One of the many troubling parallels between Japan and the West is that both have an ageing population. This creates problems for the state, which will find it increasingly difficult to meet its pension and benefits obligations, and for employers, who have to manage the dual problem of an older generation of increasingly expensive workers who cannot afford to retire and a younger, disgruntled generation who find their career progress blocked as a result.
Learning lessons from Japan
So if the West does go the way of Japan, what can employers and talent managers expect?
Key trends are already emerging:
A shift towards more flexible employment. During Japan's lost decade there was a marked swing away from lifelong employment and towards flexible, part-time and lower-paid jobs.
A similar trend is already apparent in many Western countries, where permanent, full-time jobs with good pensions are no longer the norm. The tendency instead is towards contract based, part-time or flexible working hours, and to outsourcing of whole functions or areas of work.
Reduced benefits. Faced with an ageing population and declining tax income, Western states will have no option but to reduce state benefits.
At the same time, private sector companies are shedding unsustainable benefits costs as they try to compete against companies in emerging markets - where demographics are more favourable and employment costs lower. Western employees will have to become more self-reliant for pensions and other benefits.
Increased inequality of pay. The rise in executive compensation has been an unstoppable trend over the past 10 to 15 years and one that is likely to continue.
A three-tier system of pay has developed, covering local, national and the international markets. Executives are in international demand, particularly in developing economies - executives in Brazil command the highest salaries in the world - meaning that employers must compete on an international level for the best.
Workers in local pay markets, particularly while the recession continues, will find it much more difficult to push up their pay rate, and there is evidence that pay rates are declining for some.
Tackling the trends
These trends present serious implications for companies and talent managers. We can expect to see:
More contract and part-time workers, who may be less engaged in the workplace
An increasing disparity between pay grades
An ageing population of workers who cannot afford to retire
Limited scope to incentivise financially
Lower job satisfaction generally, as employees are forced to compromise in order to stay in work
Employees who are being asked to do more, for less.
This all leads to the potential for lower productivity, higher staff turnover and, at worst, a resentful and disengaged workforce. So what can talent managers do?
The most fundamental point is to know your employees. It's clear that the future workforce will be made up of a wide range of ages, skills and people with particular needs. Some will be part-time and value flexible hours so they can look after young children; some will be on the career ladder and hoping to learn and progress; some may be younger and looking to travel overseas; and some may value specific benefits over more pay.
What we call 'total reward' will play a key role in talent management in the future. Each section of the workforce will place different value on various elements of compensation - some will value flexible working hours or longer holidays, while others will value training and the opportunity to learn. Companies are increasingly embracing more innovative and imaginative ways of rewarding their employees by offering flexible benefits that go far beyond financial rewards.
This new landscape will also demand a new way of managing and motivating employees. Again, the different priorities of different sections of the workforce will play a role in this - with financial rewards limited, younger workers in particular will need to know that their efforts will be rewarded by a clear path for progression through the organisation, with good learning opportunities, signposted through a transparent performance measurement system.
Unlocking performance: the winners of the lost decade
It is possible to encourage great performance without a large financial pot - incentives, by themselves, do not necessarily motivate.
All employees work at their best when they understand what they need to achieve and are given the resources they need to reach the target. Leadership is at its most effective when there is clarity around output rather than micromanaging of input. Recognition plans may be far more effective than incentives - and far cheaper.
If employees are getting what they want out of work, and have the resources to deliver, they will be engaged and productive. The future of work will be about understanding and actively managing the different groups and individuals within a workforce - managers who follow that rule will be the winners of a lost decade.
When "doing more with less" is becoming a mantra, finding ways to improve discretionary effort will be key to the success of all organisations.
Nick Boulter, global head of reward services, Hay Group
