Businesses in all sectors must consider different ways to reward and deploy their staff to minimise the long-term impact of this downturn, as well as take action in the short term. Freezing pay and reducing hours are just a couple of the ways companies can tackle their employment costs. There are also savings to be had through using incentives effectively and ensuring they are fiscally efficient.
Used well, reward can retain, motivate and align employees and executives with the strategic and operational goals of the business. In a downturn, it is even more critical that all elements of reward are operating effectively to achieve this in a cost-efficient manner. This means companies need to question their reward structures - across all levels. If the response is ‘we have always done it this way', ‘our competitors do it like this' or ‘it suited our old business model' then now is the time to tackle those sacred cows.
Making sure the different elements of reward are targeted appropriately and structured efficiently can bring both significant cost savings and better value for money. Companies need to eliminate wasted incentives, focusing them on the right individuals, and find smarter ways to appraise, reward and engage. A critical first step is to identify key talent - top performers are even more in demand when times are tough.
At the same time organisations need to demonstrate to all stakeholders that reward processes and practices are robust. This has never been more relevant for executive reward where it is clear the old model is broken and pay-for-performance needs to become a reality. We need flexibility, better alignment with individual business models and long-term incentives that do what they are designed to do. To achieve a sustainable and effective approach to executive reward, companies and remuneration committees need to engage with shareholders to rebuild trust and bring about change.
As the downturn continues, companies will need to be increasingly tough in tackling their employment costs to ease cash flow, avoid redundancies and ensure the business remains fit for the future. But, ultimately, we must remember the slowing economy is just one of the factors affecting long-term business health. Demographic changes, resource scarcity, climate change, health and wellbeing, globalisation and technology are all impacting organisations' potential to stay profitable and compete effectively. And having the right people and rewarding them in the right way is crucial to facing these challenges with confidence.
Jon Terry is partner and head of reward, PricewaterhouseCoopers
The pressure is on to make incentives not only effective but also cost-efficient
After a long period of growth, we find ourselves in an economic climate that is undeniably tough. Naturally, this is forcing companies to scrutinise costs more closely than ever and with people costs accounting for up to two-thirds of the total for many businesses, employee reward is truly in the spotlight. The challenge for companies is to manage these costs while using reward to motivate their key talent, so the business can navigate the difficult time and emerge fit for the future.
