From lay-offs to pay freeze, steps to cut costs change

As companies still struggle to contain costs amid slow business, their focus and priorities have changed over the course of the past few months.

According to Watson Wyatt Middle East, business partner to organisations on people and financial issues, it is a shift from massive lay-offs to salary freezes. "Organisations are still managing costs tightly but cost-cutting efforts have changed focus. For example, 2008 was about lay-offs whereas in 2009, the focus is around salary freezes or delaying the roll out of HR programmes and initiatives," says a report published by Watson Wyatt Middle East.

The piece of good news is that the current environment appears to be less volatile in the region than Q4 2008 and Q1 2009, as stated by Watson Wyatt ME, even though long-term predictions are still difficult to make.

According to Siobhan O'Reilly, Recruitment Manager at BAC Middle East, the rate of job losses has reduced greatly since the last quarter of 2008 and early 2009. Companies are now looking at such strategies as extended leave for employees over the summer months. Salary increases are not on the agenda for the vast majority of companies.

Agrees Hasnain Qazi, Middle East Business Manager at Pathway Resourcing in Dubai. "Towards the end of 2008 and the first quarter of 2009, we saw an increase in companies laying off non-business critical staff. Since then, many UAE companies have adopted a cautious approach, irrespective of whether they are in a financially strong position or not. However, now that there seems to be more buoyancy in the market, and the outlook is more optimistic, and having had six months to streamline and consolidate, companies are beginning to hire again – in particular for senior appointments," Qazi told Emirates Business.

"Some companies went a step too far, and made more redundancies than was warranted… so now they are having to play catch up and have a big focus to re-skill and re-hire. The difference now, however, is there is a wider and better selection of candidates available, and in certain segments decreased salary expectations. More clients are giving us retained mandates as opposed to contingency to avail of cost savings associated with hiring staff," he adds.

But receiving fat salaries are still nowhere on the radar, as the survey shows. Watson Wyatt ME surveyed a broad cross-section of 98 Middle East-based companies, across sectors, to understand what adjustments they are making to their HR programmes (eg staffing, pay, benefits) in response to events in the economy and financial markets.

"As employers sort out the impact of the economic crisis, many are taking a measured approach when it comes to staffing, pay and benefit decisions. Companies have begun to make a number of strategic and tactical changes to HR policies and procedures as a result of the economic crisis."

"Companies have already identified a number of 'quick wins' to help them reduce costs. Reducing international travel budgets is the change most companies have made so far. Other top actions already taken include hiring freezes (56 per cent), reduced salary increase budgets (52 per cent) and a greater emphasis on performance-based rewards (44 per cent). For organisations providing a pay increase or bonus award during 2009, there will be a greater differentiation in pay based on employee performance," the survey puts it.

"Some of the more progressive and switched on companies are actually incurring upfront costs in the beginning, which they view as an investment in order to cut the costs of recruitment and HR administration in the mid to long term. For instance, companies are hiring specialist compensation and benefits experts in their HR team who are reviewing, standardising and streamlining staff packages to bring in line with market conditions," says Qazi.

Vernon Bryce, Managing Partner, Kenexa Middle East, believes fair pay will matter with a long range of performance incentives. Equally important is to inform and assure employees that each one of them is valuable in steering the company through the economic change.

O'Reilly believes maximising efficiency and productivity is the mantra in today's world. "The majority of companies are now much more 'lean' than they were a year ago. Organisational and management structures have been streamlined and organisations are being much more careful in their hiring and staffing process. The first instinct of firms today is to do everything possible to maximise efficiency and productivity rather than adding to headcount," she says.

Another trend, which is emerging is that of companies, particularly financial outfits, that are hiring to replace current staff – particularly in the areas of risk and compliance – this is a direct response to the current economic turmoil that many of the banks have faced, and to avoid a repetition of certain avoidable risks that were taken, ie, more responsible lending, says Qazi.

Even though hiring may have started in certain pocket areas in the market, a majority of companies surveyed expect either a decrease or no change to their profits in 2009.

Most respondents indicated that the current climate would impact negatively on expected profits in 2009. The majority of the companies – 42 per cent – have reduced expectations for the year, whereas 35 per cent see no change in the estimated profit levels. Only a minority – 23 per cent – have opted for increased expectation in the survey.

The crisis, having served as a major learning phase for the corporate world, has made companies recognise the need to focus on business fundamentals (ie, implementing business strategies, maintaining client relationships) while ensuring that employees are kept informed through internal communication.

Factors such as communicating with employees, motivating the workforce and attracting and retaining talent seem to be high on the list of the surveyed companies.

According to Kenexa Research Institute's 2009 Gulf Employee Engagement research, there are two main pillars of engagement that need strengthening – leadership and management. Strengthening leaders' messages of inspiring and promising futures is a priority in engaging nationals and expatriates. Nationals indicate a stronger desire for recognition, it appears. The businesses that truly welcome diversity are getting ahead. So, developing managers who will smartly improve expatriates' perception of the value in diversity also wins in this competitive arena. Corporate social responsibility is now a top driver to retain top talent.

Retaining top talent and employee engagement also remains an important factor even in times like these, say experts. "Most companies, even more than usual, are trying to hold on to their top talent. Talent and its engagement will be the super-driver factor, crucial to the company's growth and development during these difficult times. So, now it's vital to develop exciting projects and roles for these precious people – or as the market turns they will be the first to fly," says Bryce.

However, communication, a factor that becomes vital in times of crisis has not been addressed the way it ought to have been, as the survey shows. According to Watson Wyatt ME figures, around half of the companies have not changed the way they communicate to their employees, while a third has increased the level of internal communication. Interestingly, just over one-third of companies surveyed are not measuring the impact of internal communication.

"Most organisations reported that their communications had been effective, although a third reported having no measures in place to review the effectiveness," the report says. A key challenge for HR in Middle East-based organisations going forward will be to identify what they will need to do differently for the business when the recovery starts, the Watson Wyatt ME report cautions.

"In this environment of economic uncertainty, HR people are seizing this opportunity to plan and set up processes to manage change. Change management expertise is back – and this time it's personnel," says Bryce.


Will recovery trigger salary increases?

Are green shoots of growth increasing compensation expectations?

There is a growing sense of optimism in the market and business leaders seem to be convinced that the worst is over. But does that mean there will be an increase in pay packages for employees who've not seen their salary levels increase in the past one year or so, or had to take significant cuts, or worse, went on unpaid leave?

According to Hasnain Qazi, Middle East Business Manager at Pathway Resourcing, it depends in which field you are. "[It] depends on what profession they belong to. Many employees feel signs of an improving market warrant an increase in expectations. So, for instance, certain categories of lawyers continue to see average compensations increase."

"On the flipside, businesses continue to be prudent and are saving on costs such as cutting back on business class flights. Employees are seeking more job security, and in certain cases will remain in their present jobs, even if more attractive opportunities are presented to them, if there are doubts on the stability of that company," he opines.

"The vast majority of candidates that we speak to are still highly cautious and are moderating their expectations. This situation is likely to persist as long as there is a perception of job insecurity and people see more companies actively hiring again," said Siobhan O'Reilly, Recruitment Manager at BAC Middle East.

Vernon Bryce, Managing Partner, Kenexa Middle East, says companies should value their best talent during all times (both good and difficult phases). If they fail to do so, employees will walk out in pursuit of better opportunities, once the economy picks up.

"To prevent talent drain during an upturn, smart companies should invest in confident leaders, caring managers, make work more exciting and remain committed to corporate social responsibility," he adds.

Click here for a graphic on how costs are being managed in tough times. 

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