Amid heightened levels of economic volatility and a tight labor market, today’s HR leaders must equip their organizations to operate in an ever more turbulent business environment. Tackling the following five challenges will help these leaders shape work, rewards and career programs to sustain their organizations in uncertain times.
01
Inflation, which is continuing to be a top concern for governments, businesses and employees, combined with a scarcity of talent in many economies is putting pressure on salary budgets. In response, employers are striving to address employee concerns while mitigating the long-term impact of salary increases on the fiscal sustainability of their organization.
It is critical to recognize the complexity of this issue for global organizations as hiring, engagement and retention challenges vary by country and talent segment. Consequently, employers should gather current and projected market data on pay and inflation, and use this information to formulate competitive pay recommendations.
However, an organization’s response to inflation should go beyond pay and draw on all components of total rewards. Our research shows that in addition to salary, employees prioritize health and retirement benefits, flexible work and career opportunities.
02
In a volatile business climate, companies are expected to do more with less. Rising interest rates and a decline in demand raise the risk of an economic slowdown, which could threaten business performance. At the same time, new work models, climate change and geopolitical trends are putting pressure on companies to create sustainable work models.
Additionally, companies will need to ensure they have the right skills now, while keeping an eye on the future and anticipate required emerging skills, which may vary based on market, industry and geography. Four in 10 organizations are currently focused on upskilling and reskilling employees, which will help avoid talent gaps and threats to competitiveness. It is also important to consider the cost implications of these efforts.
Moreover, in these uncertain times, some employers may find it necessary to conduct layoffs, which can affect engagement, productivity and an organization’s brand. In such cases, it is critical that employers be transparent about the reasons for the layoffs and display empathetic leadership to maintain the trust of employees.
03
Inflation is squeezing total rewards budgets even as employers continue to struggle to attract and retain critical talent. Employees are also feeling the impact of inflation. Rising living costs are taking a toll on employee financial and emotional wellbeing, which can affect engagement, presenteeism and productivity.
The challenge for employers is to deliver the same or higher value in total rewards to employees, especially to those in key talent groups, while maximizing cost savings. Employers can start by identifying the sources of costs and risks for various programs including healthcare, compensation and retirement, and modeling future costs based on a range of different economic outcomes. To offer relevant programs, it is essential to understand employees’ needs and preferences through listening strategies, and develop a total rewards portfolio that aligns with what employees value.
Organizations should design total rewards programs with the goal of providing flexibility to both the employer and employees. Employers are looking for cost flexibility that allows them to recalibrate programs based on changing economic conditions. Employees appreciate pay, career and benefit programs that can flex based on their evolving needs.
04
Many organizations have seen a decrease in productivity due to supply chain constraints, disruptive technologies and shifting demographics. HR leaders play a vital role in helping boost labor productivity.
To identify productivity issues and make necessary changes to job design, skill requirements and career paths, it is crucial to gather the latest and most relevant data. This can involve external benchmarking related to factors such as organization size and structure as well as analyzing data on trends and shifts in performance, engagement and turnover rates, etc. Employers will also want to identify new and emerging skills.
This data will enable employers to better understand productivity gaps and their causes. Are these gaps due to an organization design that will not allow for more agile results? Or do these gaps result from low engagement in areas tied to work and rewards? For example, many businesses continue to struggle with how to effectively manage a hybrid workforce and more are requiring in-office attendance as one solution to their productivity challenges. With a better understanding of an organization’s productivity issues, employers can then recalibrate pay and rewards to support new productivity requirements.
To sustain efforts to boost productivity, employers will want to consider reviewing all elements of the career ecosystem, and providing managers with support and training in new ways of working. But findings from our 2023 Career Strategy and Design Survey show that most organizations are not far along in implementing various elements of a career ecosystem. Only slightly more than half (54%) have a job architecture in place for the full organization and only 22% have a career strategy for the full organization.
05
In the face of economic headwinds and competitive pressures, leadership teams will look to HR to assist in closing financial performance gaps (e.g., related to margins, cash flow, etc.). The following levers can guide this process.
HR leaders play a key role in preparing their organizations to navigate ongoing economic uncertainty. By shaping work, rewards and career programs that sustain the organization through challenging times, they can help chart a path to a more resilient future. To stay current on these topics, be sure to read upcoming articles in our deep dive series on future-proofing your work, rewards and career programs.
