A year of warnings, but heads are still in the sand

Oct 20 2008 by Nic Paton Print This Article

Observers in the U.S have been warning since the spring that the economy is in recession. In the UK, more than a year since the collapse of Northern Rock heralded the first signs of financial trouble ahead, new figures have also shown that growth has halted.

Yet, despite all the warnings, a fifth of British bosses surveyed this summer and a third of their counterparts in the U.S, still have not made any sort of contingency plan to manage their workforce through the downturn.

Economic forecaster the Ernst & Young Item Club has predicted the UK economy will shrink by one per cent next year, before growing by a similar percentage in 2010, with the downturn therefore being relatively short and shallow.

Its prognosis has been echoed by the latest quarterly survey of 5,000 businesses by the British Chambers of Commerce, which has concluded the UK is already in recession.

Nevertheless, one in five UK companies had as late as this summer still not made any sort of contingency plans for managing their workforce during an economic downturn, research by consultancy Watson Wyatt has found.

Its Global Strategic Reward survey of nearly 1,400 organisations in 37 countries found that eight out of 10 UK companies had put contingency plans in place by this summer, broadly similar with the average across Europe.

If this statistic was not worrying enough in itself, in fact British and Continental European companies generally appeared to have been more prepared than those in the U.S, suggested Watson Wyatt, where just over two thirds had made contingency plans.

Levels of preparedness varied across Europe, with all of the French firms polled saying they had made contingency plans, as had nearly nine out of 10 German businesses.

Some 85 per cent of Irish and 82 per cent of Italian firms also had plans in place, followed by three quarters of Dutch firms and just slightly fewer in Sweden. But in Spain not even six out of 10 firms had plans established.

"Whether or not they made plans for managing their workforce before the current financial turmoil, organisations should now be concentrating on preparing the ground for a potentially troubled future," warned Carole Hathaway, head of European strategic reward at Watson Wyatt.

"HR leaders need to conduct strategic workforce planning so that if and when they need to make difficult decisions they can be confident that they keep the right people to maintain performance of the organisation in the short term, and ensure they have the right skills to come out of the downturn in a stronger position," she advised.

"They also need to ensure they have the necessary systems and processes in place for effective reward management to ensure they can manage costs, but they are also still flexible enough to incentivise performance and maintain an engaged workforce," she added.

The survey found that organisational restructuring was the most popular option on the table, followed by a freeze on hiring, layoffs and slowing the rate of salary increase.

"Differing regulations and business cultures drive much of the country by country differences to planning for an economic downturn highlighted by our global survey," said Hathaway.

"For example, our survey shows that U.S employers are quicker to consider laying workers off while European employers, with less flexibility in that regard, are more likely to consider pay and hiring freezes," she added.

Other measures companies had considered included a salary freeze, offering early retirement, a reduced working week and sabbaticals, the poll concluded.