Slowdown to weigh on human capital

PUBLISHED : Monday, 05 May, 2008, 12:00am
UPDATED : Monday, 05 May, 2008, 12:00am

With the world bracing for slower economic growth resulting from the United States subprime crisis and accelerating inflation, companies are tightening their belts.

The gloomy outlook is reflected in the findings of a McKinsey survey published last month.

Eighty-three per cent of executives polled said they expected a US slowdown to have a somewhat or very negative effect on their national economies over the next year.

The responses, gathered during the first half of March on the back of the expanding credit crisis, slumping stock markets and rising oil prices, also underscored worries about rising inflation and the falling proportion of executives who expected they could raise prices.

The Hong Kong Institute of Human Resource Management has called for caution in the second half of the year on economic uncertainties, even as it predicted high staff turnover in certain industries that will continue to pressure employers to offer bigger pay cheques.

In a January pay trend survey, the institute found companies awarded pay rises of 4 per cent or more - in line with inflation - with no pay cuts or freezes.

Yet looking ahead and crimped by less than rosy circumstances, companies are certain to exercise prudence which, if applied in excess, could become a drawback in the bigger scheme of any working environment, especially when it eats into the interests of workers.

Globalisation has broken down geographical boundaries for different types of jobs that have been transferred to developing markets where labour costs are lower.

With such an outlook, executives are less likely to say their companies will invest in research and development, mergers and acquisitions, or even staff, according to research by McKinsey published last December.

More than a quarter of executives surveyed expect to decrease investments in R&D and talent.

The decision to invest further in human capital is not an easy one. Executives commonly complain of a dearth of talent and the difficulty of retaining staff.

In its Managing Compensation in Asia 2008 report, Hewitt Associates found that to win in a competitive market, organisations and companies need innovative compensation strategies to attract, motivate, and retain high quality talent.

They will discard traditional workforce metrics and reporting - number of hires, attrition rates, and performance ratings - and link compensation, engagement, and productivity and attrition data to provide a clearer picture of the talent environment.

To optimise performance, companies will dedicate teams to access every piece of human capital data to facilitate analyses ranging from employee engagement and productivity to achieving the right mix between in-sourcing and outsourcing. This means examining correlations between promotion rates, employee engagement, attrition, and employee performance, the Hewitt report said.

Companies will also increasingly differentiate among their best and worst performers in visible, dramatic ways to motivate top talent to deliver excellence, the report said.

One of the most valued modes of showing appreciation will be through pay. Therefore, they will be compelled to develop a strategy that will reward top performers but also send a signal to encourage mediocre performers by linking their performance objectives to higher stakes.