A NEW EMPLOYMENT DEAL FOR THE 21ST CENTURY WORKPLACE

As these authors write, a new paradigm is settling in and occupying top managers’ waking hours. It’s one that focuses on workforce effectiveness, managing talent, and reinventing the core employment value proposition. The companies that will win in this era are those that deploy people in new ways to accomplish their business objectives and deliver both personal and organizational growth.

The start of the century has seen a number of discrete changes in the workforce-workplace arena, varying in size and impact. Considered individually, these change present nothing more than another bump in the road for organizations. Considered collectively, they add up to a red flag for all employers, in Canada and around the world. This article will examine these red flags, share new research on the views of employees, and propose a “new deal” for workforce management.

The new workplace

Many mature organizations are experiencing sharp increases in operating costs, driven by legacy issues and workforce programs such as pensions, benefits, and salaries. At the same time, small and large employers alike are under pressure from shareholders to accelerate growth. At the same time, the strategies they are using – such as improving customer intimacy and innovation – are more people-intensive than ever before. The result is increased pressure to retain talent, to build succession plans for current leaders, and to develop new ways of “incenting” employees to achieve business growth objectives. Across the board, organizations around the world are experiencing challenges in maintaining the right mix of people, with the right skills, available at the right time.

Above all, there appears to be something of a crisis in employee motivation and “engagement” at work. As the new Towers Perrin Global Workforce study1 shows, less than one in 5 Canadians are highly engaged by their work. Globally, only 14 percent of employees are highly engaged. Many more (62 percent globally and 66 percent in Canada) are only moderately engaged, creating a substantial retention risk and also affecting the organization’s ability to excel. Moderately engaged workers are not only significantly more likely to leave the organization (see Exhibit 1), but are also considerably less likely to contribute to the achievement of broad company objectives. This issue is often characterized as poor morale, but it more likely stems from an organization’s failure to create an engaged workforce that encourages employees to exert the discretionary effort required to help their company truly succeed (see side-bar). This is a somewhat complex topic, but the issue boils down to a fundamental lack of alignment between what the employer and the employee expect of one another. This can be thought of in a number of different ways – the “employer promise”, the “performance contract”, or the “employment value proposition.”. For the sake of simplicity in this article, we refer to this mutual commitment as “the deal”.

A simple illustration of this approach can be seen in Exhibit 2. We use this model to examine both the employer and employee needs from the “deal” perspective, factoring in external elements that will also influence the strategy. The organization’s “human capital” strategy basically looks at how to staff the business plan. The organization’s “total rewards” strategy, derived from that strategy, defines the value proposition for employees in joining an organization, and making a contribution.

What does the “old deal” look like?

For much of the last century, the “deal” was fairly clear. In exchange for their labour, employees could expect a high degree of job security and a slow but steady increase in their expected total compensation. Learning and development were provided, as long as they were specific to the job. Career-long loyalty was rewarded with financial support in retirement years (in the form of pension income and/or retiree medical subsidies). Organization structure meant that with annual increases and the gradual accumulation of relevant experience, the best people could climb the ladder within their units, and set their sights on a management role. In part because there was essentially just one career ladder/path available within a department, organizational titles proliferated.

Over the past decade or so, this deal has been under significant pressure as organizations have flattened, cut costs, used technology to increase productivity output expectations from existing staff, and faced escalating competition both for workers and for customers. We are now reaching a point where constant tweaks to the “old deal” no longer work for either employers or employees. Let’s examine some of the major changes and stresses on the current workforce management system.

Red flag: Rising labour costs Corporate pension plans designed in the mid-twentieth century are increasing in both absolute cost and volatility, influencing corporate cash flow and long-term financial viability. Health care costs continue to increase in double digit increments each year (in Canada, the current annual average per-employee cost is about $2,5002). While individual salaries have increased only by three to four percent each year for the last several years, this figure does not reflect “real” salary inflation. The total cost of direct compensation for the employer is higher, in part because many organizations are making

 

1 The Towers Perrin Global Workforce study examines current attitudes about work with over 85,000 full-time employees in 16 countries, on 4 continents.

2 Source: Towers Perrin Health Care Cost Study, Canada 2005-2006.

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