The impact of the recent economic upheaval on the workforce

Employers should not lose sight of the importance of employee engagement and succession planning. When the economy has stabilised large numbers of employees many possessing key intellectual capital, networks, skills and knowledge might reverse the recent retention trends and choose to retire or change jobs. Employers should take steps now to manage employee engagement amid a period notable for its cost-containment and economic strife. Those that manage to stay ahead of the curve will be better positioned to take advantage of the market recovery.

PwC Saratoga’s 2010/2011 US human capital effectiveness report includes data from nearly 300 organisations representing twelve industry sectors that provided information from the 2009 calendar year. The average company in the report has annual revenue of $5.7 billion and more than 19,000 employees. While many participating clients are global companies, results included in the report refer only to their US operations.

We also produce separate European and South American human capital effectiveness reports and have recently launched data collection efforts in the Middle East and Asia.

Headline findings:

• The recession takes a toll on productivity; workforce productivity has decreased reversing the significant upward swing indicated by our 2009/2010 survey and representing the first year-on-year decrease since 2005.
• Human capital return on investment (HCROI), a key indicator of return on workforce investment, is down 23% at 43 cents in profit for every dollar invested in the workforce compared with the 2007 and 2008 result of 53 cents in profit for every dollar invested in the workforce.
• Voluntary turnover is down sharply: voluntary separations have decreased 30% since 2006 and more than 20% over the past year. Percentages for the overall workforce, high performers and workers at all experience levels showing double-digit declines.
• Employers might be scrambling to find ways to engage three disparate generations of workers at once, but the groups share at least one trait: voluntary separation rates across the three generations continues to decrease with steady declines among baby boomers, generation X, and generation Y since 2007. The consistency of these findings clearly reflects a protracted period of high unemployment and a fiercely competitive job market.
• Employee costs increase and employee healthcare costs continue to rise, but at a slower rate than in the past.
• While employee compensation costs per full-time equivalent (FTE) remained flat between 2008 and 2009, the recession had a direct bearing on performance bonuses. The percentage of employee compensation made up of performance bonus pay has declined by 55% in the past three years.
• Recession improves quality of hire: first year employee turnover has decreased from 31.7% in 2007 to 23.6% in 2009. As the economy improves, historical trends suggest that turnover numbers will increase. Nevertheless, a number of leading organisations are using the current market conditions to create and enhance programs to improve quality of hire.
• While overall eligibility for retirement increased for employees, it has declined for management: while more than one in five employees are eligible for retirement within five years, the percentage of managers and executives eligible for retirement has decreased.
• Despite current cost considerations, businesses need to plan carefully to confront a potential brain drain as the economy recovers and a greater number of key workers retire. Organisations should pay close attention to high-stakes talent losses, particularly at the leadership level. A metric that PwC Saratoga assessed for the first time in the latest report indicates that more than one in ten employees are currently eligible for retirement.
• HR costs increase, while HR headcounts decline: The increasingly strategic role of HR as a business partner is requiring a greater investment in HR labour costs and systems. Our data shows a per employee increase in HR costs from $1,462 in 2008 to $1,569 in 2009.

For further details about the report, please visit www.pwc.com/saratoga, or call the team at 1-866-727-2864 or contact:

Nik Shah, Principal PwC Saratoga
Scott Pollak, Director PwC Saratoga