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CEOs are struggling to balance cost reduction with supporting critical talent and improving productivity

Over the last year, there has been a pronounced shift in the people objectives of CEOs’ worldwide, according to the PricewaterhouseCoopers (PwC) 12th Annual Global CEO Survey.

The availability of key skills has slipped from being the number one challenge facing CEOs globally in 2008 to rank seventh in this year’s survey as leaders turn their attention to surviving the downturn. Yet, despite their changing short-term priorities, virtually all respondents saw the war for talent as a strategic concern, with 97% identifying attracting and retaining of key talent as critical in the long term. 

With the long-term people strategy of many organisations being tested, PwC warns businesses to consider the complete picture in order to avoid blindly squeezing costs without fully appreciating the impact. CEOs need to take all workforce segments into account, the money invested in employees and the skills needed to compete in order to avoid cutting too deeply.

“Now is the time to drive out unnecessary and wasted spending but leaders need better information about the impact of any cost-reduction programme to avoid cutting the wrong investment or impairing competitiveness,” said Katarína Smrčeková, Senior Manager in Human Resource Management, PricewaterhouseCoopers Czech Republic

Pressure to cut costs is clearly having an impact, with 26% of CEOs globally looking to reduce headcount this year. This rises to 35% in the UK and 31% in the US. According to a recent analysis entitled “Impact of the financial crisis on Human Resources”, conducted by PricewaterhouseCoopers in the Czech Republic, 25% of Czech companies are dismissing their core employees, while half of companies are letting their agency staff go. Furthermore, 30% of respondents have also introduced a recruitment freeze.

“Companies in the Czech Republic responded to the crisis with some delay, but as of now, the vast majority is taking cost-reduction measures, affecting salaries and employee benefits, as well as flexible options in employee relationships, such as limitating overtime, mandatory holiday draw, adjusting working time, or transferring employees to other positions or jobs. Yet, it is important that businesses are clear about their long-term priorities before making cost management decisions,” Katarína Smrčeková said.

The Czech labour market has seen a rapid increase in wages over the last ten years, with employee costs growing several times faster than the inflation rate. This trend is now likely going to be corrected – in fact, more than 60% of the companies surveyed are planning adjustments in the area of compensation costs and 32% of companies have already decreased these costs by an average of 17%.  Czech companies appear to be looking in the right places: employee performance is becoming a key criterion for employee evaluation.

„It is essential that short-term cost-cutting measures not jeopardise the long-term future of a company. Focusing on performance management and aligning it with employee compensation is definitely a step in the right direction,“ Katarína Smrčeková stressed.

Solutions for employee relationships (PwC, Impact of the financial crisis on Human Resources in the Czech Repubic, 2009)

www.cz.pwc.com