Although we all have a sense that the labour market is stagnating, a cursory glance at the latest available data affirms just how extreme current market conditions are. The relationship between the stagnating labour market and reward strategy merits attention, not least because organisations can learn lessons from the pattern of recovery which followed the recession of the early 1990s.
This month’s Labour Force Survey data reveals that the resignation rate among employees has fallen to its lowest level since 1992. In simple terms, only 1% of employees per annum are choosing to leave their main employment voluntarily, compared to 3% p.a. at the height of the dot.com boom. A more brutal observation on the current labour market statistics would be to note that employees are 50% more likely to be pushed than to jump.
If the credit crunch has taught us something valuable, it is that small percentage changes make a material difference to all our lives. Whether it is seeing the effect of a few basis points change in the Italian bond yield, the latest GDP figures or an a sustained downturn in the resignation rate, the consequential impact can be profound.
For reward practitioners, like recruiters, the normal pressures on us are subdued. Real earnings are falling, but the labour market statistics suggest our employees are much more focused on maximising their job security, rather than maximising their earnings by moving jobs. Similarly, trade union pressure seems rather more focused on pensions’ protection than pay progression.
This context can easily seduce reward practitioners into kicking back and enjoying the lull as we all wait for the labour market to recover. That it will, but whether it is 2013 or 2012 that we see the first green shoots of a labour market spring, this is the moment in the cycle to be contrarian and to begin planning intelligently for the inevitable upturn. When it comes, it might come fast and pay inflation could roar back with a vengeance, especially in areas of skills shortage. The pattern of the last recession and recovery tells the story, whereby UK employment fell from a high of 26.5m in 1990, to 24.7m at the end of 1992, only to bounce back to 28m by the end of the decade. The upturn from 1993 was distinct when it came and a good proportion of those who had been deferring their next career move returned to the labour market quicker than employers expected – especially in areas of scarce or specialist skill.
This is the very moment in the cycle when we should be designing the long-term incentive plans, share schemes and similar retention tools which will slow the rate at which scarce and talented resource will otherwise resign from our organisations in two to three years time. We should not be leaving our reward strategies to stagnate as victims of the labour market, waiting to shut the stable door only after the horse has bolted. Of course, getting the timing right is a tricky business, but it is our ability to make those judgements which justify the premium which attaches to good reward professionals.
Please note that the survey reports that only 1% of employees per QUARTER are choosing to leave their main employment voluntarily, compared to 3% per QUARTER at the height of the dot.com boom (not per annum!)
It is true that the Labour Force Survey reports quarterly data, but the significance of the most recent quarterly data is that it confirms a pattern has become embedded over the past year. It is not that we have seen a short-term spike in employee behaviour from one quarter to the next, but we can observe from the data chart that the resignation rate has been flat lining at the rate of 1% for the past 12 months.
Whether it's per quarter or per year, I take the point, Mark, that there are a lot of people sitting tight rather than risking a move. As you say, once the economy starts to recover the people we have ignored and taken for granted will be looking for their next job. So we need to be considering the other aspects of "reward" now, the non-economic factors such as recognition, flexibility, communication and involvement to show employees that we value them and want them for the long term. A new reward strategy that includes 'total rewards' needs to be developed and implemented. The same old practices and programmes are not going to be enough; now or in the future.
Perhaps one day companies will see people as an investment opportunity rather than an overhead cost...yes at times like these it is good for a Spring clean of dead wood or a review of whether we have the right organisational structure or core skills etc..
but if we continually treat employees worse than investors then please don't be surprised to see them disappear out the door much like a neglected spouse!
Reward professionals need to show the initiative in convincing budget holders of the wisdom of effective engagement and incentivisation...AND then clearly showing the ROI (e.g. lower turnover, higher productivity, predictable and manageable employment costs etc)
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