Partner Article

Employers pay for experienced workforce to weather recession

Employers are paying more for their workforce as they choose experience over youth, according to research from PwC.

Data from over 2,400 organisations in over 50 countries suggests that productivity levels saw a sharp drop in 2011, driven by an increase in employee costs, which have jumped 16% from 2009.

The report suggests the rise in costs is largely down to companies cutting back on their recruitment of lower grade employees during the downturn.

A higher proportion of experienced workers, commanding greater pay, has come at a time when companies are seeing little, or no, revenue growth.

PwC suggest Western European companies are getting a much lower return from their investment in their workforce.

Human capital return on investment, an analysis of the pre-tax profit produced for every pound, euro or dollar paid out in remuneration, has fallen to 1.11 in Western Europe.

It means employers are now only getting the equivalent of $1.11 back for every $1 they invest in someone.

Richard Phelps, human resource services partner at PwC, said: “Our analysis reveals that the percentage of employees with less than two years’ service has fallen sharply to 22%. Many organisations across Europe have chosen experience over youth to see them through the recession, but cutting the recruitment of younger workers means they are paying out much more for their workforce for less return.

“The difficult job market means many experienced workers are staying longer in jobs, leaving companies struggling with top heavy structures, little staff turnover and rising wage bills.

“The current low growth environment means companies must get the most value from their investment in people. This means flexing their HR policies for different parts of the workforce.

“Companies could find new ways of motivating people who are staying longer in their roles and offering greater options to people nearing retirement. Companies need to ensure they get the best out of their younger workers by setting out clear development paths and offering flexible compensation packages.”

PwC suggest companies need to go back to basics and improve their performance management processes to ensure that people of all levels are delivering value.

UK and European companies still lag behind their US and Asian counterparts when it comes to maximising profit from their investment in people.
Despite the US seeing a drop in its return on investment, for every dollar paid out in remuneration, US employers typically get 20% more pre-tax profit in return compared to UK companies.

This was posted in Bdaily's Members' News section by Tom Keighley .