As the economy recovers and workforce expansion rises, concerns about engaging employees and retaining critical talent are top of mind for many organizations, amid continuing cost pressures.

Mercer’s 2010 Attraction and Retention Survey found that more than one-quarter (27 percent) of participating organizations are expanding their overall workforce, while only 3% have instituted broad-based reductions. By comparison, Mercer’s Leading through Unprecedented Times Survey conducted in May 2009 showed fewer firms (12%) indicated they were hiring/expanding overall, while more firms (15%) instituted broad-based reductions. Cautious optimism prevails, however, as almost half (45%) of organizations are hiring to replacement levels only, while another 25% are hiring just for critical areas among select staff reductions.

Conducted in April, Mercer’s survey assesses the talent and rewards challenges organizations are facing as the economy recovers along with the tactics they are using to promote employee attraction, retention and engagement. It includes responses from more than 320 employers across all industries throughout the US and Canada.

According to the survey findings, almost half (47%) of organizations that assessed employee engagement over the past 12 to18 months report that levels of employee engagement have increased. 

“Higher levels of engagement can be a result of reward and talent programs adopted by employers that creatively seek a balance between responding to employee needs and coping with cost pressures,” said Loree Griffith, a principal with Mercer’s rewards consulting business. “Employees’ desire to preserve their jobs may have also contributed to higher engagement levels demonstrated by a willingness to go the extra mile, be resilient and embrace change.”

While the most common way to assess employee engagement is through employee surveys, more than half (53%) of organizations also gauge employee engagement through informal interactions with leaders, managers and employees. Focus groups and online forums are used by 33% and 7% of organizations, respectively.

Despite efforts to engage employees during a difficult year, organizations have growing concerns about whether their valued employees will stay once the economy recovers. Almost two-thirds (62%) of companies believe that voluntary turnover will increase as the economy and job market continue to improve. Moreover, Mercer’s survey shows that certain positions are more sought-after than others because of skill shortage or market demand. These roles include R&D/scientific engineering and sales, followed by information technology and executives/top management.

“Typically, engaged employees are less likely to seek job opportunities outside the company and therefore, have a more positive impact on both individual and business performance,” said Ms. Griffith. “By identifying talent needs necessary for future growth, employers can implement the appropriate steps for developing employees internally or hiring staff externally.” 

With regards to the workforce, Mercer’s survey shows that the majority (75%) of organizations have an even balance between hiring externally and building from within. However, trends to develop employees internally are more prevalent than relying solely on new hires.

Rewards
As the job market picks up and concerns about engagement and retention remain at the forefront, cost pressures still loom. According to Mercer’s survey, slightly more than two-thirds (67%) of organizations will be influenced equally by external competitiveness and internal affordability when making pay decisions. However, about one-quarter (24%) of organizations report that affordability will have a greater impact on pay decisions.

Over the past 18 months, amid limited pay budgets, organizations increased their use of non-cash rewards as a means to enhance employee retention and engagement. Rewards offered more during this time period include communicating the value of total rewards to employees (27%), work-life programs (22%), formalized career paths (21%) and special project opportunities (20%). See Figure 1.

Despite past emphasis on non-cash rewards, for 2010 and beyond organizations plan to focus on money as well as career development to retain and engage the right talent. Leading reward elements perceived to have the strongest impact on employee retention and engagement for 2010 are base salary increases (41%), short- and long-term variable pay (36%), and training and career development (35%). Interestingly, approximately one-quarter of organizations report that programs such as work-life initiatives, employee communication campaigns and time-off plans – elements of importance during the past year and a half – will have less impact on employee retention and engagement going forward. See Figure 2.

“Non-cash programs like career pathing, increased communication to employees and work-life initiatives are important in fostering employee retention and engagement regardless of the economic environment,” said Ms. Griffith. “However, as recovery occurs, employers want to revisit pay as a means to staying competitive and retaining top-performing employees.” 

About Mercer
Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefit outsourcing. Mercer’s investment services include investment consulting and multi-manager investment management. Mercer’s 18,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago and London stock exchanges. For more information, visit www.mercer.com.