Originally published in Brink on January 17, 2023.
All around the world, inflation is having an impact. The rise in costs of oil, food and almost everything else — combined with lingering supply chain disruptions, geopolitical tensions, floods and other extreme weather, and the persistent pandemic — increases the risk of a global recession and places pressure on organisations to adjust their financial strategies.
Mercer’s latest study — canvassing the views of more than 400 CEO/CFOs from around the world — confirmed that, despite entering a global slowdown and facing escalating talent challenges, most executives are still bullish about growth in 2023. Are there lessons learnt from past downturns that are driving this confidence? What strategies are they implementing to manage through this period? And will these strategies change if we enter a deeper recession?
Kate Bravery, global advisory solutions & insights leader at Mercer, sat down with Martine Ferland, president and chief executive officer at Mercer, to discuss the findings and hear her insights into how executives and boards can maintain growth during an uncertain economic and business climate.
BRAVERY: Based on our recent study, 87% of the C-suite believes we are in (or about to enter) a recession. Most of them anticipate that inflation levels will decrease or stay the same in 2023, and for many, inflationary pressures are top of mind. Martine, how does this business environment impact strategic planning discussions and near-term investment decisions?
FERLAND: Well, the current situation is unique, as we’re seeing multiple crises intersect. This has created a confluence of economic conditions — full employment, labour shortages, the prospect of a slowdown, stagflation and hyperinflation. It’s new territory for most, but I think we can look to the lessons learnt navigating the pandemic.
As leaders, we need to be agile and remain focused on our people, our business and our values. The number one approach is to scenario plan — and to balance empathy and economics while doing so.
Although every industry is affected differently, there is little doubt we will see an economic slowdown, which is reflected in the sentiment of the study. Prudent, dynamic planning, identifying various levers, and knowing how and when to act will make a difference for any business. We need to balance today’s challenges without neglecting the medium- to longer-term horizon.
Salaries and Inflation
Regarding the pressure to match inflation by increasing salaries, our study shows that executives are planning for more funding for salaries in 2023, although not necessarily at a rate that matches the rising inflation levels. We’ve heard from clients that there is already a focus by many organisations on supporting low-wage workers by issuing one-off payments or bonuses to help with expenses at this time. Employers should consider examining the full rewards picture, including monetary and non-monetary benefits that employees receive, and make space for any higher costs they believe will contribute to a more balanced overall employee value proposition. This includes addressing topline growth, adjusting prices, adopting a more disciplined approach to investing, etc.
Another area I’m thinking specifically about right now is how to adjust our investments in technology and people. Our primary goal is to retain and reward people, especially those who deliver in difficult, high-demand situations. As I see it, AI and technology are critical enablers to help us collaborate and work flexibly together to achieve that goal. And AI can complement the work of humans.
Like many firms, we’re seeing high attrition because of inflation, labour shortages and the diminished importance of physical location. I don’t know whether these trends will normalise with a slowdown, but I do know that there’s a high cost of replacing people. So we need to factor the costs of replacing someone versus the costs of keeping them into our action plans.
Labour Force Reductions
BRAVERY: Yes, AI and automation is actually a strategy many executives say they will invest more heavily in if they face an even deeper recession. To your point, many are increasing their talent provision for next year. One in three are budgeting to support more flexible ways of working, and half are increasing their hiring budgets. Yet our findings also showed that 68% of large firms (those with 15,000 or more employees) are planning a reduction of force this year — a figure higher than I expected. How are companies reconciling these strategies?
FERLAND: Many firms have had a number of years of not making base pay adjustments so I see this as a reflection of business, not cost optimisation. The pandemic has taught us all the importance of employee retention, because when the economy takes a turn for the better, organisations will want to re-strengthen quickly and capture talent opportunities. I suspect these reductions in force are highly targeted, and this can be a healthy part of work redesign. Having a clear and deliberate workforce management strategy is critical. That means knowing the skills and areas of the business to invest in to win now and in the future and knowing the opportunities for transformation acceleration that certain people-investments can bring.
With higher attrition in many sectors, it’s also critical to adapt with new efficiencies, such as always-on sourcing and pipelining of talent, more digitised onboarding and shifting some onboarding and training off the shoulders of client- and production-facing people. Better data and analytics are helping us do this with increased precision at Mercer. Data tells you where the most pronounced attrition is happening and can shed some light on where to identify and address the root causes. This modelling can also enable predictive analytics on attrition, helping nudge managers to intervene sooner, rather than have stay-or-leave conversations.
Holding on to talent doesn’t necessarily mean keeping them within the same function or department. Encouraging internal mobility and development, often fuelled by talent marketplaces, is a great way to retain top talent.
The Art of Offboarding
One last thing — when some people inevitably leave, or their position is eliminated, we are finding that how you communicate with them really matters. Just because this partnership has ended, caring about how people transition into their next experience is part of the full employment value proposition.
Anecdotally, we’re seeing plenty of boomerangs at Mercer and Marsh McLennan — employees who leave for other organisations only to return later on. If you treat people well when they work for you, communicate effectively and live out your organisational values, you stand to benefit in the longer term.
BRAVERY: What advice do you have for executives who are confirming their business planning process? How can we balance near-term actions with taking advantage of investments and opportunities?
FERLAND: Focus on agility, resilience and relevance. Determine where you will be the most relevant to your clients and customers over the next 12 months. Be granular about where you need to invest and what will help accelerate your transformation journey.
Keep asking yourself: What drives demand in my industry, and how might our demand curve change? How easily can our business model meet variations in demand, whether that’s related to talent, supply chain or automation? How adaptive is our work operating system to flow talent to growth areas? How exposed is our business to future market shocks, and how are we mitigating risks in the context of compensation and health inflation? What have we learnt from previous hard times, and how can we balance short- and longer-term imperatives? And, then, finally, be human and relatable in how you share your vision, values and purpose.
As executives, we all need to find what we want to stand for as an organisation, enshrine that in our people philosophy and ensure that we monitor our people and business goals concurrently. There’s a lot to consider in this dynamic environment, but we also have the opportunity to make a huge impact.
A Senior Partner and Mercer’s Global Advisory Solutions & Insight Leader. She has worked in Asia, Australia, the US, and Europe – helping organisations achieve a talent advantage through their people.
In her current role, she supports Mercer’s thought leadership agenda, knowledge management and colleague sales enablement. She also leads on solution innovations for HR buyers and colleague learning in the Talent, Reward & Transformation practices. She has held office, practice, and market leadership roles at Mercer and prior to her current position she was the Career Global Practices Leader and before that the Growth Markets Regional Practice Leader for Talent Strategy and Organisational Performance.
Kate is the author of Mercer’s annual Global Talent Trends study and speaks regularly on the future of work. She is currently partnering with the World Economic Forum under their Good Work Alliance project to define Good Work standards and metrics. She is a non-executive director of Digital Frontiers.
As CEO, I lead Mercer’s 25,000-strong global team. Together, we’re building healthier, more sustainable futures for our clients, colleagues and communities. By providing trusted advice and solutions and leading purposefully to achieve sustainable growth, we’re working to create a better society and drive better outcomes for people and businesses.
I’m a true believer in the power, performance and value of diverse teams. Making people feel they belong, that they make a difference — that comes through great experiences. When your people know your organisation’s purpose and understand their role in helping to fulfil that purpose, you engage and empower them to achieve your business goals and realise their own ambitions. Embracing openness and authenticity brings clarity of vision and strategy. It’s the way forward.