Productivity at new lows on stagnant job

Its “Key Trends in Human Capital” report, which based on data from over 2,400 organisations in over 50 countries, suggests that this increase in employee costs is largely down to companies cutting back on their recruitment of lower grade employees during the downturn.
This has left companies with a higher proportion of experienced workers who command greater pay, compared to younger, less experienced workers. This comes at a time when companies are seeing little, or no, revenue growth.
Western European companies are getting a much lower return from their investment in their workforce.
“Our analysis reveals that the percentage of employees with less than two years’ service has fallen sharply to 22 per cent. 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,” said Richard Phelps, human resource services partner at PwC.
“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.”
PwC suggests that many companies need to go back to basics and improve their performance management processes to ensure that people of all levels are delivering value. For many companies, this will mean implementing more vigorous performance management, which really differentiates between higher and weaker performers and rewards them accordingly. This is where better use and interpretation of people data can make a huge difference to employee productivity. Companies need to really understand what their employees want, what matters to them and what motivates them.
The report shows that multinational organisations are facing sharply contrasting human capital challenges from region to region as the global financial crisis has reinforced the contrast among economies and employment markets around the world. While Western Europe has felt the impact of the global financial crisis and has seen revenue per employee fall, Asia witnesses an increase.
One of the key trends is productivity gaps widening from region to region. Productivity dropped sharply in developed economies in 2011. Latin America and Asia-Pacific are now showing far higher levels of productivity than Europe, giving them a strong competitive edge.
In developed economies, as experience is preferred over youth for now, this will cause talent chain supply problems in the future.
Practices adopted in the aftermath of the crisis could also affect employee engagement, as employees in the West who survived the cost-cutting cull have been left disillusioned and disengaged. But poor employee engagement isn’t just a Western problem. It’s equally severe in Asia, in spite of the high levels of demand for younger talent, where job-hopping has become the norm. Employee retention issues are endemic in Asia. Of new recruits in Asia, the median resignation rate is 15.2 per cent, compared to 9 per cent in the UK, 8 per cent in the US, 7 per cent in Western Europe and 6 per cent in Latin America. A high resignation rate means a hurdle in boosting productivity.
The major economies in Asia have shown increases in economic output during the crisis, driven by rapid industrialisation and an expanding workforce in the manufacturing and service industries. With low wage costs and/or continuing growth in most parts of Asia, many nations demonstrate far higher human capital return on investment than the West.
In the US, the professional services sector has seen an increase in revenue per full-time employee (FTE) of 21.5 per cent, as businesses look for expert help in managing the difficult economic conditions.
In other industries though, employees are seeing fewer opportunities – the US technology sector saw a 28.3-per-cent reduction in revenue per FTE as organisations looked to reduce back-office expenditure. This is echoed in Western Europe, which also saw a fall in revenue generated in the technology sector.
Engineering and manufacturing, and the chemicals industry have also suffered. The pharmaceuticals sector, though, has enjoyed a small increase in revenue in Europe, along with the insurance industry and retail and leisure sector, and should see continued investment and innovation generating job growth for Western economies.
While developing economies are not immune to the downturn, they have managed to retain strong productivity levels, particularly compared against Western Europe and the US. Productivity levels in Western Europe had remained relatively stable as organisations cut back on employee numbers during the downturn, but last year, productivity dropped sharply. This places regions such as Asia, Latin America and Central and Eastern Europe in a continued position of strength in terms of competitiveness.
However, the continuing talent supply problems in Asia, coupled with aggressive growth strategies and high levels of employee churn, have resulted in recruitment rates that are about twice as high as in Europe and the US, at 22 per cent. The average tenure for employees in Asian organisations is just under four years.
Despite the prevailing economic uncertainty, PwC expects hiring demand to continue rising in Asia. Even as labour costs rise in some fast-growing economies, business leaders have set out ambitious plans to expand workforces – 55 per cent of Asia-Pacific CEOs expect to increase their company’s headcount over the next 12 months.
As a result of this rapid growth, acquiring talent in the external market is becoming more challenging and expensive. About 43 per cent of CEOs tell us that it has become more difficult to hire talent in their industry.
The problem is particularly acute in China and Hong Kong and in Southeast Asia where the proportion rises to nearly 60 per cent. This suggests an urgent need to strengthen recruitment and workforce planning processes.