Effects of the Economy on HR in Latin America.

Due to the current global economic crisis, Watson Wyatt has conducted a second edition of the survey, “Effects of the Economy on HR Programs,” which looks at how companies are adjusting their HR programs – recruiting and hiring, compensation, and benefits and salary increases. The 441 executives surveyed are from various Latin American countries; their firms represent different industry sectors and sizes, and origins of capital. Fifty-two percent consider their companies to be global, while the others are split into national and international organizations.

This second edition of the survey shows that companies have taken many actions in response to the world economic crisis and that they are still seeking measures to prevent possible negative impacts in the short term. Furthermore, the survey identified a group of optimistic companies who believe the worst has already passed and is moving forward.

Approximately 40 percent of participants believe their company has been deeply affected by the crisis, and 37 percent believe their firm will continue to suffer impacts in the next 12 months. Accordingly, 89 percent of respondents said some actions in response to the current economic downturn are already in place to respond to pressure for cost reduction, to shrinking sales volume or to economic uncertainties. Of these, 47 percent have made a decision implemented globally, 38 percent have adopted local (country) measures, and 15 percent have taken region wide (Latin America) measures.

As expected, the uncertainties of the market, low economic growth, the high unemployment rate and the exchange rate are the aspects of the crisis that most concern the executives and are directly affecting the HR actions taken. When asked how long the effects of the crisis will last in the company, only 9 percent are optimistic the effects will be felt for less than six months, while most of the respondents believe the impact will extend for six to 12 months.

Among the main issues that have affected the HR area so far are: reduction or suspension of training and development, reduction or suspension of salary increases and merit programs, and layoffs or hiring freezes.

The survey found that, because of the degree of market distrust, 66 percent of participants have generated internal communications with their associates, clarifying the current market situation, the main impacts of the crisis on the firm and actions the company is taking to respond to the crisis, such as cost-reduction measures. Compared with last year, many changes were made. Up to now, the main action mentioned was reducing the budget for salary adjustments – 56 percent have taken this action, and 27 percent will do so over the next 12 months. This was followed by stopping the hiring of new employees – 57 percent of respondents have taken this step, and 22 percent will do so in the next 12 months.

With regard to the HR budget up to now, 48 percent of the respondents said their company’s budget was cut by 15.9 percent on average, and only 7 percent increased the HR budget by 14.9 percent on average. For the next 12 months, 29 percent will cut the budget by an average 13.5 percent, and only 2 percent plan an HR budget increase (11.7 percent on average). With the pressures for cost reduction, most of the executives believe the crisis will affect salary increases; 33 percent said the increase will be below inflation, and 57 percent said it will match inflation. Nevertheless, the trend is a positive scenario for Brazil, since the average total budget for salary increases, considering collective agreement, merit and other increases, is above inflation, currently at 4.4 percent, according to official sources.

Another point revealed by the survey is the difficulty in retaining talent. Seventy-six percent of participants have taken or plan to take some measure aimed at retaining talented employees, particularly those for key positions and with high potential. As for the overall labor supply, 50 percent of the respondents believe that has increased, and 19 percent say the supply has not increased but will increase over the next 12 months. Despite the level of uncertainty in the current market environment, approximately 34 percent of the respondents believe the organizational climate has not been affected, and 37 percent expect it will not be affected in the near future. The other executives are divided between optimistic and pessimistic visions about business going forward.

The intervals for setting and/or revising sales incentive goals have become more frequent, due to the market’s instability. However, most performance bonus plans are still set up on an annual basis. Contrary to expectations, the survey shows that, on average, 50 percent of employee bonuses remained at the same level as the previous year. Asked about stock awards, such as stock options and restricted stocks, only 25 percent of the participants foresee a grant reduction to align the incentive plan to the company’s business strategy and the reduction in share value on the stock exchange due to the current market situation. Most of these companies do not expect the reduction to be offset with salary increases or short-term incentives adjustments.

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