Economists, the world stock markets and a recent round of press articles all agree that the worst of the credit crisis is over and not only have we reached the bottom of the downward trend but there are some signs that an upward trend is starting. Canada’s finance minister, Jim Flaherty, was given an award for being the best finance minister worldwide suggesting that we have faired better than most through this turbulent financial period. However, all the serious commentators agree that we are not going back to the level and type of economic activity that we enjoyed for the last five years. The crisis caused some fundamental aspects of how people think about and spend money to change. These changes will create a new pattern of economic activity.

One of the biggest changes that is being observed is the increase in the savings rate in the U.S., and Canada. In the past, consumers in these countries were comfortable spending almost every dollar they had earned and quite a few dollars that they had not. For a time in the US, the savings rate was negative meaning the majority of people were spending more than they earned. The same was true in Canada, though to a lesser extent. In response to the crisis people have returned to saving. In the U.S. and Canada people are keeping more of their money in their wallet. A recent report in The Economist suggested that the change in behaviour of consumers could reduce the money flowing through the economy by $545 billion dollars.

What this means for organizations everywhere is that the volume of organization they experienced prior to 2008 is not likely to return. The North American consumer drove an economic cycle which led to an increased demand for raw materials to be turned into products (mostly in China) which they in turn purchased. Without the consumer there to do the purchasing the whole cycle moves slower, growth is hard to achieve, organization confidence remains low and the job of keeping an organization’s people focused, effective and striving remains very tough.

Some of the key pressures that HR will face through a tough and tight economy will require careful handling, good preparation and a real ability to balance the needs of the organization with the need of employees. One of the first areas in which to anticipate challenges is the area of pay. As money and the flow of money becomes tighter and more uncertain for organizations so too will employees have a tighter focus on money and the pay they receive for the work they do compared to others.

This year we have seen modest increases in pay, a percentage of organizations have instituted a pay freeze and adjustments in benefits and incentives to reduce overall staff costs while maintaining fair levels of reward. HR functions in B.C. can be seen to be contributing to economic stabilisation as between the first and second quarter of this year the average labour cost per FTE reduced by seven per cent and the average labour cost expense percent reduced by four per cent, meaning that overall organizations are now spending less per person than they were. The organizational drive going forward will be to at least hold these ratios while experiencing a return to a more active job market. (Over the same period the voluntary turnover rate increased by 10 per cent and the vacancy rate increased by 50 per cent).

As the fear of job loss recedes and new employment opportunities become more available, employees become more willing to push for more pay. Many of your employees will be trying to save more, some will want to do so without compromising their existing lifestyle, hence there will be increased pressure from these individuals for more pay or there will be retention challenges focused around pay. HR will need to respond by closely monitoring the pay rates for jobs that are crucial to their organization’s strategy and also by designing, introducing and reinforcing hard to copy benefits that are low cost and have high perceived value. Benefits such as flexible hours, working from home, support for learning, internal mentoring, open book management (where the company shares its financial information in detail) are some possible approaches. However, success is not as simple as adding a single practice and requires each organization to understand why people stay and what salary and benefits mix will keep the right people (not necessarily all the people). This requires a conscious gathering of insight into what employees really value and then balancing this against what each element of your overall plan will cost in order to prevent your overall labour costs from rising.

As well as pressure from employees for more pay, HR professionals can continue to expect increased pressure from the organization to reduce staff costs overall. Tough as it is being in the middle of this dynamic situation, this is what makes HR a valuable profession which will continue to increase its influence on organizational outcomes as our economy begins its long steady recovery.