State Of Hr Report 2011

SURVEY 2011

Austerity or prosperity?The state of HR in this challenging

economic environment

64726 The State of HR:64726 2/2/11 10:53 Page 1

The state of HR survey 2011

Organisations involved

Speechly BirchamSpeechly Bircham’s Employment group is a leading employment law practice meeting thediverse needs of a broad range of employer and senior employee clients. Employer clientsinclude public and private companies, partnerships and other organisations, based in theUK and overseas, across a wide range of business and professional sectors, with a strongfocus on financial services, professional services, media and entertainment, as well aslarger corporates. The team handles sensitive and complex issues across the spectrum ofthe employment relationship. The group has specialist expertise concerning immigrationissues and works closely with the firm’s pension and employee benefit teams. The team ishighly regarded for its experienced, discreet and practical approach

www.speechlys.com/employment

King’s College London HRM Learning BoardThe HRM Learning Board is unique in the way it connects organisations to the latestacademic research and thinking on contemporary workforce issues. Through its workshopand seminar programme, bespoke learning and advisory activities, and through a variety ofother forums and media, the Learning Board is an innovative thought leader oncontemporary people management practice. It also enhances the experience of King’spostgraduate student talent pool by developing work placements, internships and projectswith our partners on key workforce development interventions and strategies.

www.kcl.ac.uk/hrmlb

1



Profiles

Richard Martin, Partner and Head of Employment at City law firm Speechly Bircham LLP

Richard advises employers and senior employees on all aspects of the employment relationship and has15 years’ experience in the field. He has particular experience and expertise in handling high valueclaims for breach of contract, unfair dismissal (including whistle-blowing) and discrimination as well asadvising on the drafting of relevant contractual documentation and remuneration schemes. He advisesregularly on the enforcement of restrictive covenants and confidentiality obligations including theparticular issues arising on team moves as well as the employment related aspects of business transfers.Richard works closely with the HR teams in the employer clients for which he acts and understands thestrategic role of HR in those organisations. Richard lectures regularly on employment law issues(including at King’s College London).

Stuart Woollard, Managing Director of King’s College London’s HRM Learning Board

Stuart established the HRM Learning Board with King’s in 2007, connecting organisations to the latestacademic research and thinking on contemporary workforce issues. Prior to this, he gained 10 years’senior level business and consulting experience with Arthur Andersen, and created a managementconsultancy in 2000 advising a number of major corporations on strategic human resource initiatives.He also worked for several years in a global HR director role in the financial services industry and wasManaging Director of UK operations. Stuart’s areas of expertise include business strategy, peoplestrategy and performance, change management, policy design and implementation. He has alsopublished research on the role of HR in international mergers and acquisitions (CIPD). Stuart has maderegular contributions on HR issues through various media and to a variety of industry and specialinterest groups.

The authors of the survey report are Dr Michael Clinton and Stuart Woollard of the Department ofManagement, King’s College London.

Dr Michael Clinton, King’s College London

Michael is a lecturer in Work Psychology and Human Resource Management at King’s College London,teaching at both undergraduate and postgraduate levels. Michael has been researching the employmentrelationship from a number of angles for over eight years. This has included work on the perceptions ofHRM within the workplace, psychological contracts and employment contracts and performancemanagement systems, and has involved working with organisations across a broad range of sectors,including large projects with the Department of Health and the Ministry of Defence. In 2008,he completed his PhD examining the issue of uncertainty within organisations and its impacton employees. Michael publishes his research in academic journals and regularly speaks atinternational conferences.

2



Foreword

It is with great pleasure that I introduce the third annual State of HR report. Run in conjunction with the

world-class academic team at King’s College London through the King’s HRM Learning Board, the survey

offers a unique analysis of the issues HR professionals have faced over the last year, together with a

detailed picture of what they expect to be on their plate in the year to come. The survey had 550

respondents representing a workforce of over 2 million.

It is no surprise that the public sector has fared worst over thelast 12 months and has the bleakest outlook going forward.The comprehensive spending review has of course presagedsome of the most aggressive reductions in public spending onrecord and the effect is certainly being felt. The third sector toois suffering. Our studies over the last few years have providedfascinating insight into some of the more enlightenedapproaches the private sector has taken to restructuring and jobreductions. Many have been able to effect quite significantchange in ways that have not impacted organisationalperformance or engagement and, indeed, have retained keyskills. There may be lessons there for the public and third sectorsas they go through the pain of downsizing.

In several areas there appears to be a degree of heads in sandamong senior HR professionals. Put another way, organisationsmay need to shake off their cloaks of complacency and face upto some serious threats that are going to be impacting theirbusinesses over the short and medium term.

With the Equality Act in mind we asked respondents to tell usabout gender pay differentials in their organisations. A massive84% denied there was any issue within their organisation,despite the fact that only 33% claim to be doing anything tomeasure it. This optimism is of course in sharp contrast to datafrom other research. The Office for National Statistics reportsthe pay gap across all employees at just under 20% and in itslandmark report in 2009 into equality in the financial servicessector the Equality and Human Rights Commission found fargreater levels of pay differential in both salary and incentivepayments. This is going to be an ever growing problem asawareness levels among employees increase (together with awillingness to take legal action) and the push for greateropenness on pay differentials continues.

Respondents appear to be taking a similar approach in relation toretirement issues. 78% reported that their organisations have aretirement age of 65 and 5% operate an alternative compulsoryretirement age. Only a third, however, recognise this as an issue forthe year ahead. With the abolition of the default retirement age in2011 and an expectation amongst most commentators that agediscrimination claims will increase, employers would be welladvised to be paying more attention to this issue.

Perhaps even more worrying is what can be read between thelines about employee well being and engagement. Over 50% oforganisations report an increase in working hours while pay

increases and bonus awards continue to be held back. Stresslevels remain on the increase as do workplace disputes,particularly around bullying and the relationship with linemanagers. This is a potent cocktail. Staff are being made to workever harder without increased reward and they are sufferingfrom increased stress and conflict. There must be a danger of anexplosion of employee discontent at some stage. Further, withthe jobless total still increasing, are we seeing a fragileeconomic recovery built on working reduced workforces harderand harder rather than increasing the number of jobs? That isnot sustainable in the longer term.

Immigration issues continue to hit the headlines and the surveyrepresents the first opportunity to gauge the effect of therecent clamp down on immigration into the UK. Nearly half ofrespondents employ non-EU nationals and, of those, over 40%report a negative impact on their businesses from the changes.Further changes to come in April this year will no doubt makematters worse. Employers who have been reliant on employingmigrants with their own immigration permission to work willbe forced to go down the more complex and time consumingsponsorship route.

On the positive side it is encouraging that employeeengagement remains the number one concern for HRprofessionals. Those methods that might seem more imposedfrom the top (more effective leadership, improved learning anddevelopment opportunities, developing better relationsbetween staff and line managers) seem less successful thanthose that involve working more closely with staff (greateremployee participation in decision making, better job design,greater fairness in procedures). Sadly it seems the latter are lesslikely to be used.

There is much in this report to learn for everyone involved in HRor management. I would like to thank the teams involved atKing’s as well as here at Speechly Bircham for their hard work andcontinued enthusiasm for the survey. I hope the readers gain asmuch insight from it as we have had in putting it together.

Richard MartinHead of Employment, Speechly Bircham LLP


The state of HR survey 2011 4

Introduction and summary findings

The results of our third annual State of HR survey demonstrate that the difficult economic conditions over

the past year have created highly challenging circumstances and have exacerbated the problems facing

organisations. This continues to place a real strain on the workforce, as organisations strive to move

forward. Much uncertainty also remains for organisations, particularly as the current period of economic

austerity continues and the outlook for the coming year is far from clear.

This report, which is based on the findings from our 2010-11survey, identifies the key workforce issues and highlights someimportant trends since the onset of the recession. One of themost significant and potentially worrying finding fororganisations is the relationship between increased workinghours and increased absences, sickness levels, stress relatedproblems and the number of grievances lodged (see section 3 ofthis report). With organisations reporting an increase in hoursworked this year, which is also expected to rise in 2011, this maynot yield the economic outcomes expected. Conversely it mayincrease the burden placed on HR and the business asanticipated future increases in working hours are also linkedwith potential staff turnover and industrial action.

The report looks to predict what are likely to be the major issuesin 2011 and how a workforce strategy should be developed toaddress these critical HR challenges. One of the key challengesfacing organisations in 2011 is a skills shortage which, coupledwith the tightening of immigration legislation and theintroduction of the interim cap on the number of non-EUmigrants employed by organisations, will serve to furtherexacerbate the problem (see section 2 of this report). For thoseorganisations with a skills shortage, the situation is likely tobecome worse with potential increases in staff turnover andabsence related to such shortages.

The survey allows us to distil valuable insights from senior HRprofessionals about what is happening to their organisation’sworkforce and to their HR function. There is a worryingdisconnect between management and staff with a rise inemployee grievances for the third successive year and the majorsource coming from poor management and staff relations.While organisations are again attempting to foster bettermanagement/staff relations, the survey highlights that suchinitiatives are not working to any significant extent.

This year’s report allows us to understand whetherorganisations perceive any adverse changes as a result of achange to government policy or legislation. There are someinteresting and unexpected results in relation to age. Eventhough the default retirement age will be phased out from April2011, only one-third of organisations expect it to be a majorissue for 2011, despite the fact that 78% of organisations have aretirement age of 65 (see section 4 of this report). However,such optimism may prove a little premature and this combinedwith the fact that HR professionals are predicting a majorincrease in the number of age related grievances, may meanthat age will be a key issue for organisations in 2011. Anotherfinding, which again is interesting and unexpected, is in relationto pay inequality. 84% have reported no pay inequality withintheir organisation (see section 3 of this report), yet only 32%record and monitor such data. This may mean that whenorganisations are required to publish such data, there may beinteresting and unexpected findings.

In this report, we have been able to compare the survey resultswith what was reported to us in previous years and we haveidentified emergent trends. Whilst the prevailing economicdifficulties are clearly having a negative impact on organisations(77%), the private sector and the public sector have tradedplaces this year (see section 1 of this report). The story for 2010was not completely bleak and there were modestimprovements in some sectors such as financial services,business services and manufacturing.

The report has also identified some positive trends. Employeeengagement continues to embed itself as a central tenet of HRstrategy with more organisations measuring it (66%) (seesection 5 of this report). Our analysis again found that manyinitiatives intended to improve employee engagement appearto work. A number of engagement strategies are also linkedwith superior financial performance – developing betterstaff/manager relations, more equitable reward systems,enhanced career development opportunities andimproved learning and development are all linked to betterbusiness performance.



1. Economic impact on organisations and sector groups

The prevailing economic difficulties are clearly having a negative impact on organisations, with 77% of HR

professionals supporting this view. However, when compared to last year, there are modest improvements

in some sectors such as financial services, business services and manufacturing. Conversely, the greatest

negative impact for 2010 has been felt by the public sector which has reported greater difficulties this year

when compared to 2009.

Who is most affected by the current difficulteconomic conditions?As with the previous two surveys, the widespread and broadlyconsistent impact of poor economic conditions has found asimilar level (77%) of respondents experiencing a negativeimpact on their organisation. Overall, results have seen 30% ofour sample reporting that the recession has had a majornegative effect on their organisation and 47% have indicatedthat it has had a minor negative effect. As shown in the tablebelow, all sectors show a net negative impact from theprevailing economic climate.

However, this year there is an emerging demarcation betweenpublic and private sectors. Unsurprisingly, the largest negativeeffect has been on the public sector and the NHS. While real

estate and construction still features in the top five worstaffected sectors, the public sector takes three of the top fivehardest hit sectors. This result is almost a reversal of last year’ssurvey where the private sector dominated.

Again like last year, a small number of organisations arethriving; for 15% of respondents, the last 12 months has beenan opportunity to grow and these organisations report either aminor positive (11%) or major positive (4%) effect. This is aslightly more optimistic picture than last year, when just 1 in 10respondents were positive. In terms of the future, there remainsmuch uncertainty, particularly for the public sector, where 64%of respondents highlight great or very great uncertainty for theirorganisation. This compares to just over one in five for thesurvey as a whole.

3.000000 3.666667 4.333334

Health (private)

Manufacturing

Other business services

Financial services

Retail and leisure

Media and entertainment

Professional services

Transport and communications

Utilities

Charities and NFP

Education (public)

Education (private)

Real estate and construction

Health (public)

Other public sector

No effect Minor negative effect Major negative effects

2009 2010

Key

Degree of overall net sector impact of current economic climate

Figure 1. How has the economic climate affected your organisation in the last 12 months?



2. Workforce size, skills shortages and resourcing strategy

One of the key challenges for the previous three years and which is now a bigger issue for this year’s

survey is a skills shortage, with 1 in 3 organisations reporting a skills gap. With the introduction of the

interim immigration cap and the tightening of immigration legislation, the skills gap is unlikely to

decrease. Equally, for those with a skills shortage, staff turnover is more likely and staff absence higher,

thereby compounding the problem.

There has been a modest sign of recovery, with overall workforcesize increasing. Unfortunately redundancies are stillcommonplace with 7 in 10 organisations making redundanciesin 2010. However, organisations have also shown morewillingness to consider and implement alternatives toredundancies, such as flexible working arrangements (48%).

Workforce sizeOrganisations providing information for this year and last year’ssurvey, have seen an average increase of 3.57% in workforce sizebetween November 2009 and October 2010. However, thisvaries between sectors, highlighted in the table below. Fromthese results, it is evident that (excluding media andentertainment and transport and communication sectors),workforces have changed little in size overall during 2010.

Figure 2. Increases and decreases in workforce size over previous 12 months

-5 0 5 10 15 20 25 30 35 40


Education (public)

Utilities


Manufacturing


Health (public)

Financial services

Other public sector

Retail and leisure

Education (private)

Health (private)

Charities and NFP



% change in workforce size across sectors



Skills shortages worsen1 in 3 organisations reported experiencing a shortage of keystaff in an area of their organisation, compared to just over 1 in5 last year. As with last year, examples given are predominantlyprofessional, managerial or technical areas, and finding staffwith very specific qualifications and skills continues to presentorganisations with a problem. Our findings further show that inorganisations where there are skills shortages, compared withthose where there are no such skills shortages, it is more likelythat staff turnover is increasing and that a greater number ofworking days are lost due to sickness and absence. Theseissues are likely to exacerbate the skills shortages withinthese organisations.

Over the last three surveys, we have seen what appears tobe an underlying skills shortage. With immigration legislationnow tightened, making it far more difficult to bring in talentfrom overseas, organisations are faced with a difficult challengeof how to deal with a skills deficit. We asked respondents toidentify how their organisation was dealing with any skillsshortage. 21% stated that they were unable to do anything atthe present time; while others were employing temporary staff(29%), developing their own employees (55%), or activelyseeking to hire new staff in the UK (54%) or from abroad (25%).

This year we specifically asked questions on immigration andthe introduction of the number of migrants employers are ableto sponsor to work in the UK. Almost half of organisationssurveyed (48%) employ non-EU migrants and 42% of those haveexperienced a negative effect as a consequence of theintroduction of the interim cap.

The nature of workforce restructuringWorkforce downsizing remains highly prevalent, and 7 in 10organisations have made employees redundant in 2010. Inprevious years we identified that organisations have attemptedto maintain the integrity of their workforces and retain keytalent where possible. This year’s results continue to reflectthis dynamic.

Respondents have reduced the use of compulsory redundancyas a means of effecting restructuring and they have alsoincreased the use of flexible working arrangements. For thosewhere downsizing was deemed necessary, organisations havealso adopted a variety of strategies. Again, the use ofalternatives to redundancy appears to be a successful strategy;employee engagement was more likely to have decreased inorganisations that had made redundancies compared withthose that had not. For the public sector, which is set to bearthe brunt of future downsizing, lessons from what hashappened in the private sector should be heeded in terms ofhow best to implement the change.

Workforce planningIn terms of future headcount expectations, there are onlymarginally more respondents expecting an increase inworkforce size versus those expecting a decrease. The samearises with expectations around graduate recruitment.Overall workforce size is expected to be fairly flat for the next12 months. However, there still exists much uncertaintyregarding more medium term workforce requirements, with87% of respondents indicating uncertainty about the size ofworkforce required over the forthcoming two years and 71%indicating uncertainty about the skills that will be required overthe same period.

Figure 3. How workforce reductions wereachieved by those that downsized

2010(%)

2009(%)

Compulsory redundancy/severance 66 77

Early retirement 19 17

Natural wastage 72 73

Outsourcing 14 10

Recruitment ban 43 51

Voluntary redundancy 49 44

Other (eg flexible work arrangements) 8 3

Again, the use of alternatives to redundancy appears to be a successful strategy; employee

engagement was more likely to have decreased in organisations that had made redundancies compared

with those that had not. For the public sector, which is set to bear the brunt of future downsizing, lessons

from what has happened in the private sector should be heeded in terms of how best to implement

the change “ “



Staff fatigue and potential burnoutThis year the survey asked about additional hours worked by staff.As shown in the table below, across all sectors, there is a veryclear message that workforces are being asked to work far harderduring the prevailing economic conditions. Of all factorsmeasured in the survey that looked at workforce related changes,additional hours worked by staff saw the largest increase.

3. Effects on workforce and HR management

Our survey gathers insights into a range of workforce outcomes that have arisen from the current

economic environment and the picture presented is potentially worrying for all organisations. It is clear

from our results that working hours have increased across all sectors. For those organisations using

additional working hours as a means of achieving efficiencies, our analysis shows that increased working

hours actually corresponds to increased absences, sickness levels, stress related problems and the number

of grievances lodged. For those organisations using additional working hours as a means of achieving

efficiencies, this may prove to be a false economy.

Figure 4. % of organisations in which number of additional hours worked by staff have increased

0% 20% 40% 60% 80% 100%

Financial services

Health (public)


Education (public)

Retail and leisure

Other public sector


Charities and NFP

Manufacturing

Education (private)

Utilities


Health (private)



Of all factors measured in the survey

that looked at workforce related changes,

additional hours worked by staff saw the

largest increase“ “



Further analysis shows that there are significant associationsbetween additional hours worked by staff and increasedabsence/sickness levels, stress related problems, and thenumber of grievances lodged. In terms of future expectations,those organisations with expected increases in working hoursover the next 12 months are also expecting increases inabsence/sickness, staff turnover, stress related problems,industrial action, and grievances.

The implication is that those organisations which are runningvery lean in staff terms are likely to be experiencing seriousworkforce issues that may be affecting productivity, workquality, and potentially competitive advantage. With evenmodest levels of growth post recession, workforces that havebeen downsized will be required to do even more, potentiallymaking the situation worse, and those organisations that mayseek new hires could find that additional staff to aleviate theproblem will take time to hire and embed.

Key trends The findings below show the spectrum of changes that haveoccurred within organisations. The bars on the chartdemonstrate whether organisations were more likely to reportincreases or decreases for each factor. For example, in 2010,more than 50% of organisations reported that the size of payincreases decreased rather than grew.

From the table we can see that HR budgets for remunerationand training continue to fall. General staff recruitment,graduate and temporary worker hiring have also decreased.Consistent increases have been observed in employmentrelations problems, stress and grievances lodged, all of whichhave been significant issues in all three years of our survey.These trends are discussed in more detail on page 12.



0% 10% 20% 30% 40% 50% 60% 70% 80%

Difficulties with immigration (2010 only)

Industrial action (2010 only)

Stress related problems among staff

Use of flexible working practices (2009/10 only)

Number of grievances lodged (2009/10 only)

Number of additional hours worked by staff (2010 only)

Number of staff on part-time contracts (2009/10 only)

Employment relations problems

Cost of pension provision (2009/10 only)

Absence/sickness levels

Ability to attract talent

Investment in HR technology

Ability to retain key staff (2010 only)

Recruitment of graduates

Staff turnover

Number of temporary staff

Number of employees receiving a bonus

Employee engagement

Size of bonus payment pool

Training and development budget

Recruitment of staff (2008/10 only)

Size of pay rises

Key

2008 2009 2010

% organisations reporting decreases

Figure 5a. Please indicate whether any of the following have changed for your organisation in the last 12 months: Decrease



0% 10% 20% 30% 40% 50% 60%

Difficulties with immigration (2010 only)

Industrial action (2010 only)

Stress related problems among staff

Use of flexible working practices (2009/10 only)

Number of grievances lodged (2009/10 only)

Number of additional hours worked by staff (2010 only)

Number of staff on part-time contracts (2009/10 only)

Employment relations problems

Cost of pension provision (2009/10 only)

Absence/sickness levels

Ability to attract talent

Investment in HR technology

Ability to retain key staff (2010 only)

Recruitment of graduates

Staff turnover

Number of temporary staff

Number of employees receiving a bonus

Employee engagement

Size of bonus payment pool

Training and development budget

Recruitment of staff (2008/10 only)

Size of pay rises

Key

2008 2009 2010

% organisations reporting increases

Figure 5b. Please indicate whether any of the following have changed for your organisation in the last 12 months: Increase



Recruitment and resourcingIn last year’s survey respondents had anticipated thatrecruitment activity would pick up, with staff turnover expectedto increase. This did not happen to the extent necessary to makemuch difference to recruitment activity. Recruitment hasremained depressed and workforces have remainedrelatively static.

An interesting dynamic that has continued from the previoustwo years has been the increase in the use of flexible and part-time working as employers have reduced payroll costthrough methods other than redundancy. We again reiteratethat the recession may have acted as a catalyst for a sustainedshift in the growth of flexible and part-time work.

For graduates, there is no good news, with three consecutiveyears of our survey showing falling graduate recruitment levels.As students are now faced with having to borrow more to fundtheir education, the picture remains gloomy.

Workforce stress and employment relationsStress continues to be a significant problem, recording a thirdsuccessive reported increase. Again, higher levels of stresscorrelate with higher levels of sickness absence in our survey.

In this year’s survey, 46% of senior HR professionals report anincrease in levels of stress among employees compared with38% last year. This suggests that while more and moreorganisations are likely to have seen stress increase over thepreceding three years, many organisations may have seen stressworsen within their own workforce during the course of thedownturn. Worryingly, stress related problems are set toincrease again for 2011.

Employment relations problems also remain a significant issue,similarly recording a third successive increase above theprevious year. This year 42% report an increase in employmentrelations problems compared with 38% last year.

For HR professionals and front line managers the economicconditions have and will continue to bring significant additionalwork in dealing with employee related problems and employeewell being.

Employee engagementOur previous surveys have highlighted employee engagementas the HR function’s key workforce priority for 2009 and 2010. Inthis year’s survey, the overall reported employee engagementlevel shows a slight decrease. This supports the view reported inour surveys that while maintaining engagement remains a highpriority it is a difficult challenge in the current climate. We lookat engagement in more detail in section 5.

Pay, benefits and budgetsThe general trend from the last two years continues and showsa further overall reported reduction in pay rises for 2010, as wellas a reduction in bonus pool size. Again, the size of budgets fortraining and development has fallen.

With the Equality Act being introduced, the survey also askedspecific questions on pay inequality. 84% of respondents statedthat there was no material pay inequality from a genderperspective, while 10% did report a significant inequality. It isnot clear whether this is an accurate reflection of the trueextent of gender pay differences, particularly as only 32% ofrespondents advised that they had implemented some kind ofassessment or monitoring of pay inequality – it appears that alarge number of organisations are assuming or judging thatthere is no material pay inequality without any formalmechanism to provide evidence to back this up. Those planningto assess and monitor pay inequality in the next 12 monthsamounted to 20% of respondents.

Staff discontentOur two previous surveys identified that many organisationswere experiencing a deterioration in the relationship betweenmanagement and staff. Indicators of this include higherincidences of stress and employee relations problems. These areagain key outcomes of this year’s survey. However, the mainindicator of a management/staff disconnect is that the biggestsource of grievances relates to staff relations with senior andline managers, (see page 13). This apparent disconnect is clearlycausing potentially serious workplace problems.

The outcomes of tougher management in a poor economicenvironment and the creation of more dissatisfied staff arerecognised by organisations as many are attempting to fosterbetter relations between management and staff. The potentialeffect of this and the role of line managers is examined furtherthis year, in section 5.

In terms of the nature and extent of reported employeegrievances, as with last year’s survey, 30% saw grievances rise in2010. The main grounds for grievances are shown overleaf,together with expected causes of grievances during the next12 months. Aside from relations with management, the biggestcause of grievances has been bullying and harassment. It isinteresting that HR professionals expected bullying andharassment to fall in each year of our survey, but actualincidences remain stubbornly high and are increasing. In thisrespect, strategies to reduce bullying and harassment areapparently not working.



Figure 6. Grievances expected and then reported for 2009-10 and expected for 2010-11

0 5 10 15 20 25 30 35 40

Religion or belief discrimination1

Sexual orientation discrimination1

Whistle-blowing

Age discrimination

Disability discrimination

Race discrimination

Sex discrimination

Working hours/holidays/time off

Career development/promotion

Work practices/allocation

Stress

Pay and conditions

Bullying/harassment

Relations with senior/line managers

Expected2009-10

Lodged2009-10

Expected2010-11

Key

% organisations reporting grievances lodged/expected

1 The expected level of grievances in these areas for 2009-10 was not part of our survey in the preceding year and so this data is not available.



In terms of future expectations for 2011, the main causes ofgrievances all feature again. The mix is slightly different, withpay, stress, work practices/allocation, career development andworking hours all expected to feature more strongly in thecoming year. One interesting result is that age discrimination isexpected to feature more prominently in 2011, perhaps as theissue gets greater attention from legislative changes and as theissue gets publicity from more tribunal cases.

The management of redundancyWith a significant number of organisations still makingredundancies, we again examined the management ofredundancy. 70% of organisations reported having maderedundancies (either compulsory and/or voluntary) in theprevious 12 months. This compared to 72% in the previous year.The extent of redundancies was small for many – 34% oforganisations made fewer than 10 people redundant and 59%of organisations made up to 500 employees redundant while7% made more than 500 staff redundant.

62% of those who made staff redundant in the past yearengaged in some form of collective consultation, compared with64% last year. 41% of these reported that this was somethingthat management volunteered to carry out, even though it wasnot required by legal rules or union/workforce agreements.

As with last year, the criteria for selecting people for redundancyvaried widely:

� 52% used performance assessment undertaken specificallyfor this purpose

� 45% used a general performance assessment

� 41% used disciplinary records

� 32% used absence records

� 16% used length of service (despite the potential agediscrimination implications).

These responses are similar to those reported in last year’s survey.

One interesting result is that age

discrimination is expected to feature more

prominently in 2011, perhaps as the issue gets

greater attention from legislative changes

and as the issue gets publicity from more

tribunal cases

“ “



Major issues facing organisationsThe survey results enabled us to identify what the HRprofessionals deemed to be the major issues facing them andtheir HR function over the next 12 months and as can be seenfrom the table below, maintaining employee engagement wasthe major factor (65%).

The table is similar to last year’s with employee engagementstanding out strongly from the others. This is cited by 65% of

the respondents compared with 68% last year. The second majorissue is again succession planning, cited by 45%, which togetherwith the challenge of talent management (cited by 41%),indicates that HR anticipates challenges regarding managingthe careers and roles of key staff, especially high performers andhigh potentials. This is examined further below.

4. Major HR and workforce challenges for 2011

Attracting, retaining and motivating key people and planning for succession are again major themes

arising for 2011, with many identifying business growth/expansion as a potential major challenge.

However, with the default retirement age being phased out from 6 April 2011 and completely abolished on

1 October 2011, this may prove to be a bigger problem than currently identified, as over three-quarters of

organisations in our survey have a retirement age of 65.

0% 10% 20% 30% 40% 50% 60% 70% 80%

Crisis planning/disaster recovery

Outsourcing

Immigration issues

Diversity and discrimination

Protection of business interests (eg team departures)

Restructuring the HR function

Merger/acquisition

Flexible working arrangements

Reward schemes

Retirement age

Redundancy exercises

New employment legislation

Shortage of talent/skills

Enhancing employer brand

Changes to remuneration or benefit arrangements

Talent management

Business growth/expansion

Succession planning

Maintaining employee engagement

Figure 7. Major issues facing you and the HR function in next 12 months (%)



Managing growth and expansion is identified by 44% ofrespondents. This again signals a cautious optimism comingfrom those who anticipate that recovery should continue during2011, and also confidence from those who feel that theeconomic conditions are having a positive effect on theirorganisation. Reward and remuneration remain a key priority forHR, with 25% citing reward schemes and 38% citing changes toremuneration and benefits as a major issue. This may againreflect the pay retrenchment that has occurred, the ongoingfocus on pay inequality in the media, and calls for more

equitable reward structures, such as those advocated in thecurrent Hutton Review.

It is interesting to note that of the 78% of organisations thathave a retirement age of 65, only one third of those areexpecting it to be a major issue for 2011. With impendinglegislation change to retirement age, it may be that manyorganisations are not prepared for the impact of the changes ontheir organisation.

From these responses, we can highlight some interestingpotential trends. First, there is an expectation that organisationswill continue to require staff to work additional hours. We canalso see that employee relations, stress and grievances willagain increase. In this sense, the workforce will remain a highly

challenging organisational management problem. For thoseexpecting an increase of additional hours being worked, theseorganisations tend to be experiencing lower employeeengagement, greater working days lost to sickness and lowerfinancial performance.

We also sought the views of HR professionals in relation to a number of key areas outlined below, to try and establish whetherthey thought that there would be an increase, decrease or no change in the coming 12 months.

Figure 8. What do you expect to happen over the next12 months regarding the following?

Significantincrease

Some increase No change Some decreaseSignificantdecrease

(%) (%) (%) (%) (%)

Size of workforce 4 40 21 28 8

Recruitment of graduates 1 22 61 10 6

Ability to attract talent 2 35 43 16 4

Number of temporary staff 2 26 51 17 5

Training and development budget 2 24 46 22 6

Absence/sickness levels 2 24 55 17 2

Stress related problems among staff 4 38 51 7 1

Employment relations problems 5 35 53 6 1

Employee engagement 4 38 37 17 4

Staff turnover 3 35 42 17 3

Size of pay increases 1 29 42 17 11

Size of bonus payment pool 1 20 56 13 10

Number of employees receiving a bonus 1 16 63 11 10

Investment in HR technology 4 22 58 11 6

Number of staff on part-time contracts 1 28 64 6 1

Use of flexible working practices 2 46 47 3 2

Cost of pension provision 3 27 59 10 2

Difficulties with immigration 2 19 77 1 1

Ability to retain key staff 1 29 49 19 3

Industrial action 2 13 82 2 1

Number of additional hours worked by staff 4 40 50 6 1

Number of grievances lodged 3 26 66 4 1



5. Employee engagement, front line managers and talentmanagement

Engagement remains embedded within HR strategy. HR professionals identified employee engagement as

their top priority in all three of our surveys and we have again sought to uncover further insights into the

adoption and application of the concept. First, we found that 66% of respondents are measuring

engagement (55% in 2009). This increase highlights that even more HR functions are utilising engagement

to focus their attempts on improving the way people are managed within their organisation.

The centrality of employee engagement to HR strategy increating a highly motivated and committed workforce is furtherdemonstrated in this year’s findings. To reiterate from last year’ssurvey, in the context of the current economic climate,employee engagement is seen as a means of retaining theproductivity and work quality of employees as organisationsmove from restructure to growth. Engagement is also crucial asmore engaged employees are likely to help organisations whoare demanding more from their employees in termsof workload.

How are organisations driving engagement?We again asked respondents to identify ways in which they areattempting to improve engagement levels. The results areshown in the table opposite. The same hierarchy emerged as in2009, in which hopes are pinned upon improving engagementthrough leaders and line managers. Much lower emphasis (anda decreasing emphasis year on year) is given to issues such asfairness and equity, and improving job design. It is however thelatter that can have the biggest impact.

Figure 9. Methods used to enhanceemployee engagement

2010 (%) 2009 (%)

More effective leadership and management ofstaff

82 89

Developing better staff relations with linemanagers

75 77

Improved learning and developmentopportunities

72 76

Greater employee participation in decisionmaking

68 65

Enhanced career development opportunities 50 57

Greater fairness in organisational procedures 38 49

More equitable reward systems 39 43

Better job design (eg moreautonomy/flexibility)

39 42

…hopes are pinned upon improving

engagement through leaders and line managers.

Much lower emphasis (and a decreasing emphasis

year on year) is given to issues such as fairness

and equity, and improving job design. It is

however the latter that can have the biggest

impact

“ “



Does HR make a difference?Using the data gathered from the survey, we examined whetherany association could be found between attempts to enhanceengagement and its impact. The chart below shows the variousHR activities identified by organisations to try to driveengagement and the comparison in the level of engagementbetween those who undertook such an activity (“Yes”) andthose that did not (“No”).

The survey shows that those who did undertake an engagementenhancing activity are generally more likely to have observed anincreased level of engagement over the previous 12 months.However, the only organisations which saw an increase in

employee engagement were those organisations that providedbetter job design, greater fairness in organisational procedures,greater employee participation in decision making, improvedlearning and development opportunities or better staff relationswith line managers. It is interesting to note that the moreimportant factors found here for encouraging employeeengagement are those practices least likely to have beenutilised. Strategies that seek to drive engagement with work (asopposed to the organisation) have been found by academicresearch to be more powerful in terms of driving performance –in this survey, the greatest link with increased engagement isagain with more effective job design.

Figure 10. Link between HR activities and employee engagement

Developing better staff relations with line managers

Better job design (eg more autonomy/flexibility)

Greater employee participation in decision-making

More equitable reward systems

Enhanced career development opportunities

Improved learning and development opportunities

Greater fairness in organisational procedures

More effective leadership and management of staff

Engagementdecrease

No change inengagement

Engagementincrease

Yes No

Key

Strategies that seek to drive

engagement with work (as opposed to the

organisation) have been found by academic

research to be more powerful in terms of driving

performance – in this survey, the greatest link

with increased engagement is again with more

effective job design

“ “64726 The State of HR:64726 2/2/11 10:53 Page 17


The role of front line managers Academic research has highlighted that organisations haveoften provided little support or training to line managers intheir role as people managers. The performance of linemanagers in their role as people managers is alsooften overlooked.

Given the importance of line managers in terms of fosteringgood employment relations and in driving employeeengagement, this year’s survey sought to gather information onthe extent to which organisations support and train linemanagers and whether pay and promotion is explicitly linked totheir performance as people managers. The table below showsthe results.

It is evident from these results that while most organisationsprovide some kind of training to line managers and seek toassess their ability as people managers, far less actually embedpeople management in pay and promotion terms. This impliesthat for many, people management is seen less as a keyperformance metric as compared to other factors.

Talent and performance managementTalent management is a relatively new HR concept that isbecoming more deeply ingrained in HR roles. It is also highlyambiguous, meaning different things to different organisations.For many organisations, managing talent is aboutdifferentiating employees – for example, identifying anddeveloping certain employee populations, such as highperformers or high potentials. This survey seeks to shed light onthe extent of this differentiation and to examine whether thisstrategy is effective.

The table below shows the percentage of organisationsdifferentiating between different perceived classes of employeeand the allocation to them of HR resources and practices.

Figure 12. The allocation of HR resources and practices to thedifferent types of employee

It is evident from this table that many organisationsdifferentiate employees in terms of the extent to which HRresources and practices are applied to that particular group.The group most likely to receive the greatest attention is ’poorperformers’, who are reported by almost half of organisationsas receiving more HR resources than other employee groups.This perhaps reflects the nature of performance managementsystems in these organisations in how they may manageunderperforming staff ’up’ or ’out’.

Non-permanent workers were the group most likely to receiveless HR resources and practices (29%). For those organisationsrelying on temporary staff, a lack of HR management maybe creating additional risk and cost with respect tothese employees.

Interestingly, 37% differentiate high potentials and 38% senioremployees to receive more HR practices and resources, perhapsreflecting how these organisations identify and invest in talentwithin their own organisation. However, analysis of the surveyresults show that there is no evidence to suggest that there isany beneficial effect of HRM differentiation (ie giving certaingroups of employee greater HR resources or practices). Nosignificant associations were found in relation to overall levelsof staff turnover, absence or organisational performance.

Perhaps this could be due to the negative aspects ofdifferentiation (eg alienation and disenfranchisement of non-differentiated employee populations). Or, it could berelated to recent critical thinking that talent managementfocuses too heavily on the individual – rather than themanagement of, say, key roles or teams within an organisation.Alternatively, it may bring in to question the effectiveness of theparticular methods used.

Figure 11. Support for line managers as people managers %

Provision of specific training to line managers to helpthem manage their employees

81

Assessment of line managers against their peoplemanagement skills and achievements in their annualappraisals

76

Linking of line managers’ pay and benefits with theirperformance as people managers

41

Linking of line managers’ promotion opportunities withtheir performance and ability as people managers

59

Employee classification More Similar Less

% % %

“High potential” employees 37 62 1

Employees who perform poorly 47 41 12

Employees who perform highly 26 71 4

Employees in more seniorpositions

38 56 5

Non-permanent workers 2 69 29

Other 4 89 6



6. The HR function – satisfaction levels and role requirements

While the main body of our survey is concerned with issues affecting the workforce, we also asked a

number of questions in relation to the HR function itself. The majority of respondents are fairly satisfied

with the resources allocated to HR, the HR practices in place and the performance of the HR team and also

the management support they receive.

Overall, these results indicate that senior HR professionals arebroadly satisfied with the quality of their staff and HR practices,with the level of influence of, and support for, the function andwith a range of indicators of HR performance. In essence, theybelieve that HR is doing a good job with the resources andsupport they have.

Is the HR role changing?This year’s survey again looked at HR functional structures.The current structures continue to reflect elements of Ulrich’smodel2. For example, 50% of organisations employ HR businesspartners, 35% have HR centres of expertise eg recruitment or

learning and development, and 23% have a shared servicescentre. These results are slight increases from last year.

As with last year, many HR professionals reported that theirroles and responsibilities are broadening. 92% advised thatthere had been no cessation of in-house HR activities, while27% advised that HR had commenced a new practice orprocedure, or had in-sourced it during the year. The nature ofactivities identified relate mainly to core HR activities egrecruitment, appraisal or employee development. What thisshows is that, from the perspective of senior HR professionals,the activities of HR departments are continuing to grow.

We asked senior HR professionals how satisfied they are with various aspects of HR activity. These are presented in the table below.

Figure 13. With respect to your organisation, to what extent are you satisfied or dissatisfied with

the following:

Very dissatisfied Fairly dissatisfied Neither Fairly satisfied Very satisfied

(%) (%) (%) (%) (%)

HR resources (budget) 5 25 29 38 4

HR resources (number of staff) 7 24 24 39 7

HR resources (quality of staff) 5 16 18 42 19

Influence of the HR function 6 20 14 45 15

Quality of HR practices in place 3 18 15 50 13

Implementation of HR practices by management 5 28 23 40 4

Delivery by the HR staff 2 10 20 49 19

Respect for HR 5 15 20 47 13

Priority given to HR/people issues 5 21 20 40 14

Management support for HR 5 18 18 45 14

The structure of the HR function 5 17 23 44 12

Use of HR services by staff 1 13 30 49 7

Engagement of staff 4 21 26 44 4

Employee performance 3 15 30 49 4

2 Ulrich, D. & Brockbank,W. (2005). The HR Value Proposition. Boston,MA: Harvard Business School Press

20



…higher organisational performance

was associated with … greater efforts to enhance

employee engagement“ “

7. Performance indicators

Data was collected on some standard HR performance metrics; namely employee voluntary turnover and

absence levels across the previous 12 months. Comparative data was also available from previous surveys.

The average organisation was found to have around 6% voluntary turnover across 2010, however there

was a large variation in this figure across participating organisations. At higher levels, it was found that

around 7% of organisations had voluntary staff turnover levels in excess of 20% in 2010.

A similar story emerges when absence figures are examined. In2010 on average around 3% of working days were lost throughsickness or absence. Less than 17% of organisations recordedsickness and absence levels above 5% across this period.

Voluntary turnover was found to be highest in retail and leisure,private education, charities and not for profit organisations andreal estate and construction sectors, and lowest inmanufacturing and transport and communications sectors.Absence was found to be the highest in utilities and retail andleisure sectors and across the public sector and lowest inprofessional and financial services and manufacturing sectors.

We also collected perceptions of organisational performance. Inthis year’s survey 58% of respondents indicated that theirorganisation was performing financially better than otherorganisations in their sector. This compares to over 53% ofrespondents from last year’s survey, suggesting a growingconfidence in the relative fortunes of these organisations overthe past 12 months.

Some simple correlations were run to examine the associationsof reported organisational performance. These indicated thathigher organisational performance was associated with lowerlevels of environmental uncertainty and higher increases inreported employee engagement and greater efforts to enhanceemployee engagement. There were also links found betweenhigh organisational performance, evidence of greater peoplemanagement training for line managers and a greater linkage ofline managers’ promotion opportunities to their ability aspeople managers. These findings point towards high employeeengagement and efforts of organisations to enhanceengagement as potential drivers of organisational performance,as well as a more formal recognition of line managers key roleas the active managers of people within organisations.



8. The survey process and the sample

A questionnaire was distributed to senior HR professionals in November 2010. Of the 550 responses

received to both the paper and online versions of the questionnaire, 437 responses were usable within the

analyses performed. A broad cross-section of sectors and organisational sizes were represented in the

sample. Almost 68% of them recognised a union or other form of employee representation.

We asked people to report on the previous 12 months (November2009 to October 2010) and tell us what was likely to happen inthe forthcoming year (November 2010 – October 2011). Thesurvey captured views and expectations in November 2010.

Figure 14. Sectors

Figure 15. Size of organisations in sample

Frequency %

Charities and NFP 57 13.0

Education (public) 16 3.7

Education (private) 10 2.3

Health (public) 17 3.9

Health (private) 4 .9

Other public sector 22 5.0

Manufacturing 46 10.5

Media and entertainment 24 5.5

Financial services 48 11.0

Professional services 75 17.2

Other business services 40 9.2

Real estate and construction 18 4.1

Retail and leisure 34 7.8

Transport and communications 17 3.9

Utilities 9 2.1

10%1-50

9%

51-100

14%

101-200

15%

201-500

15%

501-1000

21%

1001-5000

16%

5000+

22


Speechly Bircham LLP6 New Street SquareLondon EC4A 3LXTel +44 (0)20 7427 6400Fax +44 (0)20 7427 6600DX 54 Chancery [email protected]

HRM Learning BoardKing’s College LondonDepartment of Management150 Stamford StreetLondon SE1 9NHTel +44 (0)20 7848 3313www.kcl.ac.uk/hrmlb


Documents

State Of Hr Report 2011