1.1. Objectives of the study
The current study was carried out by Ensight Management Consulting with the purpose of discovering the current “hot topics” of Human Resources in companies across Romania and to follow evolving HR trends.
The consultants surveyed 37 companies from different industries – mainly manufacturing, food & beverage, financial services, IT & telecom, professional services, energy & utilities and retail. 85% of our respondents are HR managers, conveying high relevance to the opinions expressed.
The 2011 research offered a first overview on the role of the Human Resources function and of its influence on establishing and implementing the company strategy. It also provided information on the development stage of various HR areas and the degree of penetration of modern HR and management approaches in companies around Romania. We further offered insight into HR-related decisions and measures that companies took in order to improve their results during the economic downturn.
In this second edition we kept the same topics for our analysis in order to be able to follow the dynamics of the aspects mentioned above. Thus, you will be able to find our conclusions related to the persisting effects of the economic downturn on HR activities, to HR and company strategy, top priorities for HR in 2012, HR perception of management responsibilities and performance management.
As last year Talent Management ranked as top priority for the HR function, we decided to dedicate a separate chapter to this topic in 2012.
We hope that the HR Study 2012 will be used as a valuable source of information on the current status of HR and that it will serve as a starting point for discussions in the Romanian HR community.
1.2. Data collection
The data was collected between November 2011 and February 2012. We made a series of qualitative interviews between April and May 2012 in order to refine the findings. The results were analyzed and interpreted in June 2012.
The invitation for participating in the research was addressed to human resources managers of 275 medium and large companies in Romania.
Respondents: 37 companies with a total turnover of 21 bn RON and 40,000 employees.
Profile of the respondents
The respondents are mainly manufacturing and food & beverage companies, but other industries are also represented: financial services, IT & telecom, professional services, retail, energy & utilities, oil & gas, medical services, pharmaceuticals, logistics, recycling services and public administration.
2. The main results of HR survey snapshot
The behavior of business leaders continues to be influenced by the troubled economic situation in Romania. Our data shows that over 50% of businesses chose to apply restructuring measures in 2011, that half of the surveyed companies are continuing restructuring in 2012 and an additional 14% plan to maintain it in 2013. Layoffs remain the most widely used measure for cutting HR-related costs, followed by cutting back on training, a measure that increased significantly in comparison to the previous year. Solutions like technical unemployment and unpaid leave dropped substantially. Only about 10% of responding companies resorted to cutting salaries, quite similar to the previous year.
Regarding the role and positioning of the HR department, there is good news: year upon year HR departments feel more in charge with providing modern HR tools to support the business, with the importance of the administrative side declining a little. Continuing the positive trend, almost all HR managers consider themselves to be involved in business strategy definition, alignment and implementation, while in over half of the responding companies management co-opts HR managers in all strategy stages. That signals that at least in 50% of medium and large companies HR has earned its long awaited status of a business partner.
On a less optimistic note, our data shows that 85% of our respondents estimate that employees have a medium or low awareness regarding company strategy, which points at management not communicating strategy into the depth of their organizations.
Turning to the role of the business in HR related matters, the wide perception of HR practitioners is that managers do not take their task of people leaders as seriously as they should. There is a 50% gap between the importance of their role and what is happening in reality in the areas of performance management, employee development and compensation & benefits.
With regard to the maturity stage of HR areas, three areas are in great need of development in the eyes of HR practitioners: competency management, career models and compensation & benefits. One positive development – there are more companies which adapt pay level to performance than in the previous year. However, even if around three quarters of companies have a performance management system in place, there still are businesses paying out bonuses without having a proper process for monitoring employee’s results. Another interesting – and somewhat worrying – finding related to performance management is that in only 20% of companies low performance is communicated clearly and possible consequences will be
This year’s focus area, Talent Management, brings promising facts: around half of our respondents have set up a talent management system and 20% plan to create one in the near future. Virtually all companies which have a talent management system have included team leaders in it; regular staff is present however only in half of the cases.
Turning our eyes to the future, the biggest challenges for HR practitioners in the next 24 months are the way employees understand HR policies and practices, the degree to which senior management gets involved and line management delivers HR initiatives and the way HR activities are integrated in business strategy.
The results of our study reflect the feedback we received from 37 medium and large companies with a combined number of 40,000 employees. The vast majority of our respondents are HR practitioners reporting directly to the CEO or another member of the board.
3. Detailed description of the HR survey results
3.1. Impact of the economic crisis
Companies felt the effects of the economic downturn also during the period our research was carried out, as shows the data below. Moreover, the economic environment has a strong impact on the way HR people are seeing their role: almost half of our respondents consider that the main task of the HR department is to support the company in overcoming the crisis and achieving cost savings. Were there any paradigm shifts? Did companies adopt solutions that were similar or different from those applied last year? We kept our focus on this topic in order to see how companies adapted to the reality they face on the market.
Whether we like it or not, the crisis in its various forms is still felt in Romania: 40% of the participating companies registered a decrease in turnover in 2010 in comparison to 2009.
The way a business reacts to the „economic tsunami” depends on a series of variables ranging from available resources to the distribution of work. While some prefer to reduce personnel, others transfer employees to the more busy segments to maintain a balance. Wise companies chose those measures that allow them to stay flexible and make an easy come-back as soon as the prospects are better.
Even if seriously impacted by the crisis in terms of reduction of company turnover and costs, most companies kept their staff. Having to choose between cutting the employee number and cutting their costs, they preferred the latter.
However, the companies that suffered a significant reduction of their turnover had to adjust their employee number in order to survive.
Now let us look which are the measures that are considered as most appropriate for overcoming the crisis. While asking us this question we also wondered if HR practitioners would have the same point of view as business representatives in this respect.
* The Business / Board point of view is obtained from the respondents, not from separate interviews with the Board.
Things look pretty similar to last year. HR managers consider that the company Board’s opinion regarding reduction of personnel-related and non-personnel related costs is similar to theirs. Each of these choices gathered 20% of the votes.
The differences between the opinions of HR practitioners and believed point of view of the Board arise when evaluating the effectiveness of improving operations and improving sales / sales-related measures:
While most HR managers consider that improving operations is the most effective measure for surviving the crisis, the Board sees sales as the key.
Looking at percentages, over half of the respondents believe that constructive business-oriented measures are more effective than cutting costs.
In 2010 around 71% of participating companies implemented restructuring measures, and 30% estimated to continue them in 2011. The data from 2011 shows that after all many more companies resorted to restructuring measures last year: 54%. However, the 17% difference might be taken as a positive signal regarding a possible stabilization of the economic situation. A stabilization, but not complete recovery, as shows the large number of companies that plan to continue restructuring in 2012 and 2013.
8% of the respondents said no cost-cutting measures were taken in their companies.
For the 92% of the respondents who did perform restructuring measures we discuss the actions in more detail below:
Companies reacted to the crisis in similar ways in 2010 and 2011: their first options were reducing jobs, cutting back on employee events and on recruitment; there were also no major differences regarding the application of measures like changing the contract type or reducing bonuses and employee benefits.
Layoffs remain the most widely used measure for cutting HR-related costs (53% of our respondents applied it in 2011). However, the more flexible approach to cost cutting is also represented by reversible measures like cutting back on events (44% of surveyed companies), bonuses (35%), and benefits (26%).
The second-most applied solution was cutting back on training (47%). This is a significant increase compared to the previous year, when only 30% of respondents cut the training budget. Looking at the popularity of this measure we can conclude training is mostly being perceived as having little importance and being “optional” – or that companies chose to focus on internal training or co-finance courses with the participating employees. While training may be easy to cut, this is not necessarily a wise thing to do, especially that it is not a mere cost item but it has direct impact on future performance.
Only about 10% of companies resorted to salary cutting both last year and two years ago. It may be because this is one measure that employees are surely going to take badly: beyond all the rest, it affects the bank loans they took – and as we know 1 of 4 of Romanians have a loan. Salary cuts rank low also because a company needs the consent of the employee in order to change the salary level.
We have a major difference between last year and two years ago in the case of measures like using technical unemployment and encouraging unpaid leave in order to lower HR costs. These actions are much more seldom applied now, several years into the crisis, because they are short-term measures which can solve an overcapacity or cash problem only for a limited period of time. Companies that did not manage to overcome these problems in several months will have resorted to more radical measures by now – like cutting part of the jobs.
Reorganization and job enrichment are among the most popular restructuring measures. An interesting finding is that even if HR practitioners don’t consider them suitable, they will still apply it. Job enlargement is a logical consequence of layoffs and cutting back on recruiting and, if overdone, it will lead to demotivation on the long term.
Reversely, there are measures of which HR people know they are viable and appropriate for overcoming the crisis, but they will still not apply them – like the centralization of functions, outsourcing of non-core activities and process redesign. The reason might be that they have already carried it out it in the past – or that the decision does not lie with the HR department.
The survey also shows that one quarter of respondents are planning to implement new systems or to enhance the existing ones. However, most companies are reluctant to implement new systems during the economic downturn, maybe with the exception of payroll solutions, as one respondent told us. In any case, HR systems are expected to have a lower priority during these times.
Half of all surveyed companies continue restructuring measures in 2012, and an additional 14% plan to maintain them in 2013, too.
Only one third of participants stopped restructuring altogether.
3.2. Company objectives and directions
In this chapter we will deal with the position of the HR department within the company: what are its roles and how strong is it involved in business strategy?
Year upon year, the HR department’s role of providing modern HR tools and systems to the company strengthens to the detriment of its traditional administrative function: 63% of HR departments see themselves as providers of solutions for the business while only 43% name personnel administration as primary task, which is a slight decrease in comparison to the year before.
40% of the respondents still feel the strain of the financial crisis and have an active role in supporting cost cutting or downsizing measures. Last year however this number was 30% higher, showing that the effects of the economic downturn.
With regard to what we called “modern HR tools” some interesting findings from the qualitative interviews with our respondents are that HR practitioners are keen on developing a way to measure return on investment on training, aligning the company culture with the business objectives and outsourcing the administrative part of HR. Of course, there is also the money issue, which is never an easy one - especially during the economic downturn.
Other projects of our respondents include increasing the motivation level and retention of employees by improving the "Leadership" dimension; conducting Employee opinion surveys and following up on them.
Good news for HR practitioners: around 90% of HR managers consider themselves to be involved in strategy definition, alignment and implementation.
In over one half of the companies the management values the input from the HR managers and co-opts them in all strategy stages. This is a clear sign that in those companies HR has earned the long-desired business partner status.
Most respondents consider that the HR department is privileged regarding access to company strategy compared to colleagues in the middle management.
85% of responding HR experts perceive that staff as having medium or low awareness of the company strategy. This shows that many top managers either don’t want to or don’t know how to communicate their vision across the company. Either way this is unfortunate, because, to name just one advantage, people who know and appreciate what they are working for have a higher productivity.
3.3. Modern HR
Stage of development of HR areas
After seeing how HR practitioners see their mission we wanted to analyze how well they consider that the various HR areas are developed and which of the areas are in strongest need for development in the following years.
Out with the old, in with the new! Surviving and succeeding in the world of business is a tricky thing; not everybody has business awareness, and maintaining a growing company means having the right people put to action. The development of modern HR brings into discussion new standards and ideas, like talent and competency management, as well as a continuous partnership among leaders and employees. The HR function is emerging as a facilitator for goals and targets; in contemporary organizations business strategy is strongly correlated with human capital management.
Personnel administration continues to be perceived as the best-developed area of human resources.
HR practitioners are content with the maturity level of recruitment, training management, management and leadership development, performance management and HR reporting.
The three areas that are in greatest need for development are competency management, career models and comp & ben.
Management involvement in HR-related activities
HR does a lot in order to support the business, but by definition it cannot be a lone player. It needs backing and sometimes even operational support from the management. In this section we will see how HR practitioners in Romania perceive the degree to which management should get involved and if it does so in reality.
Between 60% and 80% of HR managers agree that management should play an active role in activities directly related to their employees, like recruitment, training or performance evaluations. This is a slight decrease in comparison with the values of last year.
Performance management counts, again, as the process where management should be most involved.
Surprisingly, 30% of HR managers do not think that leading employees is a manager’s job. This is the more unexpected, especially as the answers are coming from HR professionals.
There is only one company where HR believes that managers take their role of people leaders really seriously.
Over one half of the responding HR practitioners consider that management should assume a more active role in employee development, compensation & benefits and in dealing with performance management.
However, an interesting finding during the qualitative interviews is that managers start taking performance appraisals more seriously and that they give more meaningful feedback than several years before.
To sum it up: there are serious differences between the perceived importance of line managers’ roles in several HR areas and the actual degree to which managers get involved in these activities.
In case of training, compensation & benefits and the performance management process there is a ~50% gap between the importance of the role and what is happening in reality. Managers do not take these topics seriously enough – they might think that these topics are rather the responsibility of HR – or could it be because they underrate their relevance in the first place?
Compensation & Benefits
C& B has always been a complex area of utmost importance to all parties involved: business, where the money is coming from, HR, who tries to find the best way to split this scarce resource, and employees, who are the final beneficiaries. Let us see which policies companies apply with regard to this sensitive area.
Half of the participating companies base their decisions regarding salary level on job evaluation and performance management. Top management decision still plays and important role for 50% of the companies surveyed.
27% of companies buy salary surveys in order to decide salary levels. They only serve as a guideline and companies make their own decisions taking into consideration how they want to position themselves on the job market. The most largely used surveys are Mercer and Hay.
In state-owned companies salaries are provided by law and management cannot influence them at all.
Only 27% have defined clear salary ranges for their employees.
Our qualitative interviews show that unfortunately in most companies the Compensation & Benefits system is not communicated clearly and that the principles that stay behind it are not transparent.
The vast majority of respondents (70%) are of the opinion that their compensation and benefits system should be improved, which corroborates with our findings shown in previous Figure 16.
Some of the respondents wish to adapt it in terms of equity (internal/external), others plan to first reintroduce the benefits that were cut and only then analyze the need of redesigning it.
The percentage of companies paying for performance has increased from 77% in 2010 to 83% in 2011.
More and more companies have seen that rewarding people in accordance with their results is the only way to keep them motivated on the long term. The impossibility to adapt compensation to people’s efforts and performance is a serious demotivating factor in many state-owned institutions and government organizations.
Not surprisingly, sales staff is the category that qualifies most for performance bonuses. However, only 57% of participating companies pay their sales persons depending on their performance.
Top and middle management in half of the companies receive a performance bonus.
Experts are less rewarded for performance than blue collar workers or support staff.
With regard to the criteria used for a bonus payment our study shows that, like last year, it is individual performance (80% of companies) and company results (73% of companies) which matter most when paying out a bonus.
As we have seen, the vast majority of respondents adapt pay level to performance. The question is – do they measure performance in a structured way? If so – how mature is their performance management process?
77% of our respondents have a performance management process in place. Correlating this number with the percentage of companies that reward their employees for performance we notice that some organizations pay out bonuses without having a proper process for monitoring results of their employees.
Three quarters of participating companies have a structured process for managing performance. However, only 57% of them hold regular check-ups with employees.
Good performance is twice as easy to talk about and reward as weak performance – as our study reflects as well. Poor results are tackled openly only in 22% of responding companies. As one of our respondents put it, “Managers need to improve the way they communicate negative feedback, they are too nice". This “niceness” is not necessarily the result of fear of confrontation or false diplomacy. Very often it is the mere lack of preparation that makes managers avoid giving the negative feedback. It takes either long memory or a high discipline to make notes about the good and bad facts one wants to discuss during the performance review.
Beside feedback, performance reviews have another function, at least as important: allowing the company to make adjusting measures like changes in salary level, promotions or demotions, development plans, etc. Performance reviews which have no consequences – be they good or bad – will slowly lose legitimacy in the eyes of both assessors and reviewed employees and will become “another time-consuming useless HR practice”. There are many companies which started regular check-ups with employees in good faith and then slowly gave them up. This is why it is important for HR professionals to make sure that 1. everybody understands the rationale behind performance reviews and 2. actions are being decided as a result and they are followed through.
Performance reviews are both avoided, and embraced. Leaving aside the reluctance of communicating negative feedback, the conversed information should offer answers to the “why”, “how” and “where” questions the employees are going to ask when confronted with these reviews. This way the feared and hated performance reviews can become the start of a self-improvement program for the employee.