SOFIA (Bulgaria), February 18 (SeeNews) – The global economic downturn has brought out the need for innovative solutions in times of dramatic economic changes, AIMS Managing Partner for Bulgaria and Macedonia Maria Shishkova said.
"It is also clear enough already that profound economic changes as the ones brought about by the global economic downturn should be addressed by new and out-of-the-box tools and solutions," Shishkova told SeeNews ahead of a Strategy and Innovation Leaders Summit (www.aims-on-leadership.com). The summit, to which SeeNews is a media partner, will take place in Sofia on February 22.
AIMS is a global talent acquisition and talent management network with more than 80 offices in over 40 countries. In Bulgaria AIMS has been a leading market player since 1994. It opened an office in Macedonia in 2003. In October 2007 AIMS Human Capital Bulgaria opened its office in Varna, on the Black Sea.
Following is an interview which Shishkova gave to SeeNews:
Q: How did the financial crisis affect the labour market in South East Europe (SEE)? What are your expectations for the next few years?
A: Southeast Europe is already living in the “new normal” state of business. It became evident in the last couple of years that the region will never be the same again. It is also clear enough already that profound economic changes as the ones brought about by the global economic downturn should be addressed by new and out-of-the-box tools and solutions.
Businesses in SEE have already started re-steering their strategies from doing “business as usual” to addressing business matters in a new and unusual way. Growing uncertainty and cautiousness are some of the key words of the “business unusual” approach, along with “innovation”.
According to a series of surveys conducted by AIMS International in Bulgaria and Macedonia in 2009, the hardships which a lot of sectors experienced directly influenced the readiness of managers to take actual steps to soften the negative effect of the market environment on their company’s performance. The Bulgarian market witnessed a change in strategies across entire organisations and accelerated processes of restructuring and optimisation.
In 2009, most of the surveyed organisations (more than 60% of the respondents in Bulgaria) undertook changes in their practices related to people management in response to the downturn. “Stricter control over expenses” is the ultimate phrase reflecting the dominant stance of companies in Bulgaria, Romania and Macedonia. As a result, a significant number of organisations in Bulgaria and Romania suspended their hiring projects; many had to also undertake layoffs. This was a measure taken mainly by export-oriented companies which reported a significant decrease in sales due to the shrunken markets in Western Europe and the U.S. Considerable staff cuts in the public sector additionally boosted unemployment levels in Bulgaria. The situation on the Romanian market was much similar, and economists predict that the portion of unemployed in both countries will exceed 10% in 2010. Unemployment in Macedonia has remained high, with over 30% jobless citizens.
The negative economic conditions, which affected other countries even more severely, reflected on the migration of young Bulgarian and Romanian professionals. The braindrain created by the outflow of citizens from these countries in pursuit of better economic opportunities in the past years had created further pressure on their home labour markets. However, since the beginning of 2009 experts observe a change in this trend as experienced professionals forced by diminishing labour opportunities in Western Europe, decide to return to SEE. As a result, employers in many sectors no longer experience the shortage of talent which was, until recently, a serious problem for the local labour markets.
This inward migration, together with the fact that a significant part of the layoffs in 2009 had been in the private sector, also reflects positively on the availability of experienced professionals on the local labour markets. HR experts believe that the increasing pool of job-seeking candidates has on the one hand raised the overall quality of job applicants, and on the other, it has decreased the monetary cost of hiring experienced professionals.
Analysts and state officials in SEE expect a slow recovery of the local economies in the next couple of years. Considering that the peak of the economic crunch in the region was observed almost half a year later than in western economies, the economic recovery of Bulgaria, Romania and Macedonia, too, is seen as a step behind.
Q: What are the trends in the incomes/expenses per employee ratio for the business in SEE?
A: As early as the beginning of 2004, as part of its EU pre-accession efforts, Bulgaria started the process of harmonising its labour-related legislation to the acting EU Directives. Today, two years after the country’s EU accession, Bulgaria’s labour market is governed by stricter legislative framework as regards the formalisation of employment, the employers’ national insurance and personal income tax obligations, the two pillars of social security, labour safety, etc.
Employer cost as regards employment-type remuneration covers a number of mandatory contributions for national Insurance purposes and, in general, amounts to 17% on gross pay for the year 2010. Employer costs related to national insurance have been gradually decreased within the last three years from 24% at the beginning of 2007 to the current 17%. The Bulgarian Government has announced its intentions to further decrease the employers’ national insurance burden by a total of 5 percentage points until 2012.
The policies undertaken in Macedonia also aim towards a decrease in the employers’ national insurance burden. It was recently announced by the local government that by January 2011 the pension insurance contribution will drop to 15%, the health insurance contribution will be cut to 6%, and the unemployment insurance contribution will be reduced to 1%.
Additionally, the downturn has made businesses consider existing inefficiencies in structures, overlaps of functions, overstaffing, etc., with the purpose of ultimately increasing productivity by optimising the income/expenses per capita ratio.
Q: What are the positive and the negative effects of the crisis on the HR policies of the companies in SEE? What are the similarities and the differences with the rest of Europe?
A: Following the initial shock from the sudden decline of business which came after years of significant economic growth in the region, managers saw an opportunity to “tidy up the house” by taking steps to streamline expenses and boost performance.
Due to the limited budgets, HR specialists were actively involved in fine-tuning the performance-related compensation systems and their integration in the established corporate management processes. Furthermore, according to a series of quick-scans conducted by AIMS Human Capital Bulgaria in 2009, a significant portion of the managers implemented pre-emptive measures as a safeguard against employee de-motivation by creating effective systems for adequate direct communication regarding compensation and benefits.
The hiring freeze and staff layoffs prompted many managers to initiate structured processes for employee assessment in order to identify the key people within the organisation with a potential to develop and, in the long run, contribute towards its success. Investment in training was increasingly connected to performance management systems, as well as individual career plans. Even managers in companies which experience major difficulties reported that it would be a mistake not to develop, and even lay off, valuable specialists, who would be crucial to the recovery of the business when the economic situation changes for the better.
The restricted training budgets also required HR managers to carefully analyse each training proposal and assess its direct return on investment. As a result, training budgets were used more wisely, and employee development plans were designed according to the overall company development strategies.
Indeed, restricted training budgets had a negative effect too. AIMS Survey reports that over half of the analysed companies in Bulgaria in 2009 made serious cuts in the budgets for employee training and development and shelved or cancelled a number of projects. In most cases of multinational companies, this policy was communicated directly from the headquarters.
Salary freezes and suspension of bonuses were also among the measures many companies were forced to take. Some of the organisations most severely affected by the economic downturn cancelled other benefits, as well.
Q: What trends do you see in remuneration policies in SEE?
A: According to the annual Compensation and Benefits Survey conducted by AIMS International Bulgaria, the companies’ expectations for salary increases do not exceed 10%. Many organisations avoid making definite plans due to the insecure business climate in the region. Businesses in Romania and Macedonia also do not expect significant fluctuations in the compensations offered both by businesses and by the public sector. Following the labour market turbulence in 2009, managers are now more cautious, and opt to have a firm base for salary revision in terms of corporate financial results before they decide to revise their employees’ salaries.