A Mercer survey found that 27 percent of participating organizations are expanding their overall workforce, while only three percent have instituted broad-based reductions.

As the economy recovers and workforce expansion continues to rise in some industries, concerns about engaging employees, retaining critical talent and attracting new talent are top concerns for many organizations. This is a critical topic despite continuing cost pressures.

Recently, Mercer's 2010 Attraction and Retention Survey found that more than 27 percent of organizations participating in the survey are expanding their overall workforce, while only three percent have instituted broad-based reductions. By comparison, Mercer’s Leading Through Unprecedented Times Survey conducted in May 2009 showed only 12 percent of the organizations indicated they were hiring/expanding overall, while 15 percent instituted broad-based reductions.

While the recent results are more positive, cautious optimism should prevail. Of the organizations surveyed, almost half are hiring to replacement levels only, while another 25 percent are hiring just for critical areas among select staff reductions. Nearly half (47%) of the organizations that assessed employee engagement over the past 12 to18 months reported that levels of employee engagement have increased. Considering the economic pressures, this might seem surprising.

In a review of the composite survey results and other available data, Mercer commented that “higher levels of engagement can be a result of reward and talent programs adopted by employers that seek a balance between responding to employee needs and coping with cost pressures. Employees’ desire to preserve their jobs may have also contributed to higher engagement levels demonstrated by a willingness to go the extra mile, be resilient and embrace change.”

While the most common way to assess employee engagement is through surveys, more than half of the participating organizations also gauge employee engagement through informal interactions with leaders, managers and employees. Focus groups and online forums were used by 33 percent and seven percent of organizations, respectively.

Despite efforts to engage employees during a difficult year, responding organizations had growing concerns about whether their valued employees will stay once the economy recovers. Almost two-thirds believe that voluntary turnover will increase as the economy and job market continue to improve. Moreover, the data showed that certain positions are more sought-after than others because of skill shortage or market demand. These roles include R&D (scientific engineering), sales and marketing, followed by information technology and top/mid-level management. These voids were created when organizations slimmed their workforce amid the financial implosion.

Typically, engaged employees are less likely to seek job opportunities outside the company and therefore, have a more positive impact on both individual and business performance. By identifying talent needs necessary for growth, employers can implement the appropriate steps for developing employees internally or hiring staff externally.

As the job market rebounds and concerns about engagement and retention remain at the forefront, cost pressures still loom. According to Mercer’s survey, slightly more than two-thirds of organizations will be influenced equally by external competitiveness and internal affordability when making pay decisions. However, one quarter report that affordability will have a greater impact on pay decisions.

Over the past 18 months, amid limited pay budgets, organizations focused on non-cash rewards as a means to enhance employee satisfaction, engagement and retention. Responding organizations focused on communicating the value of total rewards to employees (27%), implementing work-life programs (22%), formalizing career paths (21%) and special project opportunities for employee growth (20%).

Despite past emphasis on non-cash rewards, for 2010 and beyond, organizations plan to focus on financial incentives as well as career development to retain and engage the right talent. Leading reward elements perceived to have the strongest impact on employee engagement and retention for 2010 are base salary increases (41%), short- and long-term variable pay (36%), and training and career development (35%). Interestingly, one quarter of the organizations report that programs such as work-life initiatives, employee communication campaigns and time-off plans—elements of importance during the past year and a half—will have less impact on employee retention and engagement going forward as the economy improves.

Non-cash programs like formalized career pathing, increased communication to employees and work-life initiatives are important in fostering employee engagement and retention regardless of the economic environment; however, as recovery occurs, employers will want to revisit pay as a means to staying competitive, rewarding and retaining top-performing employees.

Employees also sacrificed over the difficult times. Everyone benefited from those sacrifices and employees will be expecting their appropriate share of the profits when their organizations recover. iBi