17 October 2008

1. The role of the HR function in times of financial uncertainty. If the recession happens..." 17October 2008

2. Contents • Current financial uncertainty. What to expect? • General salary trends • Impact of financial uncertainty on HR • When recession is possible… Positive changes • When recession happens… Steps to take • If redundancies are expected…. • At times of uncertainty two – ways communication becomes crucial… • Conclusions…

3. Currently we do not have undisputed evidence that recession in the Russian economy is just behind the doors…According to recent citations of Russian officials in press: The expected pace of economy growth in 2009 remains nearly the same as it was shown last years – current prognosis of growth is 5-6% Ministry of Finance expects inflation to slightly reduce in 2009 Russia has one of the biggest financial reserves and government is ready to use financial resources to stabilize situations with liquidity in leading banks and stock market Oil price tends to go down, but currently still 3-4 times higher than it was in 1998 Current financial uncertainty. What to expect? The financial uncertainty leads to uncertainty in HR area, especially for staff planning, budgeting of remuneration and other HR costs for 2009. But does the current financial uncertainty inevitably means recession in the economy, and a consequent impact on HR? • The factual level of unemployment, including unemployment rate calculated by international experts, remains quite low, in the range 1,5 – 4%, although press recently published a lot of stories related to redundancies planned or even already started

4. General salary trends • According to data of PwC salary surveys average remuneration levels in 2009 will be higher as compared with 2008, though some of the clients already claimed that the percentage of growth may be lower then it was previously planned • Since the salary data was generally collected in summer, we are planning to have a special update in November – December 2008 to estimate the latest salary trends

5. Impact of financial uncertainty on HR . Between Scylla and Charybdis • In situations of financial uncertainty the HR department • should be prepared to take some reasonable measures aimed at optimisation of HR costs and • at the same time keep focus on key HR issues, including • To retain key employees • To maintain competitiveness in the market • To motivate and reassure employees Chinese remedy • In Chinese language the word “crisis” consists of two hieroglyphs – “opportunity” and “threat” • Consequently, the period of anticipated recession may be suitable time to get management approval on HR changes which are in fact appropriate for not only pre – recession times but to any economical situation. • So, changes, necessary in light of expected recession, may be divided on “positive” and “forced”

6. When recession is possible… Positive changes • Possible positive changes may include • Introduction of annual performance appraisal system • Job evaluation and optimisation of compensation system – identification of overpaid positions • Salary revision / promotion based on individual performance • Partial transfer of base salary to variable pays, where appropriate* • Partial transfer of annual variable pays to deferred bonus or long-term incentive plans, where appropriate • Assessment of necessity of existing vacancies • Approach to staff planning based on productivity norms establishment • HR benchmarking introduction, HR costs analysis and reduction • Employer brand improvement • HR processes re-engineering and optimization • Talent management and retention/succession plans * Legal restrictions should be considered

7. If recession happens…

8. When recession happens… Steps to take • Sometimes measures described at the previous slides are not enough…The table below illustrates the measures which can be taken as “forced” by recession. • Some opportunities for HR at recession include: • Employer brand strengthening via well balanced HR actions and care for employees • Attraction of most competent employees from those released in the market, including international markets • Increase of HR efficiency

9. If redundancies are expected…. • Before start redundancies, some mitigation measures may be taken: • Usage of “normal” employee turnover • Recruitment freeze • Redeployment and training of existed employees • Encourage of voluntary termination* • Examine usage of temporary staff • Encourage of early retirement* • Reduction of overtime work • Reduction of normal work schedule* *Legal restrictions should be considered

10. At times of uncertainty two – ways communication becomes crucial… • To be proactive in getting feedback • To understand employees concerns • To be open about the current situation • To forewarn of forthcoming potentially unpopular measures • Do not be too dramatic…

11. Conclusions… • HR department needs to be prepared, even if the instability is not as bad as some think it could be • Cost optimisation is important and HR play a key role in this (and cost optimisation is a good thing even if there is no recession) • HR team should keep a long-term view and not forget about succession planning, etc • Finally, there is an opportunity for the HR function to play a key role in the way that companies react to the current instability. • If this role is performed well, HR functions could increase their influence, status and respect in Russian organisations.