NOT for the first time, what’s happening with the oil industry in Houston and the Gulf of Mexico provides an insight into influences impacting on companies and their employees involved in the North Sea, according to Alan Fergusson, of financial services consultancy Kudos.
He warns that hard times in the US industry in the face of the global recession and the downturn in activity are having a knock-on effect on US-based companies operating in the UK, forcing them, like everyone else, to look at costs. That includes employee benefits.
Fergusson, an employee benefits specialist, notes that this is very much the reverse of the position about a year ago when, in a buoyant market, companies were still looking to differentiate themselves in seeking to attract and retain staff.
“It was clear in Houston during this year’s Offshore Technology Conference that many US parent companies are cutting costs and struggling with staffing issues,” says Fergusson, who is a director at Aberdeen-based Kudos.
“It wasn’t unusual to hear about jobs being lost, hours reduced – including enforced nine-day fortnights – and benefits suspended, such as payments into 401k contracts … their equivalent of group pensions.
“This situation has to be seen against a background of labour laws in the US, where employees have nowhere near the protection provided in the UK.
“There are also major issues on medical costs and meeting those for retired workers at a huge price to companies.
“Staff benefits are now a factor in US companies’ thinking when it comes to cost-cutting, whether in their own backyard or international operations, including the UK.
“It’s all a marked contrast to a year earlier when, with oil prices reaching record levels, employers’ priorities were entirely different.”
As was highlighted time and again last year by John Glesinger, of Expert Alumni, attracting staff was an issue for everyone, including in the UK, where the labour pool is small. Many employers increased salaries to retain people and paid higher salaries to those coming in.
However, as Fergusson has pointed out to Energy, many improved benefit packages by directly increasing costs – for example, higher pension contributions – compounding the issue when the market turned.
“Smarter employers began embracing the issues around ‘total reward statements’, convincing employees the total spend on them was much higher than perceived,” he says.
“Some took the opportunity to flex benefits, allowing employees to design their own package.
“Today, and even with oil prices around a robust $70 per barrel, the emphasis is on cost control, cost control, cost control. It means cost auditing and reviewing benefit packages probably not looked at in years. Companies need to find the balance between costs and keeping staff happy.
“Many finance directors are now more engaged with their benefits packages, seeking to save money or structure more efficiently. Human-resource departments are under increased pressure to find savings.”
Fergusson’s view is that the general trend of closure and alteration of final-salary schemes will probably continue within upstream oil&gas. In that regard, BP’s closure to new members, from April 2010, was not unexpected.
Fergusson said: “Common questions we’re frequently asked include, ‘How can I keep my spend the same, but get more bang for my buck, without reducing benefits?’.
“The answer is to look at what the internal perception of the benefits is. If thousands are being spent on a benefit which staff don’t use or rate then is it a waste? A staff benefits survey could start to unravel the answers for an employer.
“Savings can be made across all benefits by altering the structure, or simply ensuring they are re-brokered regularly.
“Many employers have discovered they have an inadequate absence-management structure. When an effective absence-management policy is in place, employers can simply save money.
“The latest CIPD Absence Survey quotes an average days absence per annum per employee of eight days at a cost to employers of £666 per employee.
“How many employers actually know where they stand in relation to this, and how many have looked into some simple measures that could reduce this number for them?
“Generally, when we travel outside Aberdeen – to the US or elsewhere – we see completely different benefit trends and attitudes in the industry.”
The impact of what has been happening in the US cannot be ignored as the standard of benefits packages and attitudes regarding their development has been outstanding, according to Fergusson.
The net result is that oil-industry employees, in the Scottish north-east especially, apparently often get far superior benefits to those working outside it.
“Dealing with employee benefits in the current situation won’t be the end of the challenges. Lessons will be learned and, hopefully, applied,” adds Ferguson.
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