May 2, 2008—Seven bucks for a gallon of gasoline? Maybe sooner than you think. But even in today’s down economy, there are ways to help ease the pain at the pump for employees, say experts.
“Perception is everything. Organizations can gain a lot in terms of loyalty and appreciation from employees by looking at potential options to help this particular situation,” said Rose Stanley, WorldatWork practice leader.
Increasingly, tight oil supplies will continue to push gasoline prices higher with a prediction reported of $4/gallon this summer, reaching $5.50/gallon in the summer of 2010 and hitting close to $7/gallon by 2012. The rising price of oil and the increasing worldwide demand for oil are the culprits with one prediction indicating the cost of crude will hit $150 (USD) a barrel by 2010 and soar to $225 (USD) a barrel by 2012.
“It is increasingly clear that the outlook for oil supply signals a period of unprecedented scarcity," noted Jeff Rubin, chief strategist and chief economist at CIBC World Markets, the group that reported the potential prices. "Despite the recent record jump in oil prices, oil prices will continue to rise steadily over the next five years, almost doubling from current levels."
The report also notes that while production increases are at a virtual standstill, global demand continues to grow. While higher prices and a weak economy have seen demand drop in the United States, as it has in some other nations, this has been more than offset by demand growth in other countries.
"Car purchases in Russia, for example, are exploding as U.S. sales stagnate," Rubin said. "While in India the advent of the TATA, a car that will sell for as little as $2,500 (USD), will allow millions of households in the developing world to own automobiles when they otherwise could not. Millions of new households will suddenly have straws to start sucking at the world's rapidly shrinking oil reserves."
U.S. Reward Practice Leader for Hay Group Tom McMullen said he “easily agrees” that the price for a gallon of gasoline could reach $7. “The supply of this resource is finite and demand is great, especially in this country (USA),” McMullen said. Will the advent of a new administration in the White House bring lower prices at the pump? Not likely.
The Wall Street Journal reporters Nick Timiraos and Elizabeth Holmes wrote on April 30: “Although the major presidential candidates are making record gasoline prices a campaign issue, they are avoiding mention of measures they each support that would indirectly raise prices at the pump.
“Democrats Hillary Clinton (D.-N.Y.) and Barack Obama (D.-Ill.) and Republican John McCain (R.-Ariz.) support some type of corporate cap-and-trade system to curb greenhouse gases, which likely would increase fuel prices. In addition, the Democratic contenders have called for a ‘windfall profits’ tax on oil companies, which ultimately could be passed on to consumers,” the Journal reported.
The Total Rewards Angle “Length of commute, and hence cost of gas, hasn't historically figured very high on the list of reasons employees site when considering whether to leave an organization,” indicated Watson/Wyatt Global Practice Director, Strategic Rewards Laura Sejen. “Base pay, promotion opportunities, stress levels and work-life balance are likely to remain more important considerations for most employees.”
However, Sejen also noted, “If gasoline prices continue to rise, it will become more important for employers to offer programs that mitigate the high cost of commuting. These programs can become part of the employee value proposition, just like the company's commitment to other aspects of the employment experience.”
“Our employee surveys find that the cost of the commute is beating out ‘time spent in the commute’ as employees' number one commute concern,” reported Jennifer M. Verive, Ph.D., CEO, White Rabbit Virtual Inc. “Getting a job closer to home is no longer about time convenience; it's a $60 fill-up that takes money away from other personal and family needs. The first time we saw this was when gas was about $2.25/gallon a couple of years ago. The trend has increased along with gas prices and is especially strong among lower-paid employees, such as customer support representatives. Currently, a growing number of employers are worried about this, as they know employees are factoring it into their cost of living and net wages. In regions with high home prices where commutes are longer, attracting new employees is now even more difficult.”
McMullen added, “This is a real concern for many employers today, especially in industry sectors like retail and restaurants. One of the primary reasons that many employees choose to work for a particular employer, in the restaurant and retail sectors, is proximity and convenience to the location. This is due, in part, to the increasingly high cost of transportation. Some employers provide transportation service to employees from outlying areas to the store location. In the restaurant and retail sectors, flexible scheduling around the needs and wants of an employee is a source of competitive advantage. Organizations that can efficiently and effectively respond to the needs of employees in scheduling have an advantage over their competitors.”
“Stopping short of giving everyone a cost-of-living increase, employers can provide information and be supportive of alternative transportation methods for their employees who must work in the office,” said Joseph DiMisa, senior vice president, Sales Force Effectiveness Practice Leader at Sibson Consulting, A Division of Segal.
“Maybe organizations can look into several things that would help alleviate this new burden,” suggested Stanley. She indicated that companies could consider:
—Car pooling/van pooling (and having a contest or incentive to do so)
—Flexible scheduling, such as compressed workweeks, where an employee is off the road
—Teleworking where feasible once or twice a week.
“Make it a ‘green’ issue and ask for employees to come up with ways to help the environment, then they ‘own’ it,” Stanley said.
“We are seeing companies that previously weren't doing any type of flexwork wanting to integrate flexwork options into other types of transit offerings to provide employees with a wider range of commute alternatives,” Verive indicated. “In more and more cases companies are willing to fund some of these options.”
“As employees spend more of their disposable income on gasoline purchases, employees will want to make up the difference by asking for more take home pay or a more flexible working arrangement,” indicated DiMisa. “In companies that have salespeople who spend a good deal of time and money on driving, there may be other issues, requests for increased car allowances or higher mileage reimbursements, for example.”
Stanley also pointed out some pitfalls of simply paying employees more money to cover rising gasoline costs. “Before going down that road, consider the full impact of increasing pay, such as employer taxes, matching of 401(k) percentage of pay, percent of payout for bonuses, etc. It’s a wonderful gesture. But what happens when gas prices go even higher? Or potentially what would happen to employees’ perception on getting raises for gas-price increases, but not health-care cost increases?”
In discussing gas prices and their effect on a total rewards program, Watson Wyatt Worldwide’s Laura Sejen, global practice director, strategic rewards, said, “With the exception of employees who are required to use their car for work (for example, sales employees), to the extent that companies recognize and try to respond to the increase in gas prices, it is not likely to be via the base pay or other compensation programs. A more likely response would be via alternative programs within the total rewards mix. For example, a company could sponsor programs/Web sites to help employees who live near each form commuter pools to share the costs of commuting. As another example, companies could sponsor shuttle services from public transportation hubs to their office locations.”
Newsline asked the experts whether it’s too late for a company that hasn’t begun telework or flexible scheduling programs as part of its culture, to do so. The response was emphatic:
—DiMisa: “Absolutely not. It is never too late to provide flexible arrangements for employees.”
—Stanley: “It’s never too late to begin looking at viable work options.” —McMullen: “It’s never too late. If these are a source of competitive advantage, do it.”
“Indeed, lots of organizations have implemented either formal or informal programs for work away from the office, alternate work schedules or flexible start/end times,” said Ken Cardinal, managing director of Pearl Meyer & Partners.
And Stanley noted: “It is never too late to begin looking at these types of viable work options. There are many more benefits to these types of programs than to alleviate pain at the gas pump. They can be a great strategic tool in terms of attraction, retention and motivation; real estate cost reduction and business continuity plans.
The Executive Director of the Alliance for Work-Life Progress (AWLP) at WorldatWork, Kathie Lingle agreed that it is not too late to begin these programs: “Fortunately, the barriers to entry are minimal, once you confront the cultural conundrum, which takes work-life/change management expertise. No direct cost associated with flexibility; it's nothing more than a good management style, anchored in business strategy and with a robust set of evidence that supports the positive outcomes.”
Teleworking not only has impact on the employee’s expenses for gasoline but may affect an organization’s real-estate needs.
Carol Sladek, who is a principal at Hewitt Associates and leads Hewitt's work-life practice indicated: “Workplace flexibility programs are in their infancy today. Policies vary by company as do the objectives driving the program. Some employers are specifically using telework — and space-sharing strategies like hoteling — to reduce their real-estate footprint and reduce costs. And in some cases, telework policy makes giving up office space mandatory. Most telework arrangements, even when the goal is reduced real-estate costs, are either mutually agreed upon or voluntary.” In addition, Verive noted: “It’s tough to agree to a reduced or shared office space when teleworking one or two days a week. However, our recent surveys have found that employees overwhelmingly say they'd share space if they could telework three or more days per week.”
Lingle said, “Most companies and cultures I am aware of have eventually discovered that ‘mandatory flexibility’ is an oxymoron.
“Many people are not good candidates for telecommuting for a variety of reasons. Some because they simply hate doing it and can't function and some because they don't have the communication and organizational skills required. It demands discipline, self-discipline and superior communication/organization ability, as well as a love of solitude.” “Managers hate it too, innately,” she said. “Because at core, it is about control as much as about how work gets done. Who's got control? Managers don't want to give any up; employees want more. So, there are big education and training implications here,” Lingle warned.
“What's interesting is that small companies have a natural advantage with flexibility because of a clear line of sight and generally higher trust levels,” Lingle said. She then predicted, “we'll not only see a trend to greater volumes of telecommuting among groups that have never done it and wouldn't or shouldn't be under ‘normal conditions,’ whatever those were, but more and more employees will gravitate towards smaller employers as the bigger ones fail to deliver because of their ingrained anti-flex cultures. This is much like the huge waves of women that have migrated out of big firms to start their own businesses over the past 10 to 15 years. This time the tidal wave won't be just women.”
The rise in gasoline prices is also viewed as an opportunity to vary start and stop times for those employees who must work in the office. This step reduced congestion on the roadways thus saving gasoline for the employees.
“We’re seeing more interest in flex schedules and compressed workweeks for this reason, Verive noted. “Some employers who are uncomfortable having employees work from home, are more comfortable having them work adjusted or longer shifts, both of which allow employees to drive closer to the speed limit. And we know fuel efficiency goes up when you're driving one consistent speed rather than in stop and go traffic.”
Stanley added: “Some cities, like Houston, are currently working with local businesses to affect this cause right now. They are also putting on a one-day conference to help city governments and businesses start their own initiatives.”
“Houston's ‘Flex in the City’ initiative is a prime example of creativity and success at such good corporate citizenship, since what Mayor (Bill) White has done is mobilize the employers in an entire city to leverage total impact,” said Lingle who ventured another prediction. “This kind of unified effort is going to escalate in the medium- to long-term, driven by the confluence of two trends, the escalation in the price of gas and the frenetic search for ways for organizations to color themselves a darker shade of green.”
The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/pdf.
CIBC World Markets is the wholesale and corporate banking arm of CIBC, a company providing a range of integrated credit and capital markets products, investment banking, and merchant banking to clients in worldwide financial markets. Information about work-life, telework and flexible scheduling programs is available at www.worldatwork.org.