Make no mistake, it is a tough time for the oil and gas industry, and big and small firms alike are struggling to strike the right balance between cutting costs and protecting their brands, all while making sure they are positioned to expand rapidly when oil prices rebound.
The rebound is still some way off. At the time of writing, West Texas Intermediate (WTI), the benchmark oil price, was hovering just under US$50 a barrel. The U.S.’s Energy Information Administration (EIA) reckons it will be somewhere between 2018 and 2020 before the price rises above US$60, which for many firms is the point at which oil production becomes profitable. That’s a long time to go without turning a profit, and WTI has not spent a sustained period above US$60 since the beginning of 2015.
That inevitably means that firms have had to cut back on headcount, along with benefits and incentives for staff who have been kept on. The question they face is this: How, while dealing with a tough market, do they make sure that when oil prices come back out of the gate they are up and running at pace and are not caught flatfooted?
Striking the right balance to keep employees at every age
The answer lies with their employees. But finding the right balance with staff is made more difficult by the makeup of the current workforce –or, more correctly, the three distinct workforces:
- Baby boomers in their 60s, who are at or are approaching retirement age;
- Generation X-ers in their 40s and 50s; and
- Generation Y (or Millennials) in their 20s and 30s
While Baby Boomers’ time is short and Gen X-ers’ numbers are static, Millennials will be the plurality of the workforce in the next decade. The problem here is that each different segment of the workforce is motivated by different things:
- For earlier generations, things like pay, healthcare, pensions and insurance were important;
- For younger people it is to do with long- and short-term incentives like bonuses and stock options; and
- for the latest generation, environmental concerns come on top – things like training and new opportunities.
The balance that needs to be struck is between competitve compensation for older staff, some short-term incentives for their younger – yet relatively senior – colleagues, who will be running the show in a few years, and career development plans for the younger guys who will be key to efficient, safe, profitable operations by the end of the decade. That’s a lot to take on board, but the risk in not doing so is that you either lose future superstars today, or when the rebound inevitably comes they are then poached by other firms.
As the industry prepares for US$60 oil, it needs to ready itself to open the front door to new recruits while keeping the back door closed to the key positions it wishes to retain. Earlier this October, we published our 2016 Global Talent Management & Rewards and Global Workforce report. It analyzes the attraction, retention and engagement drivers for the oil and gas industry, and offers solutions for updating incentives to address changing attitudes within the workforce.
What we found was that when it comes to attracting talent, base salary is easily the biggest incentive. But job security, career advancement opportunities, skill development and challenges all rated as among the most important issues. When it comes to staff retention, base salary also occupied the top spot, with career advancement, physical work environment, length of commute and job security rounding out the other priorities for employees.
What this means for employers is that it is time to change their attitude to staff rewards: transparency and career security need to become core principles for businesses, while firms will also need to find ways of becoming more flexible. One size no longer fits all.
This publication and all of the information material, data and contents contained herein are for general informational purposes only, are not presented for purposes of reliance, and do not constitute risk management advice, legal advice, tax advice, investment advice or any other form of professional advice. This document is for general discussion and/or guidance only, is not intended to be relied upon, and action based on or in connection with anything contained herein should not be taken without first obtaining specific advice from a suitably qualified professional.
Chris Wentland is Willis Towers Watson’s Human Capital Oil & Gas Lead for North America. Based in Houston, Texas, he serves key Fortune 1000 clients across all sub-sectors of the oil & gas and chemical value chain. He is responsible for understanding how industry trends and economic environment impact companies and, with Willis Towers Watson resources, developing solutions.