Price Volatility Poses Special Challenges, According to Bauer Researcher
Managing human resources in an industry with as many moving parts as the oil and gas business is challenging in the best of times. But the wild swings of price and global uncertainty that mark the current outlook make strategic HR management more important than ever.
Steve Werner, professor and chair of Bauer College’s Department of Management, is a human resource management researcher, consultant and author of “Managing Human Resources in the Oil and Gas Industry (2016).”
He spoke recently about some of the most important strategies HR management companies can adopt to be successful.
Q. What are some of the biggest challenges for human resource management in oil and gas companies?
A. The industry has a number of characteristics that set it apart from other industries. These include the importance of safety, the substantial involvement of governments, some unique characteristics of the workforce, the extreme global nature of the industry, and price volatility. Each of these characteristics presents different challenges for human resource management.
Q. What are the challenges during times of price volatility?
A. Depending on how low the price goes, for some companies the challenge is survival. For others, it’s remaining profitable while revenue substantially drops. Survival, or ideally, profitability during low prices can be achieved through gains in efficiency or lowering costs. The HR challenge is how to save costs and gain efficiency without resorting to layoffs. When layoffs are absolutely necessary, new challenges emerge. These include: How to keep the remaining employees from being demoralized and overstretched; how to help the laid-off employees adjust; and how to lay the groundwork for attracting employees again when times improve. During recovery, the greatest challenge is to attract back the talent that left, and retain talent that may be dissatisfied with how they or others were treated during the downturn.
Q. Do you have any numbers that illustrate the scale of the challenge?
A. In the last decade the price of a gallon of crude oil has ranged from over $145 dollars per barrel (in July 2008) to under $30 per barrel (in February 2016). Such a huge range has tremendous implications for all aspects of business in the oil and gas industry, and of course these then have implications for human resources management. It is estimated that about half of the workforce that was laid off in the last downturn will not return to the oil and gas industry. You can imagine the challenge of replenishing the workforce when half the people won’t return.
Q. Based on your research, or that of others, what are some of the most effective things that an HR team can put in place in order to be able to be successful despite fluctuations in the industry?
A. There are a number of things firms can do before and during a downturn to help the make it easier to prosper during downward cycles. These include:
- Emphasize variable pay rather than base salary. By offering less base pay and bigger bonuses based on company performance firms reduce their downside risk. During good times, employees get more when the firm can afford it, and during industry downturns, the company stops the bonuses and pays less when they can’t afford it. This keeps labor costs high during good times, but low after downturns.
- Emphasize cheap benefits. Some benefits, such as flex-time and telecommuting are highly valued by employees, but cost relatively little monetarily. Thus, while other benefits might have to be cut during tough times, cheaper ones don’t — keeping employees happy without much expense.
- Use contractors when feasible. Staffing with contractors allows firms to choose to not renew contracts during difficult times without incurring all the expense and emotional toil of lay-offs.
- In downturns, before resorting to layoffs, be creative in reducing the workforce voluntarily. Firms should consider offering unpaid leave, part-time employment, early retirement, and job sharing as ways to cut labor costs without resorting to layoffs. Also, consider transferring employees to unaffected divisions or growth areas before resorting to layoffs.
- If layoffs are absolutely necessary, treat employees with respect, honesty, and provide whatever support you can. This will help attract, retain, and re-acquire talent once there’s an upturn and employees have options again.
Q. Are these strategies likely to be applicable to other industries?
A. Although few other industries experience the large swings in the price of their goods like the oil and gas industry, managing HR efficiently and cost-effectively while treating employees with respect and consideration applies to all industries.
By Julie Bonnin