With the improving economy and job market, concern about engaging employees and retaining critical talent is top of mind for many employers.

According to Mercer’s 2012 Attraction and Retention Survey, more than 40% of participating organizations are expanding their overall workforce in 2012 compared to just 27% in 2010.training

Moreover, fewer organizations today than two years ago are making selected reductions to their workforce (16% versus 25%, respectively).

Despite this positive news, almost twice as many organizations today are reporting reduced levels of employee engagement compared to two years ago (24% versus 13%, respectively).

“Employee loyalty has been eroding the past few years due to companies’ responses to the economic downturn,” said Loree Griffith, principal with Mercer’s Rewards consulting business in the US. “Actions like layoffs, pay freezes and limited training opportunities have created an evolving employment deal for employees due to uncertainty about what is expected and how employees will be rewarded.

“Meanwhile, firms are still aggressively managing people costs while finding ways to re-energize and re-motivate engaged employees.”

Mercer’s 2012 Attraction and Retention Survey includes responses from more than 470 employers across all industries throughout the US and Canada.

Turnover is another factor contributing to the attention employers are placing on employee engagement. Almost 60% of participating organizations are anticipating increases in voluntary turnover as the job market and economy continue to improve.

Additionally, Mercer’s survey shows that certain positions are more sought-after than others because of skills shortages and market demand. These “hot jobs” include information technology, R&D/scientific engineering and executives/top management.

“Employees with the ‘right’ skill sets are in demand,” said Ms. Griffith. “

Rewards, cash and non-cash, continue to play an important role in fostering employee engagement and retention, particularly in times of reduced base pay increases and smaller bonuses.

According to Mercer’s survey, merit increases are back, with the large majority (95%) of organizations providing some form of increase for 2012.

However, cash rewards are not the only consideration. As in 2010, organizations today are continuing to enhance the use of non-cash rewards to drive employee retention and engagement, particularly during times of limited merit budgets.

The most prevalent non-cash reward programs implemented by organizations over the past 18 months include: communicating total reward value to employees (offered more by 25% of participating organizations), use of social media to boost the employee work experience (25%), formalized career paths (22%), internal/external training (22%) and special recognition (22%).

Although use of non-cash rewards continues to grow, top reward elements that organizations expect to have the biggest impact on employee engagement and retention in 2012 are base pay increases (reported by 50% of participating organizations), followed by vertical career progression (47%) and leadership development (46%).

Other reward elements that are viewed as having a moderate impact on employee engagement and retention include variable pay, health care benefits, work life programs, performance management, time off programs and training.

“While non-cash programs like work life initiatives and formal career paths are important for employee engagement all the time, employers must revisit pay in light of the changing business environment to stay competitive, retain their top-performing employees and ultimately buy or build required skills for the future,” said Jeanie Adkins, Partner and Segment Co-Leader of Mercer’s Rewards consulting business in the US.   

About Mercer

Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s 20,000 employees are based in more than 40 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies(NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 52,000 employees worldwide and annual revenue exceeding $10 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @MercerInsights.