How can CFOs incorporate employment conditions and trends into their financial planning while positioning themselves as an employer that attracts top talent? The trick is to balance employee needs with company realities.
In today's labor market, where unemployment is rising but still remains a manageable 4.1%, employee retention is paramount. Many workers have choice in their employers, so it's critical that they feel their work provides a certain level of fulfillment and financial reward. However, with most companies facing reduced pricing power, immediately increasing employee compensation is often not feasible.
Katie Kuhner Hebert interviewed Thomas Luttrell, CFO of MBO Partners, a sourcing platform for independent workers, to get advice on how CFOs can keep employees engaged and align expenses with the company's financial growth and strategic priorities. Luttrell spent nearly 20 years at Dell Technologies, where he played key roles in financial management and treasury operations.
Employee retention will continue to be one of the most important business challenges in 2024. How should CFOs incorporate this key element into their financial planning strategies for the second half of the year and beyond?
First and foremost, employee retention takes effort. There is no doubt a financial component, but CFOs need to approach the economics of retention with a holistic understanding that retention is more than just a financial endeavor. Partnering with other business leaders on non-financial HR strategies is key to preventing attrition.
That being said, here are some key financial areas for CFOs to consider:
Stay on top of market pay ratesCFOs need to track market compensation trends, which includes knowing market rates and understanding the nuances across the regions the company operates in. Doing so will enable CFOs to anticipate and mitigate potential compensation-based retention issues.
Retention fund budget. Allocate funds specifically for retention issues that may arise unexpectedly. CFOs should identify patterns of both regular and infrequent events related to retention issues. This includes turnover and less predictable events such as the sudden departure of a key person. While it's not possible to predict all retention challenges, setting aside identified funds demonstrates foresight and readiness to respond when issues arise.
Acknowledge the separationRecognize that turnover is inevitable, especially in a talent-short market, as top talent attracts the attention of recruiters and competitors. CFOs should consider the costs associated with turnover, including recruitment expenses and the potential lost productivity from replacing skilled workers.
Overall, CFOs must balance maintaining a lean expense base with ensuring sufficient resources to retain valuable employees. By incorporating these considerations into the financial planning process, CFOs can minimize the negative impact that employee turnover can have on the company's operations and financial performance.
Given the volatility and uncertainty of the business environment, how will CFOs manage the financial implications of trying to meet employee needs for more flexible working arrangements?
To navigate business cycles, organizations need to recognize the value of different capabilities and the short-term and long-term trade-offs of expanding and contracting workforce numbers.
Cost savings come at the same time as increased business demands, forcing employees to do more with less. During times like these, it's important to distinguish and prioritize between important day-to-day tasks, tasks that create future value, and tasks that are simply nice-to-have.
Understanding your cost structure (fixed, variable, and non-changeable costs) can help you strategically allocate resources.
Flexible work arrangements, such as hiring independent contractors, are a smart move. They allow you the flexibility to hire specialized talent for projects or address seasonal needs without the expense of full-time staff, while still efficiently protecting critical functions. By juggling these factors intelligently, organizations can improve financial outcomes and meet the changing personal needs of employees who don't need or want to work full-time or fixed schedules.
What are the benefits of tapping into the growing independent workforce?
Independent contractors are flexible, bring diverse skills, and are cost-effective. Take my team, for example. We use a mix of permanent employees and contractors to handle everything from seasonal peaks to temporary gaps due to attrition. This structure helps keep our organization agile, especially in an industry as fast-changing as tech.
However, managing contractors can be tricky and complicated, especially when it comes to compliance and classification, such as accurately classifying workers as W-2 employees or 1099 contractors. Success depends on mastering the nuances of this situation.
Working with independent contractors allows you to scale your operations up or down as needed, giving you the agility to do so without incurring excessive costs. This adaptive approach allows you to adjust to changing demands almost seamlessly, preventing undue financial strain.
What are your strategies for attracting and retaining top talent when there is a skilled labor shortage, and how do you know if the investment is worth it?
My employee retention strategy is to prioritize employee relationships and make them feel valued, which means building strong relationships with my employees, understanding their needs, and communicating transparently.
Feedback fosters trust and shows you're investing in your employees' futures. Taking calculated risks with proven, trustworthy people also strengthens loyalty and commitment. Listening carefully to employees' concerns, offering support when they need it, and respecting their autonomy when they don't, further strengthens the relationship. Plus, being proactive about compensation shows employees you value them.
While the return on investment of such efforts can be difficult to measure, monitoring turnover, especially of key talent, can provide insight into the effectiveness of your retention strategy. After all, investing in talent retention goes beyond short-term gains to ensure the long-term stability and success of your organization.
