From mass resignations to quiet retirements, the past few years have been tough for recruiting and retaining top talent, but if you think that's going to change dramatically anytime soon, you'd be mistaken.
That was the premise of a talk by workplace expert and Wharton business professor Peter Cappelli at the recent CFO Leadership Council spring conference in Boston. In the nearly 50 years of a “buyer's market” for talent, from the mid-1970s to 2017, Cappelli said, “the U.S. unemployment rate only fell below 4% once. Since 2018, it has fallen below 4% every year, except for a brief period in 2020 when things shut down.”
Birth rates are falling and immigration isn't likely to pick up anytime soon, he said. “Simple supply and demand dynamics suggest we're more likely to see a seller's market than a buyer's market for the time being.”
To adapt, organizations will need to think more creatively about their talent for the future, and Cappelli has some ideas for how to do this:
• Reconsider scaling back during off-season. Citing numerous peer-reviewed finance and accounting journal studies of workforce reductions, Cappelli said, “None of the studies show that companies improve financially afterward.” “The companies that fared best were the ones that were able to delay workforce reductions the longest.” The reason? “During the recovery, companies that made large cuts have a hard time catching up.”
• Go beyond recruitment costs.“We measure the cost of recruiting because HR knows that's what you want to see,” he told an audience of CFOs. “They also measure the time it takes to recruit because they know line managers want to see that. That's fine. What they're not measuring is whether we're hiring great people. Only 20 percent of companies collect the data to know if they're hiring great people. The purpose of recruiting is to get great people. We're not even focusing on that right now.”
• Emphasis on promoting from within. “Today, about 15 percent of employees are hired internally and 85 percent are hired externally, which means there's very little development happening.” According to a Wharton study, “it takes external hires three years to be as productive as those promoted internally.”
• Focus on retention. According to ADP data, 29 percent of people who get promoted quit within a month, in part because the promoted role doesn't come with a pay raise. “That's so stupid,” Cappelli says. Giving employees a title alone can make them more attractive to other organizations, where they can get a pay raise.
• Identify your best employees and treat them accordingly. “Our concern isn't whether our worst employees will leave, that's the solution. It's whether our best employees will leave and what can we do about it. What is the strongest way to retain employees? You would probably think it's pay because that's what always comes up when people quit, but that's not actually what retains employees. A lot of it has to do with the direct manager and whether that person is paying attention to the employee. That's solvable.”
One of the biggest workforce risks today is the threat of large class action lawsuits: discrimination lawsuits, safety lawsuits, lawsuits over hiring and firing practices. Keith Andersen, vice president of Travelers Insurance, spoke about the impact of “nuclear verdicts” of over $10 million, which have quadrupled in two years from just under $5 billion to more than $18 billion in total. The next level below that, damages have nearly doubled from just over $21 million to more than $41 million.
There are a few reasons for this, but the most important is that “plaintiffs' bar has figured out how to maximize their profits,” Andersen says. “They treat litigation as a business, and they invest in litigation to maximize their profits.” People are used to being sued, and the company's image at the top has been tarnished, making it easier to demonize executives.
This all feeds into one of Cappelli's points, and perhaps one of the most important steps organizations can take to protect themselves against the various talent threats they face. “It all comes down to how managers treat their direct reports,” he stressed. “What I'm saying here isn't necessarily about raising salaries. It's mainly focused on spending a little more time with your direct reports' managers. There's a lot of room for improvement in this regard.”
