January 22, 2020 – The old paradigms of the global economy have experienced a tectonic shift over the past few years, and perhaps the most significant of them is this point of view: Emerging economies grow at high rates and developed economies grow more slowly or are in decline. “This dictum has been turned on its head recently – nowhere more than with the U.S. economy,” said Lawrence Allen, a director at Stanton Chase International, in a newly released report. “And, this mega-trend tack in the global economy is straining all the old executive talent acquisition and retention models.”
Mr. Allen said the current U.S. presidential administration has made the American market far more attractive and investor-friendly than in the past. A 21 percent corporate tax rate (among the lowest in the developed world), immediate depreciation on some capital investments and massive deregulation, to just name a few, have helped enable this trend.
The result is U.S. economic growth rates more than doubling those of the prior decade, an unemployment rate of 3.5 percent (the lowest since the 1960s), and over seven million open jobs – one million more job openings than people available and qualified to fill them. “While this is largely a blue-collar phenomenon, the talent shortage has trickled up to senior executive positions too,” said Mr. Allen. “The consequences are that U.S.-based operations are now having an increasingly difficult time acquiring and retaining top talent.”
Leadership Talent Shortage
The growth story of the U.S. economy has flipped the country’s leadership landscape from a leadership buyer’s market to a leadership seller’s market. “Organizations now face a dearth of talent in their home market similar to what they once faced in emerging markets during the go-global 1990s and early 2000s,” Mr. Allen said. “As companies now look to recalibrate their U.S. talent acquisition and retention models, they would do well to consider how businesses once dealt with talent shortages in developing markets and apply those same strategies and tactics in order to stay ahead of the growing talent gap.”
Lawrence Allen’s primary focus is on consumer markets, with specialized expertise in the chocolate and confectionery industry, and the U.S. subsidiary leadership for foreign-invested companies. Mr. Allen built his executive search practice on his near two-decade expatriate career growing businesses for the world’s leading companies, among them: Nestlé and Hershey. He is the author or Chocolate Fortunes: The Battle for the Hearts, Minds and Taste Buds of China’s Consumers, a China business book that chronicles the quarter-century battle between the world’s chocolate companies for the hearts, minds, and taste buds of China’s emerging consumers.
Compiled from the insights of high-level executives who led businesses through talent shortages in emerging markets, Stanton Chase has identified six strategies and tactics for prevailing in the current home-market war for talent. The firm said that these tools were effective in both attracting and retaining effective leaders in a competitive landscape.
1. Understand Your Company’s Desirability
Mr. Allen said that companies must come to know and understand their true public image – with consumers and prospective employees. How desirable is the company to work for? What exactly makes it attractive (or unattractive) in the eyes of potential hires? “Everything from compensation to speed-to-hire can make or break a company’s desirability,” he said. “For example, if a management team takes eight weeks to get to an offer, what have they told the candidate about what they are like to work for? In today’s talent market, they’ve lost them.”
“This requires an honest self-evaluation (the good, the bad, and the ugly), acknowledging gaps and devising strategies and action plans to correct them,” Mr. Allen said. “Setting standards and goal-setting must always be done with competitors in mind – potential hires will comparison shop and so should prospective employers.”
2. Market Your Desirability Through Branding
Self-assessment, internal alignment, and goal setting at the top is all well and good, but in order to sell brand desirability, the entire organization must walk the talk. “Like marketing their products to consumers, selling an organization’s employer brand must meet and exceed “consumer” expectations,” Mr. Allen said. “If a cultural change is required to meet those expectations, then those changes must be made. In other words, the company must first sell its desirability to existing employees in order to sell itself to potential employees. Otherwise, new-hire retention will be extremely low and the organization will quickly develop a reputation for not living up to the hype.”
3. Anticipate and Be Proactive on Talent Market Developments
“Anticipating changes in the talent marketplace and being proactive has always been characteristic of successful employers, but becomes critical in a tight talent market,” said Mr. Allen. “And mid-course adjustments are to be expected in rapidly evolving talent markets.”
Some key levers should be periodically reviewed and course-adjusted:
- Compensation Structure: periodic adjustments to remain competitive—not just dollar amounts, but also types of compensation.
- Competency-Based Hiring: Resetting competency priorities based on market conditions as well as internal talent development goals.
- LTIs: Long-term (and short-term) incentives must be kept up to date with what’s being offered in the market.
- Recalibrating talent development investments, tools and resources, and corresponding ROI expectations.
4. Fortify Internal Talent Pipeline Development
“Reducing reliance on external hiring through better internal talent development works in two ways,” Mr. Allen said. “One, by developing a complementary supply of internal candidates, and the other, by improving employee retention. Employees are less apt to leave companies that formally invest in their professional development while presenting a path to internal progression. In addition, a strong internal pipeline may actually enhance market competitiveness for those times when it becomes necessary to go to the external market.”
The jobs outlook is positive for the remainder of 2019 as organizations plan to continue hiring full-time as well as temporary employees. In addition, the economy is still creating jobs at a strong pace. Companies, in fact, seem to be hiring with abandon as we enter an unprecedented 11th year of expansion and unemployment rates hovering around to 3.5 percent. The tough part, everyone agrees, is finding top talent.
Some of the best-managed companies set hiring guidelines between the two sources. Eighty percent internal vs. 20 percent external hires, for example, are necessary in order to retain internal career incentives while ensuring enough fresh blood is coming into the organization, said Mr. Allen. “One multinational company operating in China had over 12,000 employees and maintained an 80:20 hiring ratio,” he said. “It enjoyed a high employee retention rate where 15-plus year employees were not uncommon – and this was in a market noted for extremely high employee turnover. The company wasn’t the highest paying among multinationals, but year after year it was viewed as one of the most prestigious foreign multinational companies to work for in China. The result: It was a magnet for some of China’s best and brightest business leaders.”
5. Flexibility on Sourcing
“To avoid bidding wars for top-level talent in their industry, employers should widen the scope of companies and industries they hire from,” Mr. Allen said. “In addition to the traditional hiring sources, adjacent industries with similar routes to market and business dynamics can provide alternative talent streams and deepen the available talent pool.”
6. Reward Exceptional Performers Exceptionally
Essential to any talent management program is the goal of attraction and retention of the best performers. “Historically, U.S. hiring and retention practices have been competitive merit-based hiring, promotion and compensation,” said Mr. Allen. “This attracts the best talent from around the world. Homogenized comp and benefits structures flatten scales for more even distribution, but there are consequences for trending toward nonperformance-based mechanisms. The employer risks being perceived as a nonperformance-based organization and will begin to turn away top talent –particularly in a seller’s market.”
This factor can actually be turned into an advantage for talent-hungry small- and mid-cap employers,” he said. “While large, trend-following companies may choose to flatten compensation, they will increasingly become less attractive in the market. That’s good news for smaller companies in search of big-company talent that can import desired best practices. Their flexibility and willingness to reward exceptional performers exceptionally becomes a competitive advantage.”
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But Mr. Allen also warned of overly negative retention models, such as ever-steeper cliff-vesting LTIs, deferred benefits and so on. Too much “stick” in compensation models tends to build resentment, he said.
“À la carte compensation recognizes that one size comp and benefits models don’t fit all,” said Mr. Allen. “The industry, market, and the individual must all be taken into consideration when extending offers. Make it about what is right for the individual and position. Negotiate with candidates from a position of flexibility, according to their needs and motivations, but always keep it performance based.”
If the tables have turned from a buyer’s market to a seller’s market, why wouldn’t everyone be willing to challenge the old assumptions? “The truth is that real organizational change is never easy,” said Mr. Allen. “It is much easier to preach frank and honest self-assessments and internal-external market comparisons than it is to actually make them. Therefore, there must be a top-to-bottom commitment from all stakeholders for continually building a talent platform in the market.”
“In the end, a company’s most valuable asset is its people,” Mr. Allen said. “And while keeping ahead of competitive trends in an industry or product category is essential to driving business results, keeping ahead of competitive talent trends in leadership acquisition and retention is critically important to sustainable success.”
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media