The Dollar and Sense of The Leased Exec

By the year 2000 “half the working population will be making living outside the traditional [corporate] hierarchy”, predicted international management guru, Charles Handy, in the early ’80s. Well… we’re not there yet and it doesn’t look like we will make it soon. However, we are breaking out of traditional moulds and executive leasing is an increasingly popular work/lifestyle option.
“Executive leasing has increased by more than 30 percent in our company over the last two years,” says Sharon Ward Duncan, the manager of executive leasing for OCG. She bases her finding on the results of an in-depth analysis of her company’s business figures in March this year.
She expects continued dramatic growth in the trend but, like other recruitment executives, cannot see it absorbing 50 percent of the workforce in the near future. “Maybe about 30 percent in the next decade,” she predicts.
Ward Duncan also confirms the trends reported by other companies. Accounting and finance personnel are strongly represented in the ranks of executive lessees. The “explosion”, however, has been in the demand for sales and marketing, human resources and supply chain management, generally in middle management.
About 80 percent of all leased executive assignments are project based. According to management recruiters, companies understand the advantages of bringing contractor with specific skills in for tailored project – special skills deliver timely and effective solutions.
But lessees also provide effective solutions to short-term problems, like meeting the demands of peak-time workloads, implementing new systems or filling in when full-time executives take extended sick, parental or study leave.
Leased executives can also facilitate change. They come into their own when an organisation is changing its business, establishing new departments, undergoing merger, being taken over or simply moving to different city or headquarters, according to Clayton Ford general manager, Dave Stewart. “The executive is often leased to keep the business ticking over in the face of major internal changes or to head specific defined change project,” he says.
Executive leasing works well when “strongly defined role” is required, such as the management of special project. “With leasing there is fixed cost, therefore the company can request specific outcomes – including key performance indicators. Organisations go into projects knowing what milestones they expect at particular points and the factors that must be delivered in given time frame.”
But what’s in it for the executive? According to Stewart individuals who lease their skills are usually motivated by lifestyle considerations. They are generally opting for more freedom in their working lifestyle. On the other hand there are those who see it as practical means of adding to their experience base, says Stewart. Still others like the challenge that comes with trouble-shooting project and leave when the work returns to normal, caretaker pace – “they like the storm but not the norm”.
The pay rates vary depending on the job and the executive’s individual competence. They range from as little as $50 to $70 an hour up to daily rate of from $1000 to $2500 for very senior roles. While one recruitment company claims that contractors earn premium of between 25-30 percent above industry rates, another firmly believes that, once annualised, rates frequently work out on par with those paid in the permanent workforce.
“Cost effectiveness depends on the value of the assignment to the client. The cost of contractor is not simply case of dividing the expected annual full-time salary that someone of similar competence level would earn,” says Dan Sawyer, manager of Drake Executive.
His company operates professional contracting service that is the key supplier to one of Auckland’s largest businesses. The client now has workforce made up of one-third contract staff. “We directly manage the client relationship and have other recruitment agencies as ‘co-vendor’ partners. They assist us to provide fast, seamless service in the provision of staff. From strategic procurement angle, this is how some large businesses now want to operate. They want to deal with one supplier, but have access to range of providers.”
Employers are turning to contractors for variety of reasons but two of the most compelling attractions are flexibility and cost saving, says Pohlen Kean senior consultant Clare Thompson. The cost savings include not having to pay for extras like healthcare, pensions, life insurance, holiday pay – all of which can add up to 30-40 percent of payroll expenses.
Flexibility comes from being able to hire contract staff as and when needed. “And contractors are often more productive than permanent workers and generally do not burn out as quickly,” says Thompson.
However, company could lose its competitive edge if it leaves crucial functions to outsiders. “Some companies have found themselves losing control of their own process technologies. Others have found their quality suffering from outsourcing.”
There can also be some security risks associated with using contracted executives. Organisations need to ensure they protect themselves against the “inappropriate disclosure”. And then there’s the issue of worker compatibility. “Some firms have reported considerable difficulties arising from clashes between temporary and permanent workers,” says Thompson. In an ideal world workers could move smoothly from organisation to organisation under the umbrella of seamless culture. But it doesn’t quite work like that.
Generation X managers are boosting the popularity and profile of executive leasing in New Zealand. This generation, born between 1965 and 1977, embraces major slice of the workforce including many who are determined to break the mould of traditional employment.
“These are the children of the baby boomers. Many were raised in the time of flower power with lots of freedom and they prefer the person flexibility of contracting – they don’t want to be part of hierarchy structure,” the managing director of Executive Taskforce, Kevin Chappell, explains.
He believes that New Zealanders will vary their work – alternating periods of permanent employment and contract work. ”Within 10 to 15 years perhaps 50 percent of the workforce will have worked both on contract and permanent basis,” he predicts.
Workaholics are now viewed negatively and people are striving for balance, says Chappell, explaining the increasing interest in contract work. “With executive leasing, they can do what they enjoy, avoid company politics and take holidays when they want.” And an increasing number of executives are raising second family. “They don’t want to miss out on time with their kids as they did the first time round.”
Recruitment executives agreed that companies across the board, from small owner-operated businesses to multinational corporations, are turning to executive leasing. However, the manager of executive leasing with TMP Worldwide in Auckland, Laurie Bunting, believes that small businesses need to be better educated on the flexibility of the option.
The sense of independence offered by contracting is the lure for many lessees, according to Bunting. “Actually working for yourself gives the subtle feeling of being in control of your own destiny.”
Shaun Bowler, manager of KPMG Consulting Executive Resources, believes there is another dimension to this fundamental change in terms of employment. Permanent employment satisfies basic need, but an increasing number of capable people are looking for something else. Executive leasing attracts those who pursue “autonomy, flexibility, tax advantages and higher gross earnings”, he says.
From the client’s perspective, the key to measuring and managing the performance of leased executive is presentation of clear brief at the start of the assignment. The recruitment consultant should work with the client to scope the assignment