Interest in dispatches from the front lines of the talent wars assumes some understanding of why the war is being waged. Simply put, organisations with more talented people working for them deliver higher returns to their shareholders.
McKinsey’s extensive 1990s’ War on Talent Survey showed that companies with more talented people on their payroll averaged 22 percent annual return to shareholders versus 13 percent for those without. That, on the face of it, is compelling argument for waging the battle.
And evidence of the fact war is still being waged exists in the great pay disparity in management ranks, increasing recruitment costs, and the boom in phenomena like executive evaluation, contracting and leasing and personal coaching. And those with talent to offer understand just as well as those charged with the business of filling organisational ranks, the premiums paid for top recruits.
“There’s no question organisations are willing to pay more for talent,” says Garrett Sheridan, vice president of Chicago-based Hudson, who – in previous life – worked on the McKinsey War on Talent research. He was in New Zealand recently to promote Hudson’s new human resource strategy software and consulting offering, TalentMax. According to Sheridan companies no longer recruit talented people “because they believe intuitively” that it helps. “They know it helps and they quantify the return on investment from the expenditure.”
Emergent general manager Ian Jacob agrees. The shortage of talent is driving up the cost of recruiting talented people, he says. “This is supply and demand market and the quality candidates believe that in this environment they can extract more money than they did say 12 months ago.” Jacob also thinks that 200 percent increase in his “backfilling” executive leasing business in the past three months is profound evidence of this shortage of “permanent candidate availability… across broad range of disciplines”. He does not “see this [demand] softening any time soon”.
With the marketplace forces of supply and demand in full flight and pushing the cost of recruiting good people ever higher, how do employers ensure they will get an acceptable return on their expensive executive investment? There are at least two schools of thought. Do more rigorous due diligence on potential recruits and simultaneously align recruitment practices with organisational performance strategies, or take the contracting route and introduce more flexible management thinking.
Rigorous evaluation
Executives understand that they must submit themselves to far more rigorous performance evaluation than they have in the past. They must stack up against quite specific organisational criteria in order to demand generous packages. Assessment centres are emerging – not necessarily for the most senior executive appointments – in which management recruits with leadership potential are put through day or two of evaluation against given leadership situations. It is no longer sufficient to accept good past track record as the only measure of potential. The trend is growing in popularity as response to the high cost risk of getting the recruitment decision wrong.
Recruiting good people “is not just about pay”, says Sheridan. “Good organisations are taking the time to clarify what their employee value proposition is.” Employers must differentiate themselves. They need to offer career growth opportunities and demonstrate their organisational effectiveness. Employers must understand what elements help individuals decide first to join an organisation and whether they will stay.
“The workforce has changed dramatically in the past 10 to 15 years,” says Sheridan. “Good talent is more mobile and there is massive change in people’s expectations around work. If you are high performer, you not only want to be well paid, you also want to know that the environment you are entering will facilitate high performance and allow you to succeed in the future.”
Organisations are “branding” their employment relationships to attract good talent. So on the one hand employers are paying more for the individuals they employ and on the other they are marketing themselves more aggressively.
Emergent’s Jacob sees the market response to the talent shortage little differently. He agrees that it is both more difficult and more costly to manage, grow and retain good people. “But this is only an issue if the organisation believes that staff retention across the entire business is necessary,” he explains. “Increasingly, organisations rely on accessing executive contractors when expert skills are required.”
He has no supporting statistics but says the contracting option is growing rapidly both at home and abroad. “Great talent is becoming more mobile and companies want to engage skills to deliver specific result, while maintaining cost flexibility. Contracting delivers this without repetitive and costly restructures,” he adds.
His advocacy of contracting aside, Jacob is clear about what employers must do to attract talented employees and managers.“Career drivers now centre around challenging experiences, not jobs for life,” he says. “But this does not negate the need to create the following:
• Strong brands with broad market recognition and great reputations.
• culture that rewards delivery, is fast-paced, action-oriented, progressive and constantly breaks down barriers to action.
• An environment where transparency, honesty and integrity are the cornerstones of the organisation.
• long-term view of employment – where organisations invest in people, stretch them, educate them, but support them if they leave to grow elsewhere.
• practice of encouraging and rewarding creativity in any form that adds value to the organisation.”
Sheridan argues that results-focused organisations are more strategic about their management of human capital. High achieving businesses hire top people and map where their competencies will contribute most to organisational performance. He compares buying talented individuals with buying an investment portfolio. “The stocks that return the best to shareholders tend to be higher priced,” he says. “Likewise for people. Their value gets driven up [if they perform].”
This approach suggests need to re-think people management policies and priorities. At one end of the spectrum, organisations spend time wrapping high performers in cotton wool to keep them. At the other end they spend time and effort dealing with low performers.
“By just focusing on top and bottom performers employers lose massive opportunity to turn the 60 percent of the workforce that sit in the middle as strong individual performers, to greater account. Organisations should focus on this 60 percent and measure the return on an investment in them,” says Sheridan.
“[Organisations] need to make tough decisions around whether to develop people or exit them. The War for Talent work done at McKinsey found that retaining poor performers not only drags the performance of the high achievers down, but also reduces the performance of the strong individual contributors who resent carrying people who aren’t contributing.”
What, then, motivates individuals to lift their performance?
Sheridan’s response is to identify individuals with potential, identify the areas of training they need, invest in them and start tracking the return on that investment. “And you need to track that against the business results they achieve. Training and coaching can help lift performance. It is significant [personal] motivator.”
Link pay to results
“Variable pay should be linked to results and to what the individual delivers. Base pay, on the other hand, should be linked to individual competency,” says Sheridan. “As individuals grow their competency they become more valuable asset and their base pay should increase. But variable pay that is linked to year-on-year or quarter-on-quarter performance should be linked to business results.”
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