Employee Retention Employee Retention
Employee Retention

  Tighter Labor Market Ahead
By Roger E. Herman, CSP, CMC, FIMC

We've been lulled into complacency. Finding and keeping good employees has been less difficult during the economic slowdown, but trouble is just around the corner. We're moving into a period of a severe labor shortage that most employers are not prepared for.

For most organizations, employment during the past couple of years has been manageable. It's easy to contrast that period with the go--go years of the late 1990s when employee turnover was high. Attracting and holding quality workers was a real challenge, driving up costs of recruiting, training, and supervision. That tight labor market will seem like a practice session, compared to what will happen this decade!

As we move out of the current slowdown into a stronger economy, labor analysts forecast a continuing increase in jobs. By 2010, we'll have 167,754,000 jobs available--all looking for the most suitable talent. However, the labor pool isn't growing as quickly as the employment market. Projections for 2010 show 157,721,000 workers. By 2010, we will be 10,033,000 people short!

This shortage will be a gradually intensifying problem. BLS data reveal a shortage today of 4,731,000 workers. This dilemma is not getting a lot of publicity because the news media, like employers, have been lulled into overconfidence by the temporary stability in the workforce. What they don't realize is that a great many employees today are cocooning--waiting until the right time to make their move. In a phenomenon we call "warm chair attrition," they've already left psychologically, even though they show up for work every day.

Many employers are vulnerable. If they haven't treated their employees well, most errant employers will be surprised over the next few months, as valued employees leave for greener pastures.

The Awareness Issue

An indicator of a company's vulnerability is the level of awareness and concern about human resource issues.

About 25 percent of employers have no clue of what is about to hit them. Their leaders have been so focused on current issues that they haven't poked their heads up to see what's going on in the world of employment. In this group, we include people who are in denial. A surprisingly large group of corporate leaders believes that the labor shortage is over forever, because they haven't had a problem hiring the people lately. Many of these ostrich--types don't believe the economy will get much better.

About 50 percent of corporate leaders are aware that there may be some sort of a labor shortage. They may not see many indications of the potential problem, but would agree that it's sometimes difficult to find just the right person to fill a particular job. Many organizations in this category offer a wide range of benefits, decent pay, and safe working conditions. Their leaders go to seminars and talk about the importance of employee retention, but their efforts are not particularly effective. They don't measure employee opinion, turnover, productivity, or the costs involved. Interestingly, the people who work for the managers and executives of such organizations are much more aware--and sensitive--than their bosses. It's frustrating for them, but the bosses just don't seem to care.

About 20 percent of corporate leaders are highly concerned about the labor shortage. They feel the angst and are moved to do something about it. These leaders are involved, listening to their people. They're designing strategies for workforce stability and taking proactive steps to position themselves strategically in the employment marketplace. They're looking for "A" players, understanding the value of having top talent on their team. These employers have a significant advantage over their competitors. They are focused on building a workforce that will enable them to compete very effectively--for people, for other resources, for customers, and for profit.

We estimate that about five percent of corporate leaders really get it! They have a comprehensive understanding that their human resources are clearly their most valuable resource. They hire top talent and diligently working to improve their skills and performance companies. These companies could qualify to become recognized as Employers of ChoiceSM, because they have addressed the comprehensive range of issues described in How to Become an Employer of Choice, our book that describes how people use defined criteria to choose their employers.

The Financial Issue

The problem involves more than just finding enough people to fill our jobs. There is a dollars--and--cents issue. Most executives sense that employee turnover is expensive, but few comprehend the huge risk to their financial stability.

The cost of employee turnover is potentially life--threatening to an employer. Why? Those costs come right off the bottom line. They are not controllable like "cost of goods sold" or "travel and entertainment." Worse, these costs are insidious, often hidden in other expense categories, so they're not really obvious. They are sinister, like stealth costs that can sneak up and bite when they're not expected. Included are the costs of overtime or temporary help to do the work, recruiting, selection, hiring, orientation, training, assimilation, rebuilding the team, safety exposure, loss of productivity, and stress on supervisors.

Complicating the corporate predicament, especially for publicly traded companies, is the emerging inclination by financial analysts to pay more attention to workforce capability and stability. Uncomfortably high employee turnover can cause bond ratings to drop and stock prices to tumble, threatening capitalization. The shifting relationship between workforce and finance issues, something most corporate executives have not watched carefully enough, could drive seemingly stable companies out of business.

Can this problem be overcome? Yes, but. The "but" depends on the capacity and commitment of organizational leadership, the speed with which leadership moves itself--and others, and how quickly they get started. In this highly charged competitive environment, he--or she--who hesitates is lost.

Chief Financial Officers must become more involved in partnership relationships with Chief Human Resource Officers. The problem is that they often do not operate at the same level in organizations; they don't speak the same language, and CFOs have yet to focus on the financial metrics of human resources, nor do CHROs generally know how to "business speak." Expect some major changes in this aspect of business management.

What to Do

Wise employers will change the way they do business. There are several opportunities to pursue, starting now.

First, improve the quality of leadership in your organization. Mere management isn't enough; strong, visionary, engaging leadership is essential. Look for top executives and owners to learn more about leadership techniques and practice them. They'll be investing resources in developing their next level of management to be more effective leaders. Will you?

Second, examine your systems--the way you do business. Seek ways to become more efficient. Explore opportunities to do more with technology. Develop methods to accomplish tasks more quickly. Challenge each aspect of your operations.

Third, determine just how many people you need. What kind of work should they be doing? What are your standards of performance? If you are not getting the performance you need, invest in training, education, and coaching to achieve desired results. If you have people who are not performing at or above your standards, now is the time to clean house and bring in people who can do the job.

Fourth, concentrate on employee retention. Understand why people would want to work for you and assure they're getting full measure. Money is no longer the major motivator in attracting and holding top talent. While the really good people expect to be paid well, they also want flexibility, challenging work, learning opportunities, and other "soft" benefits.

Fifth, plan for where you want your company to be in the future. Plan at least three years ahead. Put your strategy on paper; otherwise, your ideas are merely a dream. Other people on your team can't relate to a dream; they need to see where you'll be in the future--and where their place is in that picture.

Sixth, determine what your team of people will look like at that time in the future. How many people will you need? What kinds of education, training, and experience should they have? Plan deliberately how to move your staffing strength from where you are now to where you must be in the future. Start upgrading now, so you will be ready to achieve your future objectives.

There is no way to avoid the labor shortage. But with good planning and effective leadership, you can position yourself to come out on top while your competitors become extinct.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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