Be an Investor When Recruiting and Hiring
Who you hire is one of the most important decisions and investments you can make in your business. However, recruiting and hiring today is more important than finding a person with the right skills and qualifications. Do the candidates fit our culture and strategic vision? Do they share our values and have the right behaviors to make them successful and provide your company a long-term return? Will they still be around in 5 years? Warren Buffett is considered to be one of the most successful investors of all time and is currently the third wealthiest person in the world. Regardless of one’s opinion of the “Oracle of Omaha,” it is hard to argue with his amazing track record of success. As the Chairman and CEO of Berkshire Hathaway, Buffett has inspired millions, while making billions through a philosophy of investing that can also be applied to successful hiring practices in your business. Aside from utilizing financial ratios and other analytical tools to find undervalued companies he can invest in, there are other key considerations that Buffett and many other successful investors look for before making a decision. Never compromising on business quality, taking the long view, and listening to those you know and trust, to name a few hallmarks of Buffett’s investment strategy. Could thinking as an investor also be applied to hiring? After all, when recruiting and hiring a person to join your company, you are making a major investment. That same hire can often be critical for the future success of the company. Time, training, compensation, benefits and other “rewards” for the people you employ are your investments in growing your business and making a return. In today’s low-unemployment, low-retention “candidate’s market,” approaching recruiting and hiring as an investor may make the difference and lead to better decision-making in this critical area. Never Compromise on Quality “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” – Warren Buffett Berkshire Hathaway was originally a textile manufacturer when Buffett first took control in 1962. He later stated that entering the textile business was one of his worst trades ever but kept the name. That experience taught Buffett that “you get what you pay for.” He was no longer interested in buying something at a bargain in the hope of getting a nice short-term return, especially when the long-term prospects for the business look terrible. He chose a path of “value investing,” in which he looks for prices that are low compared to their actual or future worth and often overlooked by other investors. Never compromising on quality can also be applied to hiring. For example, Candidate A is a high-quality candidate that matches all of the skills, qualifications, experience, behaviors and cultural alignment needed for great success in the position. “A” checks off all of the boxes, has been thoroughly screened and you can see a bright long-term future. Candidate B also has many of the same skills and qualifications. “B’s” behaviors and culture fit were not as strong and the references not as glowing, nor was there a projected long-term future with the company. Here’s the kicker— “B” wants 20% less in salary than “A.” How many would automatically gravitate to Candidate B because they felt they were saving the company money or had to stick to a budget? Quality investments yield high returns and increase in value over time, similar to Candidate A in our example. How does this apply to value investing? Candidate B will inevitably cost the company more over time and return less due to low engagement, poor cultural fit and eventual turnover – in other words a lot more than the 20% saved in Candidate A’s compensation. As Buffett has stated, “Price is what you pay. Value is what you get.” Taking the Long View Once asked how long he would hold a high-quality investment he made at what was considered a reasonable price, Buffett answered, “Our favorite holding period is forever.” Embracing a “buy and hold” investment philosophy, many of his investments have been held for decades. Buffett and investors care more about the future price than the value it was on the day it was purchased. As a business leader, you should care more about what a new hire can bring you a few years into the future instead of having them be able to “hit the ground running” and automatically start making returns on day one. Look for those candidates who are quick learners and can innovatively solve problems. They are the ones that have the experience and behaviors that will help them integrate quickly into your company and excel in the future. Smart investors also continue to invest – just as companies need to keep investing in their people. While you may not have the budget to increase their compensation, look for other ways to invest in your new hires and current top talent and leadership. In a recent Udemy “Workplace Boredom Report,” 46% of employees are looking to leave their companies because of a lack of opportunity to learn new skills, and 80% agree that being given more opportunities to learn new skills would make them more interested and engaged in their work. Do you offer continuing education, seminars, training programs and other developmental programs that will keep your employees learning new skills? There is a measurable ROI to upskilling your employees, and often it is in the form of productivity gains, increased engagement, more profitability and reduced turnover. Listen to Those You Know and Trust “Management changes, like marital changes, are painful, time-consuming, and chancy.” – Warren Buffett Warren Buffett has always noted the importance of only investing in competent and trustworthy management teams. He knows that when he selects partners or managers, their actions and decisions will be felt for many years. As a business leader, you too must be cognizant of selecting competent and trustworthy people to join your organization. They could have a
All’s Fair in Love and Retention
Employee retention can seem like war in the current candidate market, but it doesn’t have to be. Often, when top-grade managers leave their organization, it is because of reasons that could be addressed by company leadership and have little to do with salary. In our own internal surveys that we use with candidates, “Company Culture” is the number one motivation for making a career move. As recruiters, we often see candidates willing to take up to a 20-25% cut in base pay for an opportunity that provides more of a challenge, a better company culture, more work/life balance, and a “runway” to their future goals. To get your people to stay, you may be thinking, “Well, I’ll just increase their compensation and that should do it.” Or – when presented with an employee that is leaving, “I will make him a counteroffer he can’t refuse.” Worst case, your budget may not allow for it. Best case, you may get another year or two out of the employee, but the underlying issues for them wanting to leave still remain. The good news is that it is not just about compensation. The bad news is that if you’re not taking steps to address employee retention and understand why your talent is leaving, it is open season on your people. We have identified many clients and companies we work with that have excellent employee retention, and they all share the same four components that we call L-O-V-E (L for Learning and Development programs, O for a great Onboarding experience, V for Values and Culture, and E for Engagement). Thus, when it comes to retention, think about making LOVE, not War. Learning and Development How many of us have said to ourselves at points in our career, ”Did I learn anything new today or was it just another day at the mill?” Learning and development programs are proven ways to boost engagement and loyalty. According to Ellie Bertani, Director of HR Strategy and Innovation at Walmart, “I believe business needs to stop looking at employees as a cost center and realize they are an investment. Training them is an investment that will pay dividends in the future.” There are external factors at work as well. According to Niall McKinney, president of AVADO, “As more jobs become automated, employers need to help employees re-deploy in new or more advanced areas. Around 32% of current workers ages 16-54, regardless of their position, may need to retrain within the next 12 years. Research also shows that workers are leaving your company because they don’t see the career path and opportunity they’re looking for. They may have higher expectations, or they simply need guidance. They also may have been thrown into a position without proper onboarding or training and are learning simply by making mistakes, which can be soul-crushing. In a recent Udemy “Workplace Boredom Report,” 46% of employees are looking to leave their companies because of a lack of opportunity to learn new skills. This is where a more experienced counterpart or mentor can provide the training, skills, career/life guidance, coaching, and patience that can help them learn the position, see their fit within the company and culture, and see a future. Do you offer continuing education, seminars, training program,s and other developmental programs that will keep your employees learning new skills? Do you have a portion of your meetings dedicated to best practices or learning something new, or even a simple sharing of information? There is a measurable ROI to upskilling your employees, often in the form of productivity gains and reduced turnover. Onboarding Onboarding is a great tool for welcoming a new team member and first impressions here are lasting. Think about your own career. How many of us on our first day in a new job had to find a temporary workspace since our workstation wasn’t ready? They may not have had our email setup yet and didn’t even have new business cards printed. “I’m sorry, I didn’t get the email that you were starting today,” was often a common refrain. You can feel the love and sense of belonging in your new company, right? According to ServiceNow, 80% of workers experienced some issues when starting a new job. One-third stated they received no training at all, while 28% were unsure of their responsibilities and goals. 20% felt they were not fully onboarded after three months on the job! In fact, that same 80% would rather go on an awkward first date than attend a new job onboarding session or orientation. What do new hires want out of onboarding? In the ServiceNow survey, 58% want a walk-through of key processes or want a “buddy” or mentor they can turn to for questions. According to a recent Harris Poll, 93% of employers agree that a good onboarding experience is critical to influence the new hire’s decision to stay with the company. In fact, nearly 1 in 10 new hires leave a company due to a poor onboarding experience and the attrition rate can be up to 22% in the first 45 days of a new hire. The solution? Have a comprehensive plan for onboarding new hires. Your onboarding may include: a pre-boarding with your new hire (welcome packet and schedule, including a welcome letter from the CEO, sent prior to their first day); scheduled walk-throughs with key department heads; a longer duration for getting acclimated (most successful onboarding plans take weeks or even months); and the assignment of a coach/mentor to help them learn the new job quickly and immerse them into your company culture. Values & Company Culture Company values and culture are more important than ever when it comes to retention. Are you giving people insight into the company’s mission, values, vision and purpose? A good thing to do is write it down, not just have it on your web site, but have it visible throughout your entire operation. According to Bretton Putter, Founder and CEO of CultureGene, “The success or failure of a
Employer Strategies to Succeed in a Candidate’s Market: Lead, Match or Lag
Part 2 of a 2-Part Series on the Important and Timely Issue of Hiring in a Candidate’s Market When I turned 21 years old, I was in my Junior year at Bowling Green State University and had just changed majors from Music Education to Business. It was then that my dad gave me my first $500 to invest in the stock market. With it came a book by Louis Rukeyser titled, “How to Make Money in Wall Street.” In that book, Mr. Rukeyser introduced me to an axiom of investing that no doubt predates him, but I found the application well beyond investing: “A bull makes money, a bear makes money, but a pig goes broke.” The axiom was referencing a rising economy (as in the horns of a bull pointing up) and a declining economy (as in a bear swiping down for its prey). But the reference to the pig is about those who invest with greed, trying to time the markets and get rich quick rather than selecting the appropriate investment strategy for the current market flow. Now, I’m not a market prognosticator here to tell you how to make a quick buck on Wall Street, but the axiom has some interesting applications that can make or break your company if you know how to apply it with three critical human capital investment strategies. The last article, “Employer Strategies to Succeed in a Candidate’s Market,” addressed various direct and indirect compensation elements that can be flexed in order to build customized and compelling offers to attract top talent in the current competitive candidate’s market. In addition, the need for a compensation philosophy and strategy was outlined. What are these strategies? Simply put they are: Lead, Match or Lag. Piece of cake, right? Well, as with all things in business, it’s not that easy. Let’s understand what they mean first. LEAD: This is the most straightforward. In short, you pay more for the talent than the going market rate. After all, who wouldn’t want to take a job that pays more than anyone else in the same role in another company? MATCH: On second thought, perhaps THIS is the most straightforward. All you have to do is match the current market. Surely candidates will buy into the fact that, “this is the rate… take it or leave it?” Right? LAG: Then there is the biggest money saver of them all and an employer’s dream. Pay less than everyone else for the same talent to do the same job. You’ll rake in the money and not have to share! Well, maybe not. Unfortunately, they just are not as easy as they sound, but they are the strategies that need to be employed and each really does have its own place. The compensation philosophy of the organization should include an understanding of the underlying strategy you choose from the above. Understanding where the market is will help you better set the appropriate compensation for each position and situation. The hard part is when the market is changing right before your very eyes— as in today’s market! As SHRM points out in their article on planning and design, “There is not one strategy that will work for every employer and organizations will need to ensure the approach they choose matches their mission, vision, and culture and supports the overall business strategy.” Rather than adhere to a singular strategy across the organization, especially in the current candidate’s market, consider implementing a combination of each. As an example, you might choose to: LEAD: A great option for those mission critical and hard-to-fill roles where attracting top talent in a timely manner will make or break organizational success. MATCH: A recommended option for mission important and challenging roles that could just be a pain to have to fill and where there is a high potential of attrition due to market perception. LAG: Many businesses have roles of lower importance where labor may still be plentiful or where vacancies are less damaging to the organization. For those roles where the time sensitivity or mission impact is low, this is an excellent option. Spreading out the strategy in this fashion across roles by importance and impact can soften the blow to your P&L and provide the cash flow necessary to apply the “Lead” strategy used in other roles. However, let’s not fixate on cost too much. Remember the tools in the toolbox from the previous article? Not all of your tools revolve around base compensation, direct compensation, or even compensation at all! That’s right, the strategies COULD conceivably look like this: LEAD: Mission critical, hard-to-fill roles include a robust relocation plan, signing bonus, and/or a diverse set of PERKS not offered to any other role in the organization (but offered to all roles in this category). MATCH: Mission important, high attrition and painful-to-fill roles include lump sum relocation of a defined range based on need, flexibility for remote work, a retention bonus for 2-3 years of service and/or an attractive but narrow array of PERKS. LAG: Low time sensitivity or mission impact roles include a retention bonus for 3-5 years of service and/or a narrow array of PERKS. Still, many hiring managers, particularly those with no budgetary control or line-of-site often jump right to, “I want XYZ person so just pay them more!” If you cannot reasonably do that because you will blow your budget and risk pushing the organization into the red, then you cannot always lead the market. Leading the market may not always be the right answer for your company and may not even align with your organization’s mission, vision and culture. Here is where Mr. Rukeyser’s investment axiom comes into play. As human resource personnel, compensation managers, or even accounting/finance professionals, basically the function that often holds this responsibility in small and some mid-sized companies, we need to be prepared to educate our hiring managers around the axiom of bulls, bears, and pigs. Where necessary we should instill proper controls to reel
Employer Strategies to Succeed in a Candidate’s Market
Part 1 of a 2-Part Series on the Important and Timely Issue of Hiring in a Candidate’s Market It’s a Candidate’s Market! We’ve all heard this statement, and many business leaders and hiring managers are sick of hearing it yet remain confused about how to properly address the current employment market. Business leaders want to know, “What does this mean and how does it impact my business?” Many current leaders and hiring managers grew into their roles as the Great Recession began its correction and hiring began to ramp up. Throughout the recession and its recovery, businesses became lulled into a false sense of security that labor was plentiful and inexpensive. Now many are earning a new kind of MBA as they scramble to figure out how to navigate this employment market, meet the demands of customers, and still make a profit. After all, supply and demand impacts labor too. No matter what the market is: when supply is low, and demand is high, prices rise. Right? Well, sort of. When it comes to a candidate-driven market, compensation is always the big elephant in the room. We can look away all we want, but until we address it, that huge, gray, mammoth beast will just remain waiting to squash the deal you are hoping to close whether it is a hire, promotion, or even a retention bonus. From the standpoint of crafting offers in recruitment, where do you start? What do you do first? If you try to address every compensation concern on a case-by-case basis, it is doomed to fail. We recommend you be proactive and develop a compensation philosophy. Compensation Philosophy and Total Rewards What is a compensation philosophy? According to the Society for Human Resources Management (SHRM), “compensation philosophy provides guidance to compensation professionals in the initial setup and ongoing maintenance of the compensation infrastructure.” SHRM does provide concrete examples of philosophy structure elements that are typical of organizations and include setting target pay rates at some percentile of the market, providing incentives to meeting goals that deliver total direct compensation at a higher percentile, and long-term incentives such as stock options for senior professionals and managers when their performance aligns with shareholder objectives. Understanding the elements of a philosophy for your organization is critical to avoid the wild-wild-west behaviors around compensation that can bankrupt a company. There are 2 core types of compensation: direct and indirect. According to SHRM, “direct compensation refers to wages paid to employees in exchange for work and includes wage and salary, variable pay and stock awards.” According to HRZone, indirect compensation is “non-monetary remuneration provided to employees including annual leave, overtime allowance, health insurance, life insurance, company car, and mobile and pension funds.” The combined compensation and benefits, along with personal growth initiatives, is commonly referred to as Total Rewards.1 Certain elements of a Total Rewards Program cannot be adjusted to meet changing market demands on a candidate-by-candidate basis as those elements are built and negotiated a year or more in advance and/or there are legal constraints preventing flexibility. Elements dealing with direct compensation and other incentives and initiatives can be customized to meet the changing market demands and tailor a unique offer for each candidate. How can direct compensation be flexed to meet the needs of a candidate? We do not want to equate discussions of compensation with that of base pay. There are many ways to construct an offer that will be attractive and win the right candidate over the fierce competition. Instead of being fixated on base pay, flexibility can come in the form of: Bonus Incentives: If there are concerns about hiring too far outside the budgeted base, are there opportunities to adjust bonuses or commissions? Can you develop variable compensation appropriately tied to Key Performance Indicator metrics that provide revenue breathing room for you to compensate based on performance? When hires occur mid or end-of-year, can a guarantee of a minimal amount of bonus be made with flexibility tied to performance? Signing Bonus: When using a signing bonus, it is common to have an agreement with a claw-back option to help encourage the new hire to remain in their role. 1 year is standard, but there is flexibility depending on the size of the bonus and the level of the position. Retention Bonus: Developing a culture people want to work within is critical but more companies are layering in a retention bonus in support of a strong culture. The business rewarding an employee after 1, 3 or 5 years with a bonus goes much further than a plaque or “gold watch.” Relocation Assistance: The right talent may not always be within a reasonable daily commute of the work location and not every role is best performed remotely even if you are willing to let some roles perform at remote locations. Are you willing and financially able to provide a proper level of relocation assistance? This does not always have to be a full-pack move with a home purchase. A far less expensive option is a lump-sum relocation payment net of taxes for the candidate. If you offer relocation, terms should be defined in a relocation agreement including a claw-back option to help encourage retention. Being competitive in a candidate’s market includes the benefits and growth initiatives you offer, especially the indirect compensation elements of a Total Rewards plan, which can often make all the difference. Considerations When Developing a Total Rewards Plan The size of your company has certain implications around what benefits you must offer or limitations on how much you can offer (e.g. PPACA, HIPAA, ADAAA, ERISA, et al. requirements relating to who must offer medical coverage, limitations on costs for wellness programs, and pension/401k maximums to name a few). Not every company is required to offer benefits, and your company can be competitive in the market with or without them. What you offer and the degree to which you offer them can be a differentiating factor and cost less than direct compensation. PERKS,
Focusing on Youth in Hiring is Hurting Your Organizational Health
In the Fall of 1984, Ronald Reagan, at the time the oldest U.S. President in history, was in a fight for re-election. In his first debate with youthful challenger Walter Mondale, he appeared tired and lacking energy. Many began to question his stamina for the job. In the second debate, he was asked a question about his age and being able to function in tough circumstances and in a crisis. Without hesitation, Reagan said the lines that we wish would be used more by older candidates seeking a job today: “Not at all… and I want you to know that also I will not make age an issue of this campaign. I am not going to exploit, for political purposes, my opponent’s youth and inexperience.” He never looked back and won re-election in a landslide. Underlying the humor of Reagan’s response (even Mondale laughed at the time) is the truth in his words. Do we, and organizations in general, consciously and/or subconsciously choose “youth and inexperience” over “experience and wisdom” to our detriment and even to the detriment of the younger employees we onboard? Are we missing training, coaching, mentoring, and even reverse mentoring opportunities that would ultimately lower turnover and benefit the entire organization? Is it time to rethink age in hiring, especially in the current “candidate’s market,” and get away from the misconceptions and perceived costs of hiring older workers and focus on the benefits? In Search of Experience and Wisdom “Age is an issue of mind over matter. If you don’t mind, it doesn’t matter.” – Mark Twain Most can agree that experience and wisdom are good things, but there are clearly also times when age and health can lead to poor performance. On the flip side, performance in younger employees could be just as impacted by a lack of training (investment in your personnel), mentoring, and coaching, which could lead to increased turnover and impact the future of your entire organization. We recently placed a 61-year-old candidate into a client who simply couldn’t ignore the fact that she would make the entire department better. Instead of age being a negative, this particular person’s depth of work and life experience, high energy, and continual learning mindset, as well as the fact that she had been a coach and mentor to several in the same field for decades, became a major positive. She didn’t need training— she was going to become the trainer. The client saw that this was a resource that many of his Millennials could tap into, and concerns over age and longevity in the position were overcome. Too often as business leaders, we look for “shiny and new” over “tried and true.” On the flip side, the disdain that many in the Baby Boomers and Gen Xers have for Millennials (and vice versa) is not a new phenomenon. Saying that Millennials are more prone to leaving jobs and switching companies than previous generations is misleading. They leave jobs because they are young and new to the workforce, and there was probably little in the way of training investment, coaching, and mentoring to keep them there and get them through the rough patches. According to Pew Research and a study they did comparing Millennials to Gen Xers, the percentage of 18-to-35-year-old employees who stayed with their employers for 13 months or more was 63.4% for Millennials in 2016 and 59.9% for Gen Xers in 2000. In addition, the percentage of these same groups who had been with their employers for 5 years or more was 22% for Millennials in 2016 and 21.8% for Gen Xers in 2000. It is easy to form generalizations about generations and blame the Millennials for leaving because they do not “have a strong work ethic.” It is also envy, and we have all been there. Ask an all-star major league baseball player from the 70s or 80s if he wouldn’t want the salary of even the most mediocre ballplayer today? What about Millennials just entering the workforce out of college? According to Mike Brown and the “The Class of 2018 Career Report” conducted by LendEDU, 41.3% had already found a job, and of those, only 37% envision staying at that same job for over 3 years. 28% of those who had found a job envisioned staying at their job for up to 3 years, while 25% thought they would last 6 months to a year, and 10% said they would leave as soon as something better came along (click here for the full study at LendEDU). The research indicates that younger workers are leaving your company, not because they are “Millennials.” They are leaving because they don’t see the career path and opportunity they’re looking for, and they may indeed have higher expectations, or they simply need guidance. They may have been thrown into a position without proper onboarding or training and are learning simply by making mistakes, which can be soul-crushing. In a recent Udemy “Workplace Boredom Report,” 46% of employees are looking to leave their companies because of a lack of opportunity to learn new skills. This is when a more experienced and wise counterpart can provide the training, skills, career/life guidance, coaching, and patience that can help them learn the position, see their fit within the company, adapt to the culture, and see a future. Do you have a mentoring program? There is a wealth of company, industry, and subject knowledge in older workers that Millennials can tap into and that employers should value. Programs that enable knowledge transfer and connect younger and older workers have been found to have a high return on investment because of the impact they have on increasing retention rates, promotions, and overall employee satisfaction. There is also a benefit in reverse mentoring in which older executives are paired and mentored in turn by younger employees on technology, social media, and trends. After all, what organization couldn’t benefit from a free exchange of ideas, wisdom, and engagement between employees in different generations?