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The Impact of Low Unemployment on HR Strategy: Six Critical Components for Success in 2019

By Maureen Donnellan, MPI Consulting


The US unemployment rate is now the lowest it’s been since 1969 – currently holding steady at 3.7 percent in October 2018. There is a lot of speculation about how low it will go before we see trends change, but of the 388 Metropolitan Statistical Areas tracked by the Bureau of Labor Statistics, all but 32 of them have unemployment rates below 5%.





The trend is having a considerable impact on U.S. employers – The 2018 Conference Board CEO study found that "failure to attract and retain top talent" is now the No. 1 issue on the minds of CEOs, even more important than cybersecurity or new competition. In addition to the shortage of skilled labor available for top jobs, the Work Institute, in their 2018 Retention Report, estimates that 42 million, or one in four, employees will leave their jobs by the end of 2018, and that nearly 77 percent, or three-fourths, of that turnover could be prevented by employers. They estimate that employers will pay more than $600 billion in turnover costs by the end of 2018 and can expect that number to increase to $680 billion by 2020.


The impact of low unemployment on business is significant and goes far beyond the cost of turnover, particularly for those organizations finding themselves lagging behind in key areas of strategic HR. In order to perform and compete in the current market environment, an aggressive HR strategy focused on the following areas is required:


1) market-based compensation, 2) succession planning and innovative talent acquisition, 3) workforce training, 4) leadership development and corporate communications, 5) brand equity, workplace culture and employee engagement, and 6) strategic HR partnership.



Competitive, Market-based Wages, and Managing Wage Compression


Companies who have not kept their wage structures up-to-date are facing significant adjustments over shorter periods of time as the competition for labor grows. According to Deloitte’s 2018 report on the Millennial workforce, financial reward and benefits are as important to the younger workforce as they are to other generations, and ranks as a top priority in choosing to work for an organization (along with work culture, and flexibility in work location and hours). This is true for both skilled and unskilled jobs.



When pay bands are narrow, as they often are for entry-level positions, companies are finding that they must adjust pay across an entire workforce to keep the structure intact and avoid compression (and even more complicated workplace issues that arise as a result, which we will cover in our next article). More skilled, more experienced employees become significantly at risk for attrition as entry-level pay rates are increased and US Bureau of Labor Statistics Economic News Release Nov. 14, 2018


In addition, data from the US Bureau of Labor Statistics shows wages overall are currently not rising fast enough (just over ½ of 1%) to keep up with our current rise in the annual cost of living of 2.5%. Rising healthcare costs, higher transportation and food costs, rising housing costs, and the burden of student loans result in expenses growing faster than income for many entry-level workers, who are now in a position to demand higher entry-level wages. This means that workforce costs will be rising across industries as employers continue to raise wages to compete for talent.



Talent Acquisition and Succession Planning

The traditional process of just-in-time advertising, hiring and onboarding for open positions is no longer effective on its own. HR teams can no longer afford to wait until for a job opening to post for applicants and expect to have a good selection of experienced, trained workers who respond. Proactive, continuous recruitment, hiring and training of a reliable pool of talent to feed into positions as they become available is now becoming the most effective way of managing flow into your workforce. This requires significant changes in the structure and systems that talent acquisition teams need to be successful. It also requires an emphasis on succession planning.


Succession planning needs to include a very intentional process of identifying key talent across the entire team – not just in leadership positions – and making sure those people are acquiring the experience and skills needed to advance into openings as they occur. Every career ladder should be carefully mapped, and transitions managed. This in turn gives employees a vision for their future and a defined path for advancement. This means that companies now have to do a much better job of mapping out career progressions and managing succession at every level in order to plan ahead and be prepared for smooth transitions that cause a minimum of disruption to the operation.



Training and Development


Employers are finding that college and university programs are not preparing the new generation of workers with the hard and soft skills needed for the jobs of today. Data published by Deloitte from their 2018 report on Millennials shows that these new workers themselves do not feel prepared to succeed…and they expect employers to provide them with the necessary training to fill the gap.


The workforce shortage means that employers are now forced to hire less experienced, lesser trained workers to fill vacant positions and then provide the training they need to perform to standard. In addition, new hires expect training to continue beyond initial onboarding, with employers providing the ongoing training they need to be successful in the future. If today’s employees don’t see that investment being made, they leave and find those development opportunities elsewhere. Employers must now take on more risk in hiring less experienced, lesser trained individuals and make a considerable investment in training them to do their jobs. This means that modern HR departments are building bigger training and development teams covering a wider range of topics.





Brand Equity, Workplace Culture, Engagement


Hiring and retaining employees who want to see the company succeed and will take ownership for making it happen means that values-based hiring, workplace culture and employee engagement are now more important than ever. Those things cannot happen without authentic employer brand identity and equity. Young employees today are not only looking for a livelihood, but an inspiring experience that helps them find purpose, achievement and growth in their work. Clear corporate values and workplace culture that employees can connect to their own personal ethics are key. Not only that, but engaging employees in developing, continuously improving and sustaining those values and culture is critical to the company’s success. Only then will they feel ownership and responsibility for it.


This means that the most competitive companies will invest the time and commitment required to continuously re-define, re-build and re-invigorate the equity of their brand in every way: from corporate values and mission, to employee-driven continuous improvement, to recognition of employee performance and achievement, to multi-cultural competence and emotional intelligence.


Leadership Development and Corporate Communications


Too many companies today are still not investing sufficiently in developing their middle managers and supervisors. In many cases, we also see this oversight in upper level leadership. Leaders today must be available, authentic and engaged communicators who know their people well at every level. They must be able to build and empower diverse teams that collaborate across the organization and manage change and conflict well. Even in large organizations, employees need to feel some degree of a personal connection to senior leadership. It takes a lot of effort, not only in training and development, but also in holding those leaders accountable for corporate-wide communications strategy and implementation. This means that companies need to invest in building out rigorous development programs and hold their managers at every level accountable for effective leadership skills. It also means that corporate communications teams will be expanded and elevated to higher levels of significance and expectation.


HR Partnership and Organizational Productivity


The impact that workforce shortages can have on productivity can be significant. It is important for the HR team to work together collaboratively with operations and supply chain leadership to be sure that customer demands can be met. In addition, plans for growth can be severely hampered by workforce shortages. Managers should be provided with tools they need to accurately forecast demand and carefully monitor overtime so that the HR team can regularly report out turnover and workforce gaps.

Too many companies ask their workforce to function for extended periods on mandatory overtime. It creates a level of stress, fatigue and ultimately burnout that cannot be sustained, no matter how well employees are paid for it. High overtime costs for extended periods are a warning sign that cannot be ignored. If the workforce expansion cannot be achieved, the organization may need to make some difficult choices in the short run in order to stay healthy and viable for the future. This means that HR leadership must have a voice at the highest executive level in order to help shape strategy in a relevant way.


Summary


Low unemployment is not creating never-before-seen challenges for U.S. companies, but it is exposing critical areas in need of attention that are more important than ever for a thriving business. This means that successful companies today will be working hard to achieve the following:

  • Raise entry level wages to compete for talent and protect the bottom line at the same time,

  • Manage succession at every level in order to plan ahead for talent acquisition,

  • Expand employee training and development capability,

  • Re-define, re-build and re-invigorate brand equity,

  • Hold managers at every level accountable for effective leadership,

  • Expand and elevate corporate communications,

  • Enable HR leadership with a voice at the highest executive level.

Keys to success in accomplishing these objectives include a clear brand identity and vision, well-defined compensation philosophy and robust employee value proposition, a values-based culture of learning, collaboration and multi-cultural competence, authentic employee empowerment, excellence in communications and strategic HR partnership. MPI clients have achieved success in these objectives by leveraging our expertise in many important areas.

  • Successful companies strategically leverage workplace culture and company brand so that they do not have to rely solely on pay as the main pillar of their employee value proposition (EVP). This approach can have a big role in shaping compensation philosophy and subsequent business decisions. MPI clients know that this approach will only work if culture and brand are authentic and inspirational, the work experience is fulfilling, and if entry level pay is sufficient to meet an employee’s basic needs for food, shelter, transportation, childcare and work-life balance.

  • Continuous performance coaching is essential in guiding employees along a succession ladder. Setting up standard processes and training managers and supervisors in essential competencies such as crucial conversations, constructive feedback, managing conflict, cultural competence and emotional intelligence are key areas of expertise we offer to clients in this area.

  • MPI builds both holistic and targeted corporate learning programs for clients that are based upon a solid foundation of strategic planning, corporate values, brand identity and best practice. Our teams help client companies intentionally build the workplace culture and accountability streams required for employees to fulfill their mission and achieve the company’s vision of success.

  • MPI offers key tools and best practices for establishing employee voice and empowerment. The more involved employees are in these decisions the more sustainable outcomes will be. Employee engagement should be the cornerstone of culture for businesses who want to compete for the best talent.

  • MPI’s leadership coaching, communications planning, change management and implementation expertise are highly customized and regularly available to our clients in many different contexts. A key differentiator for our clients is their success in building workplace cultures of learning, collaboration, openness and innovation.

  • MPI has led many HR teams through varying degrees of reorganization in order to make sure they have the capacity and the capability to take on the responsibilities of strategic HR partnership. In addition, re-framing the interactions and accountability structures for senior leadership is often required in order to make sure leaders can work effectively across silos as an integrated team with shared goals.


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Maureen Donnellan is Senior Vice President for MPI Consulting, a global strategic HR consulting firm based in Cincinnati, Ohio USA with more than 40 years of success for hundreds of clients across many industries around the world. For more articles and other information about our services, we invite you to explore our website at https://managementperformance.com


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