HR departments are facing a problem — they’re unable to consistently hire one of their top three candidates identified for a role more than 40% of the time.
Some Facts and Figures
Over the last year, Aberdeen has found that upwards of 40% of companies actively measure how often they hire one of the top 3 candidates identified for a role.
Beyond the initial hiring process, these same companies match initial hiring success to longer term metrics such as retention, alignment of employee and manager goals, and overall employee engagement (ranging from individual task completion to innovation and contribution rates).
Over the first 1-3 years of employment, 73% of HR departments see signs of disengagement. These signs, if not properly addressed, grow into indicators and, ultimately, turn employees into flight risks — all while productivity, performance, and engagement rates fall and employee stress levels rise.
Why Such a Potent Reaction?
There are days when those of us who analyze the labor market from technological, human, and economic angles just want to scream about that last paragraph. Why should this warrant such a commanding reaction? From the 30,000 foot view, employers are consistently missing the point that their employees are the same people as our market consumers: The longer we fail to properly invest in them, injecting resource autonomy and analytical direction in the right places, the longer we fail to pull ourselves out of the doldrums of societal and market stagnation.
Consider this: 67% of companies complain that they consistently fail to meet budget objectives, 74% complain that they suffer from low innovation rates, and 64% are aggravated by invariably high employee turnover rates.
The Chain Reaction
These organizational performance metrics put pressure on HR to make changes in response to finance and / or operations. Let’s look at the chain of causes behind them.
When an employee joins the firm, they first go through routine training and onboarding to adapt their core competencies to the way the firm does business. After that, said employee is set free to begin contributing to the organization’s mission and vision within the confines of said employee’s job description.
Not so fast:
At 65% of firms, that job description will change in the first year based on the firm’s needs. For more than 60% of firms, the mission and vision will also experience caveats and adaptations that will change how the firm values employees hired before their emergence. While the employee’s value perception changes, the employee’s task list will also change to suit the organization’s needs faster than the employee’s official position and compensation change to reflect the employee’s own goals or the change in their day-to-day tasks.
For 70% of firms, average employee engagement drops for more than 50% of the workforce in the first 3 years, reflecting a drop in average employee tenure to as little as 1.2 years (depending on the employee’s generation and position in the workforce). Even in cases where candidate engagement was strong in the hiring process, employee engagement suffers massive setbacks in the first 3 years of employment. This has a lasting effect on the company.
The Fallout
Before we look at the fallout, first HR must adhere to one of two strategies to respond to the disengagement problem.
Heeding the Calls of Finance and / or Operations
- Upwards of 80% of firms lack a CHRO that advocates for HR needs and priorities. In the CHRO’s place, HR must justify everything with finance and / or operations before they can make any strategic decisions about workforce resources or management strategies. Finance and operations have a shorter-term outlook on the workforce that often puts the firm’s balance sheet ahead of engagement and the return potential of labor investments.
- Where more than 60% of operations and finance teams look at quarterly and annual finance reports to plan for the next immediate operational period, HR gets pressured to manage labor costs by consistently sourcing top talent to replace underperforming talent amidst engagement drops and evolving management goals that alienate the current workforce. For these organizations, talent acquisition spend can outstrip performance management spend by up to a factor of 2 to 1. For employees, such an overt focus on external talent acquisition, the constant addition of new faces in the office, and the threat of redundancy undermines job security, prolongs pay raise options, and disincentives positive performance contributions.
Advancing with Support of the CHRO
- For the 20% or so of firms that have an active CHRO, HR takes a longer-term outlook on the return potential of the workforce by investing more in integrated performance management. In this model, performance data contributes to the development of the top talent profile that external hiring will seek.
- The inclusion of performance data in the hiring process also sets up for a redeployment strategy that helps HR and managers identify internal top talent that can be better optimized in another role. Redeployment plays within the confines of known positions, meaning that managers can track pay increases tied to change management or position changes anywhere in the company as employees advance within the firm.
The second strategy bears more fruit for organizations. It should be no surprise that the Best-in-Class favor an integrated performance strategy that looks internally to define top talent potential while looking externally to adapt to changes in their business market. From a cost basis, this approach is helping the Best-in-Class reduce the initial cost of hiring, minimizing the payback period for new hires and helping the company drive returns on hired talent while driving stronger retention and lower turnover rates.
Pathways to Success
Let’s think about employees more: if we want consumer sentiment to rise without the threat of rising debt levels, we need to find ways to actively pay employee more – and not through added benefits.
A great example comes from a case study on student debt repayment benefits. These benefits are paid out pre-tax both for the employer and employee. The money goes straight to paying down high-interest debt obligations, meaning that the employee has no opportunity to invest and grow the money of their own doing to match or exceed the interest rate on the debt in earnings. Meanwhile, in dodging payroll and income taxes, the employee’s net cost of social services, from public safety to road maintenance that impact other costs of living, such as car maintenance and access to public resources, goes up. The net result of the case study findings is that it is better to pay employees more than to keep siphoning off salary growth options into additional, employer-defined benefits that cannot be fully counted in earning potential.
So, here are the pathways to success:
- Provide employees with greater pathways to job security via performance-integrated talent placement
- Provide employees with direct salary growth in response to financial wellness issues
- Provide employees with career growth opportunities
- Provide employees with treatment that acknowledges the human condition rather than trying to quantify its risks
If we accept these pathways and adjust accordingly, we can achieve real market growth and come out of the pit of stagnation we are currently in.