A widely circulated report by the Hay Group, suggesting 2014 will be a year of high turnover, has generated quite a bit of buzz in HR and talent management circles over the past few months. The report spells out the top reasons employee turnover will become a challenge and details methods for improving retention based on a wide-ranging global employee survey. Missing from the list of tactics is a strategic approach to talent management that has just begun to gain steam and seems likely to become a major trend in this New Year.
As a result of the global economic recovery and improved labor markets, a 13% increase in employee turnover is predicted for 2014. By 2018 annual turnover is expected to reach 36.7 million employees in the United States alone. Moreover, it is not low or average performing employees who are seen as the greatest flight risk, it is the highest performing employees. Adding a sense of urgency to the matter, Accelir, a company that specializes in talent acquisition analytics finds that only 30% of the US workforce is actively engaged in their work.
Employee turnover can be a major drag on a company’s bottom line. Estimates for the cost of replacing an employee can be as high as twelve months’ salary while other reports place the figure as high as 150% to 250% of salary, particularly regarding high-level executive vacancies. The sources of these costs are not always transparent and more often than not cannot be incorporated into a P&L. Sources include lower productivity while the position sits vacant and while the new hire gets up to speed on their responsibilities, overworked staff picking up slack for the departed employee, knowledge the departed employee takes with them, training, interviewing, and recruiting.
Typical of the kind of advice offered by talent management consultancies, experts put an emphasis on employee retention to avoid the high cost of employee turnover; things like communicating clearly, promoting a development culture, maintaining competitive rates of compensation and benefits, and offering flexible arrangements around work hours and locations. These and similar priorities are worth considering and should be taken seriously by companies that wish to reduce turnover to a comfortable minimum. It’s important, however, to recognize that employee turnover cannot and will not ever be completely eliminated, no matter how generous a company is or how positive a culture they develop. Beyond reducing turnover itself, the most effective approach to reducing the cost of turnover and eliminating leadership risk is to proactively build and maintain a long-term talent pipeline for critical roles in an organization.
In 2012, LinkedIn released a fascinating study that found passive talent comprised 80% of the fully-employed workforce and yet only 2% of organizations have a long-term approach to sourcing this largely untapped group. The challenge for companies, they found, was two-fold. The first finding suggested that the requirement of significant time and resources to such a specialized task makes proactive talent pipelining a non-starter for many companies who are already making do with less as budgets have contracted in the past few years. The second finding indicated the lack of effective tools to track passive talent means even those companies that make the effort to pipeline often rely on ad-hoc, decentralized, low-tech approaches which ultimately result in the inefficient collection of static, siloed, and un-actionable data. Beyond time, resources, and lack of tools for success, the actual work of approach passive talent can be problematic due to employee discomfort engaging directly with the competition, not to mention any potential conflicts of interest.
In spite of these serious challenges, the need to proactively pipeline talent over the long-term will only grow more urgent as the labor market heats up. More and more, companies are recognizing this urgency and based on the predictions of industry leaders, 2014 appears to be a turning point for this forward thinking concept.
Talent Intelligence helps companies overcome the challenges related to leadership risk management by pipelining and tracking talent on an on-going basis. By taking advantage of our proactive approach to cultivating relationships with top talent, clients are able not only to reduce the costs associated with executive-level vacancies, but to reduce the cost of recruitment because placements made through Talent Intelligence are complimentary.
To learn more about the talent challenges facing companies, download The Rapidly Evolving Global Workforce, which details the hidden costs of prolonged vacancies and bad hires, the difference between replacement planning and succession planning, and how the talent landscape will change drastically by 2020.