Will the tightening labor noose choke your company’s profits? As demographics shift, recruiting, training and compensation costs need continuous reevaluation. Finance executives are under building pressure to apply numbers and analysis to workforce trends.
Labor costs have become unwieldy and unpredictable in this expanding economy, where workers are in hot demand and the talent pool is drying up. Finding and competing for employees without allowing the budget to implode requires companies to weld human resources (HR) strategy to overall financial strategy. As the war for talent escalates, companies are using innovative and often untested methods to fill job vacancies. Finance executives need to be at the forefront of these efforts to ensure that they pay off.
In Des Moines, Iowa, the unemployment rate hovers around 2 percent. The crushing labor shortage has motivated companies to get creative — fast — with recruitment strategies. Companies have pumped up their efforts on college campuses and lobbied to bring in immigrants on skilled-worker visas. The Iowa state government has launched a Web site to recruit workers from across the country. And employers are focusing on labor pools previously ignored or underutilized: retired people, refugees, prisoners and unemployed people who have aptitude but a low skill base.
Mike Blouin, president and CEO of the Greater Des Moines Partnership, an economic and community development organization, says, "I think you will find more pilot projects going on around here than probably anywhere in the country in terms of creativity. We know there is no model; workforce development and attraction today are probably where economic development was 20 years ago. We are trying to make things work without a book to read. We are throwing money and ideas against the wall, hoping that some of them stick. And we have had a lot of luck in making lots of things stick."
Is the Des Moines scenario headed to other cities? No one is predicting a national unemployment rate of 2 percent, but demographic studies don’t paint a pretty picture for employers. The baby boomer age wave has crested, and that huge population segment is headed toward the retirement shore. In just three years, more U.S. workers will be over 40 than under 40. This is a demographic shift without historical precedent.
Richard W. Judy, director of the Center for Workforce Development at the Hudson Institute in Indianapolis, says, "Nationally in the age groups from roughly 25 to 40 we are experiencing a contraction of total population, and that translates into the workforce. If it weren’t for immigration, we would really be in trouble. Annually we receive an immigration population of around 850,000 legally and maybe another quarter of a million or 300,000 illegally. So the immigrant flow accounts for a huge portion of the growth of our labor force."
Won’t the move to automate processes significantly ease the labor crunch? According to Judy, co-author of "Workforce 2020: Work and Workers in the 21st Century" (Hudson Institute, 1997), automation will continue to replace low-skilled or unskilled employees, but increasingly sophisticated products will generate more jobs than technology will destroy. He explains, "There will be a demand for people who know how to mobilize and leverage the technology. Technology isn’t created all by itself, and it isn’t implemented all by itself. It often takes more highly skilled personnel to operate it. So a move in the direction of greater degrees of sophisticated equipment — and software and information systems — generates a demand for the kinds of talents and skills that are complementary to technology."
As the demographics shift and the labor noose tightens, the financial side of workforce issues becomes increasingly complex. Recruiting, training and compensation costs need continuous reevaluation. Companies have to be more aggressive in the search for talent; waiting for replies to want ads is already outdated. Businesses that can’t find ideal candidates must focus on hiring people who have a strong work ethic and then training them on the job. As part-time workers — from students to back-to-work moms to retired people — become more essential to workforce stability, organizations have to examine changes to their pay and benefits in order to hold onto these hires.
Companies need to rethink the ways they compete for employees from traditional labor pools, such as colleges and universities. More important, they should look for new and underutilized sources of labor. And they need to make sure finance executives are involved in the development of these recruiting techniques. John J. Parkington, Ph.D., global practice director for organization effectiveness at Watson Wyatt Worldwide in San Francisco, states, "When human resource functions put together strategies for recruiting people from sources that are underutilized, it’s not clear to me that they are working in partnership with the finance side of the house to figure out creative solutions for how to pay for everything. We ought to find a way to link the finance people with the human resource people with the line managers to figure out a more effective strategy for sourcing talent and rewarding talent."
Where are companies going to find current and future workers?
Back to schools. College recruitment efforts are up, due in part to the increasing presence of small and midsize companies on campus. The winning strategy for campus recruiters involves interviewing and making job offers early; establishing relationships with students, faculty and staffers at career centers (e.g., speaking before student groups, helping with curriculum development, participating in job fairs); and offering attractive internship and co-op programs. Earlier this year, the National Association of Colleges and Employers (NACE) found in a survey of its employer members that almost 21 percent of college hires last year came from co-op programs and 22.5 percent came from internship programs, according to Mimi Collins, the organization’s communications director in Bethlehem, Pa. She says, "That’s a good chunk of hiring that the employers are getting right from their own programs."
Financing a student’s college education is another option some companies are trying. Blouin says that in a pilot program between Drake University in Des Moines and local employers, "A company will contract with a student who has completed his or her second year of college and will pay their entire tuition bill for the junior and senior years. The student will be an intern in that company for that period of time and agree to work for the company upon completion of his or her education for at least three years. If the student defaults on the agreement, the grant becomes a loan which has to be paid back. It’s a way to convince young people to take a look at the professional opportunities here." United Parcel Service runs a similar program (see Earn and Learn, below).
Earn and LearnFull-time college students who are part-time United Parcel Service employees can receive up to $23,000 in educational assistance. Students do not have to pay this tuition grant back as long as they remain employed at UPS while attending college. The program, called "Earn and Learn," was started in August 1999. Currently, it involves 40 UPS facilities and more than 8,000 students. Here’s how it works: Students work about 20 hours a week for UPS and get paid from $8.50 to $9.50 an hour. They accrue health and other benefits. In return, they qualify for tuition assistance in the amount of $1,500 a semester ($3,000 per calendar year) with a lifetime maximum of $15,000. They are also eligible for UPS-sponsored student loans from a third-party lender for housing and school-related expenses of $2,000 per calendar year, with an $8,000 lifetime maximum. UPS pays off the loans for students who are part-time UPS employees for four years. The company pays 50 percent of loans for students employed for one year. All paperwork is administered by an outside vendor. According to Rick Boheler, corporate director of EEO and diversity at UPS in Atlanta, the program has improved retention rates of part-timers by 58 percent. Boheler is quick to point out that the program is intended to do more than improve retention rates. He says, "At UPS we promote from within, probably in excess of 95 percent. One of the main reasons we implemented the program was to help our people get an education that would ultimately allow them to take advantage of our promote-from-within policy, our career opportunities." Another appealing, unique aspect of Earn and Learn is the partnering arrangement that UPS has developed with more than 130 schools nationwide. Students who attend non-partnering schools pay their own tuition costs, then receive reimbursement from UPS when they have passed their courses. But students who attend one of the partnering schools can take advantage of "deferred billing," a program in which students don’t have to pay up front; the bills go straight to UPS after the students complete each semester’s coursework. To encourage schools to participate, UPS produced a video that explains the program. In addition, the company pays referral fees and provides faculty scholarships to schools that meet certain referral levels. In little more than a year, the number of participating schools has skyrocketed. "And the number continues to move upward," Boheler says. |
High school students are also gaining prominence on recruiting radar screens, and not just for summer jobs. Companies are sponsoring job fairs, arranging for corporate site visits and tracking top scholars. The goals of such programs include filling current job openings, creating relationships with college-bound students and encouraging students to enter professions that have large labor shortages, such as engineering.
Bell Atlantic runs a school-to-work program in all 13 states where the company operates. Partnering arrangements with schools vary; some students work one or two days a week during school hours, while others work only in the summer. Marie Collins, Bell Atlantic’s school-to-work manager in New York, says, "We use the program as a long-term recruiting strategy. That’s why we go into the high schools early. We develop a relationship with the schools, with the students. Students get to come into the telecommunications industry and see the different opportunities that are available to them." After high school graduation, program participants who hire on full-time can receive 100 percent tuition reimbursement, paid up front, to continue their education. Participants who go on to college full-time can work for Bell Atlantic during the summers or vacation breaks.
Fujitsu Network Communications Inc. in Pearl River, N.Y., has a mentoring program designed to encourage high school students to study engineering in college. Elaine Cunningham, senior manager, human resources, explains, "Enrollment into college engineering programs has decreased, while the demand for engineers has multiplied substantially. It’s the high school students who need to be steered toward those careers." Fujitsu, which is located 20 miles north of New York City, works with nearby high schools to team up students with its engineer employees. Some students come in after school, and others come in during the summer.
Cunningham says, "Long-term, we hope these local high school students who went off and got their engineering degrees will come back and work for us. We typically hire college interns to work for us, but one of our high school students was so talented that we are hiring him for a paid summer internship before he goes off to college."
To foreign shores. The shortage of high-tech workers has focused a spotlight on international outsourcing and U.S. immigration policies. According to Bob Cohen, senior vice president of the Information Technology Association of America, an Arlington, Va.-based trade organization, there will be an estimated 1.6 million high-tech vacancies in American companies this year, and only half of them will be filled. Cohen says, "Companies are definitely looking at the whole delivery system for getting people positioned to enter our industry. Oftentimes, they have to consider looking overseas for the necessary skills and abilities."
Companies have been outsourcing jobs in software development, programming and engineering to workers in countries such as India, Russia, Israel and Pakistan. The Los Angeles Regional Technology Alliance reports that about 10 percent of Southern California’s 8,000 software firms are hiring workers in foreign countries; two years ago that number was about 1 percent.
Last year Congress increased the number of H1B visas — temporary visas for skilled foreign workers — and the number is likely to go up again this year. Hiring immigrants can be a long, costly and time-consuming process. Likewise, outsourcing work abroad raises a whole host of efficiency, quality and management concerns. But both options are becoming part of recruitment efforts. Cunningham says, "Recently, we decided to try placing an ad in some newspapers in India; there are some Silicon Valley-type locations in India. We wanted to see what type of response we would get. Well, we placed an ad in three papers and I received over 2,000 resumes."
Although the shortage of high-tech workers is behind most calls for immigration reform, the labor shortage cuts across a wider spectrum of jobs. The Hudson Institute’s Judy remarks, "Our immigration policy works at cross-purposes to our economic needs, our workforce needs. We probably need to be more liberal overall in terms of the numbers we take. We need to welcome the best and the brightest from the rest of the world. It’s crazy for us to have an immigration policy that almost systematically excludes the very people we need."
Among military veterans. Al Borrego, assistant secretary of labor for Veteran’s Employment and Training in Washington, D.C., says, "About 200,000 to 250,000 people separate from the military every year. A large number will be under 25 and an even larger number under 30. It’s a highly technical military, and you need to be skilled to run the systems, so people come out with incredible skills." According to the U.S. Department of Defense, almost 90 percent of active-duty officers in the military have college degrees. And 96 percent of enlisted personnel are high school graduates.
Schneider National Inc., a transportation and logistics firm in Green Bay, Wis., hires a large number of military veterans each year — as frontline managers, technical staff and drivers. Tim Fliss, vice president of human resources, says, "It’s our understanding that we hire more veterans leaving the military than any other civilian employer in the U.S. We have been doing it for close to 20 years. Over the past five to seven years, more organizations have become aware of hiring veterans, so the demand for them is up." Over the past two years, about 20 percent of the people Schneider has hired for frontline leadership roles have been veterans. "These people know what accountability means, and they have gotten leadership experience at a very young age," Fliss says.
David Huffer, senior manager of recruitment services at FedEx Express in Memphis, Tenn., says that his company hires veterans for a wide variety of jobs — as managers, pilots, mechanics, computer technicians and couriers. "They are employees with a strong work ethic and a desire to succeed. They come with very specific skill sets and training, and they certainly have good logistical backgrounds. They are a good fit within the organization and the culture," he says.
To older workers. In a country that worships youth, where "finished at 40" has been an unspoken workplace rule, companies are now scrambling to keep older workers, hire more middle-aged workers and even bring some workers out of retirement. Businesses are casting aside aging myths — for example, older workers aren’t as productive or innovative as younger workers — and toasting the reliability, experience and stability of older folks.
Dave Opton, executive director of Exec-U-Net in Norwalk, Conn., a networking organization for senior-level executives and professionals, says that the declining age bias is evident in his company’s annual survey of corporate executives. The survey asks, "At what point do you feel age becomes a significant factor in a hiring decision?" In the 1998 survey, 58 percent of executives said that age was a factor in the 51 to 55 age group. In 1999 that number dropped to 36 percent, and it’s 30 percent in the 2000 survey. Opton says, "The age bias has been around a long time. The fact that it is going down isn’t because suddenly we’ve come up with a social program to overcome it. What’s driving this is the law of supply and demand — more so than enlightenment."
A recent Watson Wyatt survey shows that 16 percent of companies have some form of phased retirement, where workers stay with a company but reduce their hours when they reach retirement age. "Maybe you go from full-time to four days a week or three days a week. The company figures out a creative way to structure your job so you are making a solid contribution but you aren’t working at the pace you were used to," Watson Wyatt’s Parkington says. In addition, retired people are more willing to come back into the workforce due to changes to Social Security that eliminated benefits for retirees who earn more than a certain amount of money. Some retirees are willing to come back full-time, part-time or on a project basis.
According to the U.S. Bureau of Labor Statistics, the economy will grow, on average, by 2.4 percent a year through 2008. However, annual growth of the labor force is stalled at 1.2 percent and will probably stay that way for the next eight years. Articles about the war for talent tend to focus on top-tier executives and computer wizards at the expense of the larger workforce. A company can’t claim to be customer-oriented if it doesn’t have enough employees to take care of the customers. Finance professionals need to help wrap some numbers and analysis around current and future workforce challenges. Two basic areas to look at are:
Demographics. What is the age composition of your company? Are you facing a retirement brain drain in the next five to 10 years? If so, do you have in place programs such as phased retirement that will help you hold on to valuable workers?
Recruitment strategies. Do you know where your new hires are coming from, what sources yield the best hires — e.g., Web site ads, college recruiting, search firms, in-house referrals — and the retention rates for those sources? Do you need to expand your recruiting efforts in existing arenas or try looking in new arenas?
Today’s workforce is already an eclectic mix. Teenagers work alongside retirees embarking on second careers. Full-time employees hand off assignments to part-timers. And telecommuting, job sharing and flexible schedules are becoming more pervasive. Accommodating the mix with appropriate compensation, benefits and training is a formidable challenge. Toss in potential worker shortages, and the costs of doing business will soar for companies that don’t have a solid plan for a counterattack.