Private companies fumbling on job retention, skilled workers

RP news wires, Noria Corporation
Tags: talent management
CEOs of the nation's fastest-growing private companies are spending almost 50 percent of their company’s total budget on their workforce, yet less than a third have formal programs in place to retain key employees. Moreover, less than a third regularly discuss retention issues during management meetings, or understand why key employees are leaving the company.

Additionally, with 22 percent revenue growth projected over the next 12 months, 80 percent of these companies are planning net job additions - with an overall workforce increase of more than 9 percent expected. However, nearly half the CEOs surveyed (49 percent) are concerned that a shortage of qualified workers could limit the growth of their company in the year ahead. Similarly, 38 percent see scarcity of skilled, trained workers as potentially creating a barrier in the form of pressure for increased wages.

"It doesn't take long to realize that, given a short supply of qualified workers, effective workforce management and worker retention need to be considered top priorities," said Aron Minken, a director in PricewaterhouseCoopers' Human Resource Services practice.

Workforce the largest business expense
Fast-growth CEOs identify their workforce as their single largest business expense, accounting for 49 percent of their company's total budget when salaries, bonuses, employee benefits and compensation plans are included.

And, over the next 12 to 18 months, nearly two-thirds (63 percent) expect their company's workforce-related costs will increase. Only 5 percent foresee a decrease, and the remaining 30 percent anticipate these costs will stay at about the same level as today.

Overall, workforce expenses are expected to rise by an average of 6.9 percent, with worker-intensive service companies expecting a higher average increase than product sector businesses - 7.8 percent vs. 5.8 percent, respectively.

"This significant expected rise in costs for half of a company's total budget is enough to rivet management's attention," said Robert Tate of PricewaterhouseCoopers' Saratoga Institute.

A cost disconnect
But, even though growth of their company may hinge on the availability of qualified workforce, only 60 percent of surveyed CEOs include the costs of retention and turnover in their company's estimate of workforce expense. They see these particular costs as averaging 4.0 percent of budget - comparatively higher among service companies (4.4 percent) than product businesses (3.6 percent).

Over the next 12 to 18 months, 32 percent expect their company's costs associated with workforce retention and turnover will increase; only five percent foresee a decrease; 60 percent say they will stay about the same; and 3 percent did not report. Overall, an increase of 2.5 percent is expected. More service businesses (39 percent) than product companies (24 percent) see the cost of retention and turnover as increasing.

"These CEOs are wise to anticipate increased costs for workforce retention and turnover, and to plan accordingly," said Minken. "But it is somewhat surprising that more of them don't consider the cost of retention and turnover to be a part of their workforce-related costs."

Turnover: causes and programs
According to "Trendsetter" CEOs, the main causes of turnover are split along business and personal lines. On the business side are compensation (cited by 30 percent), lack of career development (24 percent), lack of management direction (11 percent) and lack of senior leadership (8 percent). On the personal side are inability to handle the job (29 percent), desire for a better work/life balance (25 percent), and an inability to make a difference (10 percent).

The majority (52 percent) of CEOs in fast-growth companies say that their company's efforts to manage and improve retention are better than their competitors, and another 34 percent believe they are equal to the competition. Only 6 percent felt their efforts are not as good as the competition, and the remaining 8 percent did not respond.

Surveyed CEOs identified an average of 4.5 programs used to maximize retention in their own company. Healthcare and pension programs were cited by 85 percent, followed by exit interviews (70 percent). Proactive programs were led by customized compensation strategies (70 percent) and formal recognition programs (57 percent).

More service companies tend to have such programs than product sector companies:

All
Companies
Product
Companies
Service
Companies
Healthcare & pension programs
85%
84%
85%
Customized compensation strategies
70%
71%
69%
Exit Interviews
70%
59%
79%
Formal recognition programs (e.g., employee of the month)
57%
50%
63%
Review of recruiting process
50%
37%
61%
Formal career path development
43%
35%
50%
Sucession planning
38%
38%
38%
Formal "buddy" / mentor program
32%
22%
40%
Other (Misc.)
5%
7%
4%

"This study reveals that more service companies than product sector businesses have been impacted by employee turnover," noted Tate. "Perhaps this is why many more service companies are meeting the challenge with business initiatives, including programs involving employee recognition, reviews of the recruiting process, career development, and mentoring."

Effectiveness of workforce and retention management
While virtually all “Trendsetter” CEOs agree that their company manages workforce expenses effectively (only 6 percent disagree) - only about half, 49 percent, strongly agree - with another 42 percent agreeing only somewhat.

A similar pattern exists concerning effective management of workforce retention - 84 percent agree, but only 45 percent strongly, with 11 percent disagreeing. And, through this lens, surprisingly few appear to have active, effective processes in place for managing retention:

Agree Strongly
Disagree
Our company manages its workforce expense effectively
49%
6%
Our company manages its retention effectively
45%
11%
Our company has a formalized process for identifying key employees
36%
27%
Retention issues are regularly discussed during managment team meetings
28%
32%
Our company proactively manages retention of key employees through funded programs (e.g., retention houses career path development)
27%
28%
Understand why key employee are leaving the company
27%
19%
Retention programs are an important component of our overall strategic planning process
26%
34%

Impact of improved retention
While 52 percent of “Trendsetter” CEOs believe that improved retention of key employees would likely have a beneficial impact on their company's business performance over the next 12 to 18 months - including a strong positive impact (24 percent) or a moderate impact (28 percent), 43 percent believe it would have very little or no impact. Five percent did not report.

As seen below, more service companies would expect a beneficial impact - 57 percent, compared to 46 percent of product companies:


Improved Retention
All
Companies
Product
Companies
Service
Companies
Strong positive impact
24%
18%
30%
Moderate impact
28%
28%
27%
52%
46%
57%
Very little impact
43%
49%
38%
Did not report
5%
5%
5%
100%
100%
100%

Sharply improved retention of key employees was judged to improve company profits by a median of only five percent among the 52 percent of CEOs who believe it would be beneficial.

“Given that the workforce represents the single largest operating expense for surveyed CEOs — and that a majority expect these costs to increase over the next 12 to 18 months — it is surprising that many do not realize the beneficial impact of retaining and developing this asset," noted Tate.

PricewaterhouseCoopers’ Trendsetter Barometer is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.

PricewaterhouseCoopers PricewaterhouseCoopers provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 130,000 people in 148 countries work collaboratively using connected thinking to develop fresh perspectives and practical advice.


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