The New Dynamics in Executive Recruiting

Events during the past five years have resulted in a sea change which has brought a new set of dynamics to senior level executive recruiting. In short, it has become more challenging to recruit senior executives. The aftermath of 9/11, the recession, going to war in Iraq, and the aging of the baby boomer generation have caused individuals to rethink values and priorities in a climate of uncertainty, while the pressures of Sarbanes-Oxley have caused corporate citizens to do the same. It has become increasingly difficult to get people to change positions in which they are comfortable and doing well, particularly if relocation is required. When these factors are put into the context of the demographics, it is clear that the problem of finding the talent to fill key positions, predicted years ago, is coming true.

What the Numbers Say

The baby boom generation, defined as those born between 1946 and 1964, includes over 80 million individuals, (according to U.S. Census figures) who are turning sixty and beginning to leave the workforce. According to the on-line magazine Chief Learning Officer, “Even if baby boomers are more likely to keep working past age 66, eventually their participation rates will start to negatively impact labor force growth.” However, this raises another issue discussed further on. Combating the numbers of aging boomers is the fact that there are fewer numbers behind them which will leave a gap which companies need to develop long-term strategies for or risk dire consequences of talent shortages.

Gender is also a problem – recent decades have seen high numbers of women entering the workforce but those numbers are now starting to level off. As Dr. James L’Allier and Kenneth Kolosh point out in their article, Preparing for Baby Boomer Retirement, “At the macro level, this supply of talent is now tapped out. At the micro level, organizations may need to do more to maximize their gender pool. Again, organizations will need to work smarter to attract and retain qualified workers, regardless of gender.” Ernst & Young, for example, regularly reviews “high potential” female and minority employees to make sure they are on the “partnership track.”

Another issue in the changing demographic landscape is the increase in ethnic diversity, with a large percentage coming through immigration. According to the U.S. Census, Hispanics are the fastest growing ethnic group and by 2050 will make up one quarter of the population. In the article Tapping the Hispanic Labor Pool, Robert Rodriguez says, “For recruiters, this is a significant portion of the population that can’t be ignored.” And, according to Rodriguez, “HR professionals are having difficulty tapping into this pool of talent. The problem is that traditional recruitment strategies do not effectively reach Hispanic candidates.”

How Employers are Responding

Successful employers today understand that the single most important key to their success is the right people in the right jobs. They understand the implications of shifting demographics and psychographics, and will respond to them in the context of their own organizations in order to position themselves for a successful future. Times are more competitive than ever and smart companies have recognized the value of their top employees and are investing in their retention. To do this requires more than just money. It involves showing employees recognition, appreciation, respect, sensitivity toward life styles and assuring them of a sense of longer term financial security. This has also brought about a resurgence in counter offers. Today, when executives inform their bosses that they have been offered a better opportunity elsewhere, the boss often responds with a counter offer and sweeteners. We counsel executives in this situation that accepting the counter offer may be short sighted, because if it takes such a dramatic event to get your employer’s attention it will likely be a matter of time before you are back in the market again.

Recently, there has been a greater commitment from employers to support their senior executives and develop their in-house talent by providing coaching and other developmental tools, and allowing greater flexibility in working schedules. Boards of Directors are requiring, and companies are adhering, by creating succession plans and following them.

Increasingly, companies are putting their employees in “stretch” jobs because there just isn’t enough talent to go around and they feel due to the pressure of business, there isn’t time to go out and look in the market. Plus, it seems safer to go with the employee you know and trust and try to develop him or her, rather than risk bringing in unknown and untested talent in these fast paced, challenging times. The upside of the internal route is it can be less disruptive, it gives employees more incentive, and the risk of perceived failure is minimized. The downside is you miss out on bringing in new talent with fresh ideas, new approaches, more advanced skill sets, and deeper experience.

Trends Effecting Talent Recruitment

As employers scramble to retain good people, the candidates themselves have defined a number of issues they consider important, and which are pivotal to companies who want to hire and retain them. These include work/life balance, professional development programs, family considerations and values, as well as new ideas about retirement.

In a recent MetLife Benefits Study, more than half of the respondents rate work-life balance as a key job selection criterion, with a roughly equal percentage of men and women saying it was a critical factor for them. Another indication of changing attitudes and priorities is that over half of those polled said they “will actively seek to work for an organization whose purpose or mission they agree with.”

Interestingly, a new retirement study by Merrill Lynch found that three-quarters of all baby boomers now do not plan to retire in the traditional sense, with many looking at changing careers. This raises other issues in terms of patterns of early retirement – once thought to be the ‘dream come true.’ Many executives who retire in their late 50’s and 60’s find that after only a short time, they are tired of playing golf and facing boredom. They do not necessarily want to be back on the fast track, but would like to feel that they are making a contribution to something worthwhile. There is a new appreciation for these former executives’ experience and skills, especially by corporate and not-for-profit Boards of Directors. Sarbanes-Oxley has increased the time and experience required, especially for serving on Corporate Boards, and these people are highly sought after.

Another trend is around regulatory changes, which have significantly effected talent recruitment. Public companies, having had the regulatory heat turned up by Sarbanes-Oxley, need high level executives and Board members with a precise mix of experience. CEOs in public companies with good reputations are in great demand and organizations are lined up to hire them away. There is a shortage of the right kind of experienced talent to fill many existing CEO and CFO openings.

What Companies Can Do To Adapt

Companies must be ready to adjust to the changing trends in hiring. Organizations that prepare for the changes in talent recruitment by understanding the issues and developing strategies will be the clear winners.

The role of the executive search firm and in-house corporate recruiters is more important than ever as human capital partners in this “war for talent” atmosphere. In fact, developing a close working relationship with a search firm partner is an important element in a company’s strategy to gain access to the best available candidates. Search firms are best utilized in a true partnership and consultative role where they have access and input to their client’s strategic plans. This allows them to make suggestions on organizational structures, take a proactive approach to positions expected to become available, and offer a viewpoint on competitive marketplace events and information. Good search firms today want to foster committed long term and binding relationships with clients, and understand that both parties have the responsibility to meet each other’s needs and expectations. Clients expect a timely and high quality process with a reasonable number of qualified candidates to choose from at a fair cost. Search firms want to be on an exclusive short list of search providers who can expect ongoing search projects at appropriate levels.

Compensation, as always, is a key point in securing top talent. Companies who want to attract top candidates need to be willing to structure attractive packages that have the right blend of base salary, performance based bonuses and long term incentives. The search firm’s role as an advisor in this area is crucial since they have access to extensive competitive market data in terms of what others are doing. The use of stock options has vastly altered due to new expensing requirements and employers and Board Compensation Committees are taking harder looks at the specific terms of employment contracts, change of control agreements, non-competes and company perks. It is a fine line between what it will take to attract top talent, and what the shareholders will tolerate in terms of reasonable packages.

Succession planning is another important strategy. Companies who prepare proactively for a change in leadership or corporate restructuring will avoid costly issues down the road created by a void in a key position. Forward thinking search firms can help in providing market intelligence and timing advice.

Conclusion

With the changing business environment, increased competitive pressures and a dwindling supply of executive level management talent, successful organizations will need to think ahead and be creative in order to hire and retain leaders ready to take them into the future. It is more important than ever to not only build strong recruitment and retention capability in-house, but also to establish a positive working relationship with an experienced and respected executive search firm like Diversified, which can help you think through your business strategies and human resource needs. Understanding the many issues at play, and making the necessary investment to insure that your company is able to find and attract talented leaders is pivotal to future success.