Trends In Human Resources Management (7) 7 8 2010

Human Resources Management2010

Trends and Challenges

Reynolds Atkins

February 2010

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Sources of Change and Momentum

A door like this has cracked open five or six times since we got up on our hind legs. It's the best possible time to be alive, when almost everything you thought you knew is wrong.

Tom Stoppard, Arcadia

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Where Are We Today?– Upheavals in the financial services sector over past two

years are unprecedented• Construction, housing, and automotive industries in shambles;

discretionary consumer remains depressed from recent levels

– Unemployment expected to reach double-digits by early 2010, a level not seen since the early 1980s

– New business starts and normal business expansion hampered by lack of access to start-up capital and credit

– Business and political leaders seem paralyzed – a pervasive feeling that no one knows what actions will help economy recover

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Outlook for 2009/2010– Only honest answer is “Who knows?”

• Job creation (and preservation) will be a priority of the Obama administration

– Many jobs being lost today in banking, finance, real estate, and the automotive industry unlikely to return

– Retraining and future deployment of these displaced workers will take years

• Overall economy will look considerably different three to five years from now than it does today, with a greater emphasis on public works programs – broadly-defined -- to rebuild the country’s infrastructure, improve quality of secondary education, reinvigorate urban cores, increase access to medical care, and reduce dependence on carbon-based energy sources

– Financing public works programs will be a challenge

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Broader Trends• Rise of the Millennials

– Not yet the source of a revolution in the workplace and their influence over-hyped, but they do pose real challenge to workplace status quo

• Suspicious of hierarchies and disdainful of office politics – Entrepreneurship increasingly the first choice of recent college

graduates• Not everyone is an entrepreneur, but it remains an aspirational ideal

for the most driven graduates

– Surveys suggest most Millennials expect to change jobs every two years, start adult life by moving back in with their parents, and rate

“time and relationships” ahead of money

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Sources of Change and MomentumBroader Trends• Rise of the Millennials

– Expectations will be severely tempered by the carnage in the labor markets

• Careers in public service – whether in the government or not-for-profit sector – will look increasingly preferable to the private sector

– Virtually every criticism voiced over the years about the employment insecurities inherent to the private sector – and even among larger companies with reputations for stability – appear to have come true within the past twelve months

– What would a future of armies of digital nomads (“free agency”, the dream of so many Millennials) moving from city to city in search of short-term employment actually look like?

• Is it the kind of future even the most entrepreneurially-minded Millennial will want to pursue?

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Broader Trends• Unexpectedly rapid emergence of China and India as

assertive economic competitors to the US• The only good news with respect to employment trends is

that the workforce is shrinking– DOL reports that from 2000 to 2010, 30% decrease of available

workers in their 30s and 40s– 2008 was expected to be first year demand for workers would

outstrip supply, though something like the opposite happened

• Enormous hope invested in incoming administration– Repairing a broken economy first priority of Obama administration

• Other, equally significant challenges remain, e.g., two wars, health care, secondary education, bridges and roads, terrorism, etc.

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Sources of Change and MomentumBroader Trends• Mobility – forced and unforced -- has replaced stability,

particularly at the executive level– Average tenure among senior executives at their companies down

to three years from four in 2002 [Source: Execunet]

• Collective reputations of leadership teams at even iconic businesses have suffered dramatic declines over the past year and these tenure numbers may go down

– HR executives report growing skill shortages at all levels of their companies

– “Talent management” has yet to fully arrive as an equal partner with the traditional core HR functions

• “Talent management” likely to languish as long as most companies preoccupied with survival – a short-sighted view given demographic trends, but a fact

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Key Trends Affecting HR ManagementBroader Trends• Hiring activity which continued to be surprisingly robust

through the final six months of 2008 has now collapsed– Available talent pool is deeper than it has been in decades, but clear

mismatch of skills and capabilities to existing opportunitiesNationwide openings on job board aggregator,

Simply Hired, on December 5, 2008• Mortgage lender 2,328 Teachers 28,464• Realtor 1,808 Registered Nurse

175,428• Car salesman 798 Electrical engineer 52,546• Investment banker 1,829 Network admin 18,636• Leasing agent 469 General Accountant 14,630• Credit derivatives specialist 64 Financial Analyst 49.913

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Key Trends Affecting HR Management

• Broader Trends

Nationwide openings on job board aggregator,

Simply Hired, on September 17, 2009

• Mortgage lender 915 Teachers 23,783

• Realtor 728 Registered Nurse96,440

• Car salesman 128 Electrical engineer 27,313

• Investment banker 1,028 Network admin 12,660

• Leasing agent 965 General Accountant 5,820

• Credit derivatives specialist 72 Financial Analyst 33,501

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Broader Trends• Focus in much of private sector is on survival and not

growing businesses– Rising health insurance costs continue to undercut

efforts to increase wages and salaries• Some evidence in early 2008 that merit pay budgets were

finally breaking out of 3.5% to 3.8% range they have been “stuck” in since early 2000s – reality today is that many companies and state and local governments will provide their employees with no increases in 2009/10

• A richer mix of non-salary incentives – retention bonuses, restricted stock, employment contracts, etc. -- will be made available to top performers to keep them engaged through what has become a protracted downturn

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Broader Trends• Aging population is a fact and, assuming something

short of an economic apocalypse, there will be labor shortages in the next decade– Gap between available and skilled workers estimated to be 14

million by 2020• Average age of US aerospace workers – to pick a mature

industry -- is well over 50• The 500 largest U.S. companies expect to lose 50% of top

management over next five years to some form of retirement– Growing influence of Generation X and Y workers

• Promise of more “fluid” career patterns will exacerbate labor shortages in less desirable industries and jobs

• Loyalty to organizations, where it exists at all, will be conditional

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Growing OlderWhen 10% and 20% of the population

were, or will be, at least 65 years old

10% 20%China 2017 2036

Japan 1985 2006

Italy 1966 2006

Germany 1952 2009

US 1972 2036

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General• Adequacy of retirement income aside, more workers will

choose to remain employed past normal retirement age– Rise of incentives to encourage older employees to continue

working past normal retirement• Most immediate incentive to work longer is the recent and likely

prolonged decline in individual retirement plan account values– May not be sufficient to offset sheer number of retiring Baby Boomers

• Removing incentives from statutory retirement plans to leave work and gradually increasing the age of eligibility for retirement where demographic challenges are most pronounced (e.g., Finland, Netherlands, Japan, Germany)

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Key Trends Affecting HR ManagementCompensation• Executive pay, benefits, and perquisites

– Executive compensation, at least at public companies, under intense scrutiny by shareholders, Congress, and taxpayers being asked to support government loans (bailouts)

– Pay and benefit gaps not a significant source of discontent in healthy companies; more problematic in failing companies seeking “shared sacrifices” from employees

• Fixed versus variable compensation• Increasing leverage in sales compensation plans (lower base, higher

incentive)• Trend of pushing incentives deeper into the organization now well-

established

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Employment• Preparing for coming wave of retirements and labor

shortages– No longer an imminent problem, but one that deserves some

hard strategic thinking in the more mature industries • Growing demands for flexibility in workplace, e.g.,

telecommuting, “customized” employment relationships, more time off , etc.– Federal government real innovator here with mandatory

flexible work schedules in many agencies • Outsourcing

– Push to outsource less aggressive than was the case three to five years ago when labor costs, particularly offshore, were substantially cheaper than in-house/local market alternatives

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Employee Benefits• Health insurance costs continue to preoccupy human

resources managers– Growing backlash against managed care– Sizable percentage of American electorate identifies “health care” –

access and cost -- as a concern– Entire health care system in crisis and fixing it was centerpiece of

Obama campaign• Promise of 401(k) plans oversold

– Number of traditional defined benefit pension plans continue to decline;

– 401(k) plans have not been the flexible, relatively stable capital accumulation alternative promised in the early 1980s when they began to supplant traditional pension plans

• Outsourcing of routine and transactional benefits functions continues (e.g., Taleo)

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Immediate Challenges• Demographics

– The depth and capabilities of the talent pool will change over time – more quickly in Europe and Japan, but eventually reaching here

– No precedent for large numbers of retirees returning to their former positions or extending full-time employment into their late 60s and 70s

• Competitive advantage to companies willing to re-design jobs (and the employee benefits that go with them) to accommodate the workers available to fill them

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Challenges…• Rising health care costs

– Will continue to pre-occupy HR departments for foreseeable future

• 75% of companies with group health care plans changed some form of coverage in 2007 (Source: SHRM Health Care Survey Report)

• Resources diverted to health care plans (money and time) not available for other uses, e.g., merit budgets, training and development, automation, etc.

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Challenges…• Declines in job satisfaction across all segments of workforce

– Voluntary quit rates up 13% over three years [Source: Towers Perrin Global

Workforce Study] prior to 2008• Many reasons “why” – deferred/delayed pay increases, lack of career

growth, mature/declining industry, etc.

• Result is same: increased activity in HR; increased cost to organizations to manage turnover, averaging approximately $14,000/employee for 12

months ending December 2006 (Source: Employment Policy Foundation)

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Challenges…• Prospects for national action on health care costs and

access improved dramatically with election of new administration [note: with passage of Health Care Reform Act, universal coverage by 2014]– Current focus on access – 48 million Americans lack adequate

coverage, a number that is growing daily– Health care costs have become a ‘competitiveness” issue (e.g.,

>$1,000 in price of GM cars linked to employee and retiree health care costs; GM spends more on health care than steel for its cars

– Limited nationalization (primarily to ensure access by setting up “purchasing cooperatives” or “exchanges”) but retaining much of existing private insurance infrastructure to manage coverage

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Challenges…• “Talent Wars”

– Number of workers in prime working-age categories who have attended traditional four-year colleges not expected to increase appreciably in coming decades

– Demand for highly-educated workers will continue to grow even as the cost of obtaining such education becomes increasingly unaffordable to students

• College loans have themselves been caught up in the overall “credit crunch” and are difficult to obtain even for the most credit-worthy families

• Recruiting tool of the future: assistance with retiring college debt for new employees

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Challenges• “Talent Wars”

– Competition for “stars” also associated with shift in workplace culture

• Employer-employee relationships becoming less hierarchical, more transactional and collaborative

• Even prior to 2008, employers were moving away from long-term employment relationships

– Gradual disappearance of pension plans in favor portable capital accumulation plans like the 401(k) or SEPs helps encourage mobility

– Employees less confident of long-term rewards; greater expectations for short-term rewards

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Challenges…• Talent shortages and population shifts -- where will available

workers be?– Cities with highest projected job growth for period 2003 through 2013

• Top twenty range from Las Vegas at 47.7% to Orange County, California at 16.4%, though those percentages will likely be revised dramatically downward given the problems in the gaming industry and California’s fiscal challenges

• Only area in Northeast/Mid-Atlantic in this group is Washington at 18.5%

• Five of top ten cities in Florida, though more recently, Florida has

experienced a net outward migration

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Human Resources TodaySummary• Fundamental business challenge facing all employers:

identifying and recruiting tomorrow’s high performers– Context

• Workforce no longer growing in absolute terms• Workforce is aging• Managing diversity• Effects of globalization• Accelerating frequency and pace of corporate restructuring and

attendant stresses• Demands for work-life balance• No consensus on what skills and capabilities the workforce of the

future will require

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Human Resources Today

Role of HR• Contemporary HR has three fundamental challenges

– Understanding and responding to epochal changes in the workforce, principally its aging, but its increasing diversity, as well

• Succession planning -- who is leaving, why are they leaving, when are they leaving, and are they receptive to incentives to remain?

• Recruiting – where will their replacements come from and will they have the skills and capabilities to contribute quickly

• Performance management – how will new entrants into companies affect long-standing performance management routines

– Depending upon the length and severity of the current recession, HR may need to add “rebuilding employee confidence in their companies and management” to its list of challenges

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Role of HR• Challenges

– Systems• Transaction-based human resources departments will disappear in all

but the smallest companies, replaced by outsourced alternatives (e.g., Ceridian, etc.)

• Rapid growth in various automated solutions covering everything from benefits processing to performance and talent management (e.g., Success Factors, etc.)

• Transparency and accessibility of HR programs (e.g., pay, benefits, performance management) to managers at all levels

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– Innovation• Combination of near zero-growth in the labor force and changing

demographics will force employers to look more imaginatively at how they manage their employees

• On the edge of a revolution in how work gets done – when it gets done, where it gets done, why it gets done, and who controls the end result

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Human Resources TodayRole of HR• Challenges

– Innovation• Top-down, “command-and-control” management increasingly under

pressure from the informal organization (some of this coming from social networking sites like Facebook, Twitter, and LinkedIn)

• Successful online collaboration conflicts with reward and recognition systems that need strict hierarchies to establish their credibility with employees

• Talent development was until the middle of 2008 the number 1 priority of most companies regardless of size

– Finding talent, convincing it to stay in the midst of all its other options, and keeping it engaged clearest path to sustained value creation in the contemporary company

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– Innovation

“Innovation is an intrinsically social and collaborative process, i.e., everyone has a role to play. Web technologies enable open and distributed processing on a global scale.”

- Jeff De Cagna

President, Principled Innovation, LLC

Unless HR can connect to this new workforce with meaningful, inclusive programs its influence will decline

Trends In Human Resources Management (7) 7 8 2010

Documents

sources of change

momentum broader trends

momentum outlook

private sector

years overall economy

notforprofit sector

millennials expectations

credit business