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Why This Recovery Will Need Crutches (and how Talent Leaders Will Need to Respond)

by
Jason Warner
Nov 1, 2010, 2:30 pm ET

The structure of the talent economy has shifted, and talent leaders will need to respond with changes in strategy in order to successfully compete in the New Talent Economy.

One of the key structural changes in the talent economy is directly tied one of the key structural changes in the American economy: the mobility of candidates, which has been encumbered in two ways.

One, the most obvious, is that with more than 11 million homeowners in America owing more than their home is worth, that portion of the workforce is simply not mobile. When combined with homeowners who have near zero equity, that equates to roughly 29% of all mortgage debt being underwater; in rough numbers, 29% of potential candidates will find it very difficult to move in order to change jobs.

Remember, selling a house costs nearly 10% of its value, when you add tax, real estate fees, and other related expenses. Owning with no equity is like renting with no mobility. This drag on candidate mobility up to now has been at least partially masked by continued elevated unemployment and low demand for talent, but the issue is in large part structural until the housing market works through what will prove to be a long recovery process. Importantly, long before housing prices recover, companies will be hiring again, yet nearly a third of the talent pool will be mired with a home they are unable to sell without substantial financial assistance. As a result, candidate relocations are at an all-time low.

The second key issue is that many potential passive candidates (gainfully employed, but potentially “recruitable”) have been abnormally sticky to their existing employers.

Employed workers have avoided the LIFO risk of employment: being last in often means greater risk of layoff should the company need to cut its workforce. So the order of the day has been “it’s better to deal with the devil you know than the devil that you don’t” as employees have hunkered down to ride out the storm. Turnover has remained low due to uncertainty that prevails in the marketplace.

But employee stickiness is beginning to decline as the “New Talent Economy” normalizes to a “New Normal.” And this will exacerbate the problem related to lack of candidate mobility. Regretted attrition will increase as employees begin to feel more comfortable about leaving their existing employer and as a result recruiters will get pressured to back-fill departed employees. By now, inventories at companies have been worked through, revenues have stabilized, and there are substantial signs that companies are beginning to hire again … so disenfranchised employees now have greater options.

One of the non-scientific gauges I monitor in terms of economic recovery is recruiting activity. When companies start hiring recruiting staff, it almost always means the economy is several innings into a recovery. In Seattle, where I live, there are a host of senior-level talent acquisition jobs available: Starbucks, Microsoft, Expedia, Intellectual Ventures, and Amazon.com all have director-level or above recruiting jobs available as of this post. This is more than I ever recall seeing at one time. The same is true in other markets like Silicon Valley. And nearly every company I speak with is hiring recruiters again.

It is telling that a colleague of mine who is a senior-level business development executive at one of the world’s largest contingent staffing firms recently remarked that his firm recently pulled all of its sales teams out of the field in order to stop selling and focus on filling job orders. Think about that for a moment. The executive team told the sales team to ‘stop selling’ because it had too much business and couldn’t meet demand and needed the sales team to help recruit for the job orders. He also remarked that his division is having its best quarter ever; even better than 2006 or 2007, before the wheels came off the economy.

So things in the talent economy are starting to move again, and for a lot of reasons many companies are not prepared to meet the new staffing challenges: Recruiting departments have been whittled down in ways I have not seen in previous recessions (including the dot-com bust, when I was leading recruiting teams in Seattle). Many of the junior-level recruiters have left the industry through the downturn, so the recruiting workforce is smaller than it has been in the past. And cost-consciousness is still the order of the day at many companies, so relocation programs and other related recruiting investments are not being improved to account for the new mobility issue related to underwater homeowners.

I was having breakfast this week with my friend Roy Notowitz, who is a long-time executive staffing leader in Portland, Oregon, and one of the smartest guys I know in the search business. He shared that many of his clients are asking for local talent as a result of the dynamics described above. “Go Local” has become the strategy du jour.

Here are a several key changes that talent leaders should consider to make this “Go Local” strategy requirement work:

  1. Eliminate Past Biases: Roy and I were talking over coffee that so many companies don’t consider candidates who they have interviewed but declined previously. There is often a strong bias against them, as in, “We interviewed that guy in January, and he wasn’t any good …” Given that most companies don’t have highly refined selection processes, this is an error in strategy. For companies to win, they will need to revisit local talent who they may have interviewed previously for other roles.
  2. Don’t Overweight Experience and Technical Skills: It has been proven that experience and technical skills are relatively poor as predictors of success in candidate assessment. Yet most companies I work with (and have worked for) routinely overweight years of experience and technical skills through the interview process. Simply review a typical job description and it’s clear this is a common selection and assessment error at many companies. A thoughtful question recruiters or recruiting leaders might ask their hiring managers is, “Is it possible for someone with five years of experience to outperform someone with ten years of experience? How is that possible?” Smart recruiting organizations will help their companies select on the portfolio of attributes that drive success in a job, being careful to not overweight less-predictive candidate attributes such as years of experience. Doing so will increase the candidate pool that is available locally.
  3. Refine the Strategy by Job Type: Map your talent strategy to the “go local” requirement. Now more than ever, developing internal talent is a smart strategy, as it also correlates to reduced attrition. So for those jobs that can be sourced internally, organizations will be well served by doing so, provided it supports the local search strategy. For example, perhaps some jobs are easily filled with local talent, while others are nearly impossible. Consider combinations of rotation programs and internal development strategies to mitigate the risk of not being able to find the talent that you need in the local market.
  4. Measure the Opportunity Cost of Key Vacancies: Although it may seem crazy to pay an extra $100,000 to help a candidate sell their home and relocate, for some jobs the ROI on doing so is well worth it. Understanding the business argument for what jobs might warrant a rich pot of relocation dollars will put you ahead of the game.
  5. Adjust Your Marketing Channels to Focus on Local: Now would be a good time to evaluate recruitment marketing spend by media type and channel, keeping in mind that many candidates will have difficulty relocating.
  6. Outsmart Your Competitors: Smart companies will quickly recognize that improving the value package offered to employees to attract more local talent carries far greater ROI than buying someone out of their underwater mortgage, or letting a key role in the organization sit vacant. Most companies only respond to post data to improve salaries, bonuses, and related components of the employee value proposition – waiting until attrition spikes to take action, or completing a compensation survey which typically shows data that is 8-12 months old and then taking action. In essence, waiting until the economy is in full swing before increasing salaries or benefits to compete – but that’s too late! Smart companies are responding now to improve their positions in the marketplace before things get hyper-competitive.
  7. Keep Your Best: As always, the best local talent to attract and recruit are the strong performers who are already working for your company. But most companies have cut bonuses, reduced merit increases, and kept job promotions to a minimum in order to control costs during recent challenging economic times. I was recently talking with colleagues at the Recruiting Roundtable (now CLC Recruiting), and according to a recent study, only 25% of high potential employees say they are likely to stay at their current employer. Now is a good time to rethink strategy, and if you haven’t, identify the talent you can’t afford to lose, and make sure they are happy and engaged. This is also true for recruiting leaders, incidentally. Recruiters now have options, so don’t miss an opportunity to retain key staff.

This article is provided for informational purposes only and is not intended to offer specific legal advice. You should consult your legal counsel regarding any threatened or pending litigation.

  1. Tweets that mention Why This Recovery Will Need Crutches (and how Talent Leaders Will Need to Respond) - ERE.net -- Topsy.com

    [...] This post was mentioned on Twitter by TalentNet Live, Mike Astringer and Acente Solutions, Rob Dromgoole. Rob Dromgoole said: Why This Recovery Will Need Crutches (and how Talent Leaders Will Need to Respond) http://t.co/0eTgRyc via @ERE_net [...]

  2. Maureen Sharib

    This relo thing is a game changer for sure.

    Very few of my sourcing jobs these days are outside of tightly bound geographic limits unless they’re searching for, as you say, candidates where a very strong business case can be made to relo them.

    But then, so few know how to make/recognize strong business cases and that, in a nutshell, is what’s wrong w/ recruiting.

  3. Dave Pollock

    Without further differentiation of the demographics of the “under water” homeowners, I don’t see how the statement can be made that “…roughly 29% of all mortgage debt being underwater; in rough numbers, 29% of potential candidates will find it very difficult to move in order to change jobs”.

    Unless “roughly” and “rough numbers” is author-speak for a WAG (wild-a__ guess), this is meaningless.

    Of the 29% under water, how many of them want or would be willing to move? In my experience, folks willing to move are a small minority.

    Of that 29%, how many have the skills to make them even eligible for a relocation-eligible position?

    Of that 29%, what is/was the home value to begin with? There’s a bit of a difference between the owner of a McMansion versus a 2 bedroom rowhouse.

    Of that 29%, what is the geographic distribution as it relates to geo-specific unemployment rates?

    My WAG is that this will have nearly zero impact the “mobility of candidates” – if it can be measured at all.

    I’m also wondering why it is so surprising that a “contingent staffing firm…. recently …pulled all of its sales teams out of the field in order to stop selling and focus on filling job orders.” First, any business person knows that *keeping* a customer is more important than winning new ones. If you can’t satisfy the customers you have, they’ll go elsewhere. Second, a contingent staff person is NOT an employee. This means businesses are cutting headcount folks! Temps are easy come, easy go and have clear tax benefits too. If someone thinks the implication here is an economy that looks like 2006 or 2007, look again.

  4. Ash DeVane, CPC

    Dave- Unless I am misreading your comments, I think Jason is referring to “contingency staffing”(i.e. “contingency” recruiting versus “retained” recruiting), not “contract or temp” employees. Either kind of staffing firm has “permanent” (versus “contingent”) employees. It’s just a matter of whether or not the staffing firm gets paid upfront by the client.

  5. Jason Warner

    Great comments David. It is, of course, somewhat of a guess, but I wouldn’t say it’s wild.

    The argument I use to support my statement is that the types of candidates that typically get relocated are more senior in their careers, and more senior career professionals more closely match the demographics of homeowners (for example, recent college grads are comparatively speaking, under-represented in both relocations and also homeownership compared to more senior career professionals). Therefore, many candidates who historically would have been viable are no longer viable because it is too difficult for them to relocate. Clearly 29% of homeowners will find it more difficult today to relocate for work than a few years ago. My point is that the available talent is materially smaller than we’ve seen before, and in addition to making talent acquisition more difficult, this dynamic is going to be with us for a long time given that there’s no easy cure for owing more on a home than it is worth.

    As the economy comes back, I predict that recruiting departments will struggle, in part because the 29% of underwater homeowners have essentially been removed from the non-local talent pool.

  6. Dave Pollock

    Ash – good pick-up. I misread the context of “contingent”. Thanks.

    Jason – I’m still not convinced that the *total* number of under water homeowners can be used as a variable for any recruitment/employment calculations simply because there is no correlation between being under water and recruitability, being a “more senior career professional”, or any other variables. A home *ownership* correlation, yes. But under water home ownership AND some other recruitment variables – I don’t think so.

  7. Laurie Ruettimann

    I started recruiting in the days when companies would buy homes in order to get the right candidate into the right job. Schwoo, times have changed.

  8. Ash DeVane, CPC

    I can’t attest to whether Jason’s calculations are accurate, but I have seen and heard of more declined offers due to the “real estate” millstone around job candidate’s necks than any other reason in the past three years.

  9. Jason Warner

    One thing we should all remember is that strategy is based on risk and opportunity assessment…most of the time the information is imperfect…. which is why a strategy is important. If information were perfect, one wouldn’t need a strategy (think about that for a moment).

    Dave says in relation to underwater homeowners, “My WAG is that this will have nearly zero impact the “mobility of candidates” – if it can be measured at all.”

    My argument would be that it’s better to have a strategy given the potential risk than to assume that underwater homeowners will have zero impact on mobility of candidates.

  10. Dave Pollock

    Jason – Point taken. But what exactly would be the strategy to develop for an unmeasurable variable? In addition, the potential risk is that fewer candidates will be available for any given position. I’d assume any competent recruiter would already have a strategy for that. To strategize to the level of the gnats navel on only those candidates under water (which I still say is unmeasurable) seems a bit silly to me.

  11. Jason Warner

  12. Housing Prices Sink, As Consumers Mixed on Jobs, Economy - ERE.net

    [...] for recruiters who already have had offers turned down by candidates with underwater houses. Jason Warner discussed the impact of no equity and negative equity home ownership on candidates as recently as November, [...]

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