The long-awaited return to robust economic growth has a downside every company should be aware of: It is creating a severe shortage of key talent. Yet even as battles for talent are erupting, some companies are unprepared to protect the talent they have and not aggressive enough in pursuing the talent they need to grow. In many cases the usual HR practices are simply not up to the task of fending off poachers and building hot new capabilities in the new environment. CHROs can play a vital role in helping top management recognize and urgently adjust to the new realities.
Here’s a case in point. I was meeting with the CEO of a technology consulting firm just after he received some devastating news. The company had been gearing up to meet a post COVID surge in demand and had a number of highly talented vice presidents ready to lead the expansion. Then came a call from one of the top five people announcing his resignation. The departing VP explained that he was joining a young company founded by a former competitor and amply funded by its private equity owner. The VP would be eligible for equity awards, and the company was on the verge of going public, so that equity could be worth a ton of money in a short period of time.
Despite the best efforts of the CEO, CHRO and CFO to retain the VP, the company lost him. The CEO’s grave concern came through as he explained to me that he had no one to fill the big hole the VP’s departure had left in the organization. It would be hard to expand the division at the pace that had been projected, and the whole company would suffer.
I suggested a solution: “You may have to poach talent from somebody else.” The CEO balked. The company did not ordinarily try to siphon talent from others in the industry, he explained. But in the following days and weeks he realized that it was really the only way to maintain momentum. The company whose talent had been poached would in fact try to poach someone else’s talent.
Some CHROs have tried to warn their CEOs about the talent shortage. When I asked the tech firm CEO if he thought the poaching situation was a one-off event, he said he didn’t think so, and admitted that his CHRO had tried to warn him that something like that might happen.
CHROs do their companies an enormous service by alerting senior leaders to the new realities and helping them understand the preemptive actions that can help in acquiring and protecting talent. The sooner top management faces the challenge, the better their chances of winning on talent.
Here are some hard realities and some actions that will help address them.
1. Your talent is on someone else’s radar.
The race for talent is intensifying everywhere. Businesses owned by private equity firms are on the prowl, and SPACs (special-purpose acquisition companies) are luring talent with huge gains tied to increases in market capitalization with very short time horizons. Some specialized headhunters are also jumping in by investing in companies they conduct searches for, thus benefitting from equity increases, not just fees, when they dedicate themselves to recruiting the right talent—perhaps from your company!
Every growing and successful company is a target. The more you succeed, the more likely other companies will try to poach your talent. Business Insider reported that between January 2020 and April this year, Amazon lost some 10 percent of its VPs and above, and its finance executives are in high demand.
A headhunter may target you for multiple clients. Or another company may target one key person. The risk is that losing one key person may mean losing many more if the person takes his or her team along. It is a common phenomenon in financial services. It has also happened with marketing and sales teams and in the semiconductor industry.
For that reason, you cannot lose sight of the talent that your business depends on and that is in short supply. For example, those who are critical to the company’s digital transformation and therefore to the growth of its market capitalization are in high demand. For some companies, the people who use social media to enhance the brand and target customers are critical. For the many companies that need organizational agility and are adopting a team-based organizational structure, as Fidelity Personal Investing did, team leaders who can work with technical experts are crucial. Companies may need many of them, and as Fidelity PI discovered, they do not come from the traditional leadership mold.
Identify important individuals as well as segments. Steve Jobs recognized the outsize role designer Jonathan Ive played at Apple. Similarly, Mehmood Khan, an endocrinologist whom then Pepsico CEO Indra Nooyi recruited to a newly created role of chief scientific officer, was key to making Pepsi more health oriented. One biotech company I work with put extra effort into retaining a Ph.D. who was a magnet for other researchers. His diverse pool of scientists were at the heart of the discovery that investors were banking on.
As you consider the value of skill segments and individuals, ask: What is the trajectory of revenues these people will help generate or costs they will save, and how will that translate into market capitalization? A great talent creates enormous value compared with those who are mediocre. It could be that losing just one team member would disrupt the development of a high-revenue-generating product and put the company at a devastating competitive disadvantage. Think too about what value the person or team could create if a competitor poached them.
The point is to keep key people from becoming susceptible to outside offers, even if it means breaking conventional HR practices by, say, promoting someone two levels or doubling their compensation. Worry less about fairness. If you think you have to change KPIs and financial incentives, job assignments or company practices to keep key talent, don’t hesitate to do it.
But monetary rewards are often not the break point. People want to be in an environment where they can grow and be recognized. Taking a risk on people by giving them a much broader scope sooner not only creates excitement for the high-potential person, but also shows others they don’t have to leave to progress.
Chemistry with the boss is a top concern for many people, or being listened to or opportunities for personal learning, so it’s important to know the individual’s situation. Bill Conaty, the long-time head of talent at GE, says he and former CEO Jack Welch never tried to match an offer dollar-for-dollar when a high-potential person was at risk of leaving. They focused on how bright the person’s future career would be if they stayed.
2. Talent acquisition is a high-speed game.
If you are expecting fast growth and/or the loss of talent, and especially if your growth is based on new kinds of expertise, you need to move aggressively and fast on talent acquisition. Put scouting and recruiting in high gear knowing that even in a time of talent scarcity, the talent exists somewhere on the planet. Where expertise is scarce, as it is in artificial intelligence and machine learning, go after people with the highest level of expertise.
Acquiring talent should get as much time and attention as acquiring customers. CHROs should work with their CEOs to put a laser light on the recruiting function. If it is not delivering the caliber of talent the company needs, the methodology needs fixing.
Scrutiny should extend to headhunters. If you already use search firms, you may have to change how you work with them. Look for someone you can have a long-term relationship with, who will understand your issues and standards and will help you build a list of talent ahead of specific needs. If your company is sufficiently large, headhunters might even take an office on your site. You should clarify whether poaching from you is fair game, and be prepared to switch firms if results don’t materialize. I know of some recent cases where the agreed-upon fees were negotiated down because the client was so disappointed.
Elevate recruiting for key positions by having whoever is in charge interact regularly with the executive team, not buried in the HR hierarchy. That person should have a written strategy for pursuing top talent and be expert in tailoring KPIs, compensation, assignments and reporting relationships. The CEO and maybe the board should monitor recruiting metrics on a dashboard and keep the CFO in the loop so the funding is there.
It helps to make talent scouting continuous. Anish Batlaw, an operating partner and head of human capital at private equity firm General Atlantic, keeps a reserve of high performers around the world and gets to know people far ahead of a particular job opening. A large part of his job is to help identify the talent needs of the companies GA invests in. When the organizational diagnosis is done, GA has a go-to list of excellent people to pursue.
Be prepared to move from first interview to closure quickly when you’re hiring from outside. And overcome the psychological hurdle: Will this person have our values? While a deep dive on people before recruiting helps, assimilation is also important. You can’t just say “people from outside have not worked out before.”
3. Higher people costs are inevitable.
Count on rising costs for talent and prepare to offset the increases. If you simply absorb it, you could become uncompetitive. Higher productivity will help you, but most of the return on talent will take other forms. Link the anticipated cost increase to outcomes in product development, pricing, marketing and even the portfolio mix.
If your talent is running strong, you should be able to increase pricing, perhaps selectively, because you will be creating something of greater value. You should be innovating more or creating a better, higher-margin mix of products.
Recruiting talent to apply digital technology to various parts of the business will lead to things like higher inventory turns and operational efficiencies that will reduce costs and improve cash generation.
4. You won’t win every battle.
If talent has been high on your agenda, you’ll know when someone’s threatened departure creates a critical hole in your business. You can’t prevent other companies from coming after you. Anti-poaching agreements are illegal; indeed, Apple was once fined $10 million for such a pact.
Of course you should fight for your talent, but you must also know when to give up. There will be a point at which you let talent go, because you just can’t afford to double or triple salaries, or it’s just not worth it in terms of value creation potential.
Prepare for the loss emotionally. Live with it, and keep the door open. In the old days people who left a company were considered disloyal. There was a stigma associated with it. But there are situations where people left, then wanted to come back because they liked the old environment better. Keep contact with your people after they leave you and periodically test the waters.