Companies of all stripes are having a difficult time hiring and retaining talent. Business leaders are employing several strategies for tackling this issue, such as raising compensation levels and offering more lucrative perks. But that creates another challenge: balancing higher labor costs with long-term growth plans.
HIRING AND RETENTION: MORE THAN COMPENSATION
The news has been full of reports about “the great resignation.” Whatever the cause (and there are several), the pandemic has shifted the dynamic to where employees have the leverage, not the employers. While offering higher wages is certainly one perk employers have offered in response, it’s by no means the only—or even the most effective—one for attracting and retaining workers who have spent the last 18 months reevaluating their professional lives. If anything, businesses may need to offer higher pay just to get a seat at the table with highly qualified candidates.
For some companies, offering flexible work arrangements is a big lure. The pandemic lockdowns proved that many organizations could function just as well—if not more efficiently—when employees work remotely. We’ve seen a lot of companies remain liberal in their remote work policies to attract talent. This could also mean accommodating for a work week that isn’t Monday thru Friday from 9-to-5.
Some companies are exploring more costly options. We’ve seen major retail brands like Starbucks and Target offer to pay full college tuition for employees, a tactic that smaller competitors likely could not compete with.
Other measures can impact the bottom line as well. Some traditional and technology staffing companies are investing more in marketing and advertising to attract job candidates, in some cases increasing or changing the approach they’ve used in the past. These types of tactics only serve to increase the total budget line item for hiring.
MANAGING MARGIN COMPRESSION
Whether it’s increasing compensation or offering additional benefits, the cost of finding and retaining workers is going up, which will only serve to compress a company’s margins. So, how can organizations offset their increased labor costs?
For companies that provide staffing services, some may look at shortening the length of their contracts. Many companies previously tried to lock in contracts for three to five years. Now, because it costs more to assemble a staff, firms may want to limit how long they commit to a low-margin agreement. When existing contracts come up for renewal, they may be able to negotiate smaller increases over shorter—such as two-year—contracts instead.
ESTABLISHING KEY RELATIONSHIPS
We don’t know how long the labor crunch will last, and that’s the major challenge for long-term planning. The situation is tight right now, but will that be the case six months or a year from now? One thing we can say is that in the near term, it’s going to be a drag on growth. And because of the additional expense that’s going toward labor, companies may find that they have to be more mindful about how they grow.
Onboarding the wrong client when you have limited staff to manage that relationship can become a drag on your business. When resources are constrained and there’s a limited amount of talent that you can deploy at any given time, saying yes to every opportunity that comes along with the hope that you will be able to find enough people to work on them can be a setup for failure.
In the current climate, establishing and maintaining key customer and supplier relationships is especially critical. That means determining which customers will be long-term strategic partners. The same goes for hiring. More than ever, it’s important to make sure you’re bringing people on board who you believe will help your business for the long term. In either situation, it comes down to finding the strongest relationships that will support your growth plans instead of solving for your near-term needs.
The labor market is challenging, but it’s not because there’s a shortage of workers. The fact is that good talent is available. The trick is to attract those employees in a way that supports your long-term growth plans.
Matt Cyr is a director in BMO’s Southern California commercial banking office. He can be reached at (310) 699-5203 or via email at
[email protected]
