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March Madness & Hiring

Written by:  Tim Saumier, CEO

It’s maddening!!!!!!!!!!!!!

March is a crazy time for college basketball and my wife tells my kids that I may be difficult to communicate with given it is my favorite time of year and my favorite sport to follow. march madness4

The funny thing is its not only madness in basketball but is seems to be a crazy time for hiring right now as well. Whatever your political affiliation is, the new administration, along with many other things are driving confidence in to the markets as evidenced by the DOW crossing of 20,000 a month or so ago. I would argue that all of this is artificial but it does drive spending by consumers that drives sales by companies that drives purchasing by companies and hiring of people. It’s a cycle where capitalism is at its best.

One of the companies that the stock guru’s like to follow is Parker Hannifin Corporation based in Ohio. They make motion and control systems used in a broad set of aerospace & industrial businesses. march madness5They credit Parker’s work over the past few years in the areas of “cost containment” and putting themselves in a position to grow when the time is right. They controlled costs in the flatter season and even built a cash reserve that has allowed them to recently announce the acquisition of Clarcor (filtration manufacturer) which will drive a new revenue stream for PH. The original article can be found HERE.

Why do I share this information on Parker Hannifin and what does it have to do with Basketball? While Parker and for that matter other companies in the Industrial B2B space are seeing benefits of their hard work over the past few years, the real question is:

“Do they have the Talent to deal with the next few years as confidence (artificial or not) grows and more relevant people leave the workforce (primarily baby boomers)?”

Parker has 354 openings on their website and I’m sure this is just a fraction of what they really need. As a Industrial B2B recruiter, we had a record year last year and are on track to do it again this year. march madness3

The challenge is not finding the open orders but rather finding and convincing the talent to leave their organization for a new role.

If you are in a hiring capacity here are a four things to consider as we go further in to 2017:

  • Cost – Talent is going to cost you more – the concept of internal equity needs to be tossed out the window. It is no longer relevant.
  • Better Processes – You’re going to need to speed up the process on your side if you are the employer. The best talent has no interest in going to work for a slow moving and indecisive company.
  • Focus on your existing team – You’re going to see turnover increase (mostly voluntary) as the full-court press is coming. People that have been passed over for promotions or given measly raises are now getting called about jobs that are a step up in title, responsibility and compensation (some 20+% increases).
  • Better, not perfect – If you’re looking for the “perfect” individual with a stellar work history plan on not finding them. Stellar histories have faded in the past decade and it’s not the individual’s fault but rather the company in my opinion. We have a saying – “Don’t let perfection get in the way of getting better.”

I could go on and on but you get the point. The reality of it is it may look like good times ahead but it will be maddening to say the least in the next couple of years as companies jockey for the same Talent. It will also be fun to watch. As will be the Basketball – Enjoy.

This is just one man’s opinion. I would appreciate your feedback.  You can find me on LinkedIn and at Twitter you can find me at @timsaumierTI.  Also, you can learn more about TYGES at www.TYGES.com, on Twitter @TYGESInt, or here on our blog.

Our mission is simple:

We’re here to make good things happen to other people.

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The Cost of Turnover

Written by:  Tim Saumier, CEO

I received a number of emails regarding January’s write-up on a “best-in-class” company called Danaher. You can read can find this blog by “clicking here” in case you missed it. One of the emails I received was from a TYGES friend who is also a former Danaher leader himself. I’m taking some editorial rights with his response to keep it short and to the point but I wanted to capture the essence of his note:

“Good thought put into this one. Yes, Danaher does try to continue to build bench strength throughout the organization. They actually have a CVD (Core Value Driver) to measure voluntary turnover (people leaving the organization that Danaher didn’t want them to leave). Larry Culp helped develop these CVDs before he left to help filter out the most important metrics for the organization. Tom Joyce (Culp’s replacement) helped develop the new Vision for the company “Helping Realize Life’s Potential”. potentialThis is fantastic when you break each word down to understand how powerful it is. Of course there are tradeoff’s as the DBS culture pushes people and it is difficult to find the quality of life balance.”

So as we think about the cost of talent, how do we get the attention of senior leadership within a company to try and understand the “Opportunity Cost” of having an opening. I scoured the internet as I’m sure there are a number of people who have built financial models that show this number. I read quite a few articles but found this one excerpt from an article written in April 2015 by Karlyn Borysenko who states:

“But regardless of the reason, what this information exposes is a fundamental lack of understanding about what turnover really costs an organization. When you consider all of the costs associated with employee turnover – including interviewing, hiring, training, reduced productivity, lost opportunity costs, etc. – here’s what it really costs an organization.”

  • Entry-Level Employees – it costs between 30-50 percent of their annual salary to replace them.
  • Mid-Level Employees – it costs upwards of 150 percent of their annual salary to replace them.
  • High-Level or Highly Specialized Employees – you’re looking at 400 percent of their annual salary.

money2Let’s look at it this way and play a game called “Fun With Math.” For the a simple example, let’s assume that a business loses 12 employees in one year, averaging one per month.

  • Six of these employees were entry level, with an average salary of $40,000. It costs, on average, $16,000 to replace each employee at 40 percent of their annual salary, for $96,000 total
  • Four of these employees were mid-level, with an average salary of $80,000. It costs, on average, $120,000 to replace each employee at 150 percent of their annual salary, for $480,000 total.
  • Two of these employees were senior, with an average salary of $120,000. At 400 percent of their annual salary to replace them, you’re looking at almost $1 million, specifically $960,000.

Add everything up and you’re looking at costs of over $1.5 million to replace just 12 employees.

Numbers seem high? Fair enough – there are organizations that estimate replacement costs to be lower. So let’s cut the cost of replacing all of those employees to the lower end of what it costs to replace an entry-level employee – 30 percent – across the board. Here’s how it breaks down:

  • It’s going to cost your company $72,000 to replace the six entry-level employees.
  • It’s going to cost your company $96,000 to replace your four mid-level employees.
  • It’s going to cost your company $72,000 to replace the two senior employees.

That means that at the absolute lowest estimated end of the spectrum – your best case scenario – you are looking at almost $250,000 as the cost of the turnover of just 12 employees.  

money4If your company has a quarter of a million dollars that it can just light on fire at the next office BBQ social activity, then maybe you don’t really need to invest in these areas. But my guess is that the vast majority of companies are simply not in that position.  It costs less to retain than it does to replace.
You can argue with the math or even the thought process but one thing I’ve learned is once a position is “officially” opened it’s already too late and mark my words when I say this: You cannot replace the person who left with a new person at the same rate especially if you’re looking for the best talent. The concept of “internal equity” is a joke. We need to be thinking “market rate” at this point. The best talent cost’s more.

This is just one man’s opinion. I would appreciate your feedback.  You can find me on LinkedIn and at Twitter you can find me at @timsaumierTI.  Also, you can learn more about TYGES at www.TYGES.com, on Twitter @TYGESInt, or here on our blog.

Our mission is simple:

We’re here to make good things happen to other people.

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