Over the past few years, if you lead a business you have likely experienced seismic shifts in your workplace. Most of these are centered on talent issues—culture, performance, recruiting, retention, millennials, gen Z, compensation, engagement and so on. All of your former assumptions about managing talent have been challenged and your need for adaptation, innovation and transformation has been accelerating at breakneck speed. I’d like to tell you it’s going to slow down in 2017, but you know better than that. Instead, let’s identify the primary issues you should pay attention to this year and talk about how you can thrive in this new age of employee empowerment.
As I’ve examined various studies and articles about everything from recruiting and retention to engagement and performance management, here are the five talent trends that I've consistently observed emerging:
1. Millennials are moving into management, while Gen Zers are starting their careers. (Source: 10 Workplace Trends You'll See In 2017.) Just when you had surrendered to the idea that millennials are the largest generation in the workforce, their younger brothers and sisters are now showing up to interview for entry level career positions. The good news is that these latest entrants to the workforce do not respond drastically different than their millennial elders—and the latter are now moving along in their careers to assume supervisory roles over their younger mentees. As a result, you should plan your recruiting strategies and employee value proposition with the understanding that these two elements of your workforce are growing in numbers and influence. They are more aware than any generation before them of the data that’s available to compare their present position with other career opportunities. As a result, you should take your approach to rewards planning very seriously and get strategic help planning your engagement and performance management strategies for this group.
2. Most companies are planning to do more hiring this year. (Source: LinkedIn Report, Recruiting Trends for 2017.) The good news is that businesses are more optimistic about their economic prospects for 2017 than they’ve been in a while. The bad news is this means there are more companies competing for the same top performers in an already shrinking skilled talent pool. As a result, your value proposition will need to align with the kind of talent you want to attract. Assuming you will be trying to recruit strategic leaders, your pay strategy will need to reflect the financial partnership such catalysts want to have with the company that employs them. They want to be viewed as growth partners in the business and fulfill roles that have strategic impact. How you pay them will communicate whether or not that is the kind of relationship you are interested in forging with them.
3. Differentiating from competitors is a top concern of those responsible for recruiting new talent. (Source: LinkedIn Report, Recruiting Trends for 2017.) This is obviously the natural extension of trend number two. The top three reasons candidates accept job offers are: challenging work, personal and professional development and better compensation and benefits. The best way to meet that expectation and differentiate your company from the competition is to have a “complete” value proposition—one that takes a Total Rewards approach. In a Total Rewards construct, equal attention is paid to:
Compelling Future. This means the company paints a clear and persuasive picture of where the organization is headed and why it’s meaningful. More importantly, it communicates why a given employee (in the context of his or her role and unique abilities) is critical to the fulfillment of that vision.
Positive Work Environment. This means employees are working within the realm of their unique abilities, that other team members have complimentary capacities, that they are sufficiently empowered to produce the outcomes for which they have responsibility and that they share the values of the organization.
Personal and Professional Development. Premier talent wants to feel as though its work in an environment that accelerates its ability to improve. This usually happens when the combination of resources to which an employee is exposed within the organization creates a unique learning experience—one that allows him or her to excel.
Financial Rewards. Value-sharing gives shape and definition to the wealth multiplier opportunity that is the natural outgrowth of organizational success. It performs a kind of continuity role in the Total Rewards make up by putting a financially codifying exclamation point on the relationship. A value-sharing philosophy sends the following message to success-oriented potential employees: “We consider you to be an essential growth partner in this company and have confidence in your ability to help us achieve the future business we’ve envisioned. As a result, we want you to be clear about the financial nature of our partnership and what it can mean to you as we achieve sustained success.”
4. Skilled employees are more empowered than ever as the employer and employee relationship continues to evolve. (Source: Deloitte Review.) A Deloitte Review article and study from January 2015 describes the shift this way:
After decades of corporate discourse about the war for talent, it appears that the battle is over, and talent has won. Employees today have increased bargaining power, the job market is highly transparent, and attracting top-skilled workers is a highly competitive activity. Companies are now investing in analytics tools to figure out why people leave, and the topics of purpose, engagement, and culture weigh on the minds of business leaders everywhere.
Our research suggests that the issues of “retention and engagement” have risen to No. 2 in the minds of business leaders, second only to the challenge of building global leadership.
…The employee-work contract has changed: People are operating more like free agents than in the past. In short, the balance of power has shifted from employer to employee, forcing business leaders to learn how to build an organization that engages employees as sensitive, passionate, creative contributors. We call this a shift from improving employee engagement to a focus on building an irresistible organization.
The outgrowth of this trend is that skilled talent wants to have control over its earning capacity. People who are capable of affecting the growth trajectory of your business will want (and demand) a wealth creation opportunity that matches that of owners. They will look for organizations that have a wealth multiplier philosophy—one that supports the idea that those who drive value should participate (financially) in the growth they helped create.
5. Performance management systems are becoming more flexible and fluid. (Source: The Performance Management Revolution.) If you’ve been paying attention, you know that an increasing number of businesses worldwide are abandoning long-standing performance management systems and philosophies in an attempt to address the constantly shifting climate of talent acquisition, development and retention. A recent Harvard Business Review article summarizes the reason for this trend:
…the biggest limitation of annual reviews—and, we have observed, the main reason more and more companies are dropping them—is this: With their heavy emphasis on financial rewards and punishments and their end-of-year structure, they hold people accountable for past behavior at the expense of improving current performance and grooming talent for the future, both of which are critical for organizations’ long-term survival. In contrast, regular conversations about performance and development change the focus to building the workforce your organization needs to be competitive both today and years from now. Business researcher Josh Bersin estimates that about 70% of multinational companies are moving toward this model, even if they haven’t arrived quite yet.
The tension between the traditional and newer approaches stems from a long-running dispute about managing people: Do you “get what you get” when you hire your employees? Should you focus mainly on motivating the strong ones with money and getting rid of the weak ones? Or are employees malleable? Can you change the way they perform through effective coaching and management and intrinsic rewards such as personal growth and a sense of progress on the job?
With traditional appraisals, the pendulum had swung too far toward the former, more transactional view of performance, which became hard to support in an era of low inflation and tiny merit-pay budgets. Those who still hold that view are railing against the recent emphasis on improvement and growth over accountability. But the new perspective is unlikely to be a flash in the pan because…it is being driven by business needs, not imposed by HR. (“The Performance Management Revolution,” HBR, October 2016, Peter Cappelli and Anna Tavis)
This trend has enormous implications for a company’s philosophy and approach to compensation design. It will require the pay strategy to respond to three realities associated with the shift in performance appraisal systems and methodologies:
The Return of People Development. Companies are under competitive pressure to upgrade their talent management efforts. This is especially true at consulting and other professional services firms, where knowledge work is the offering—and where inexperienced college grads are turned into skilled advisers through structured training. This is another reason the total rewards approach mentioned earlier is so critical.
The Need for Agility. When rapid innovation is a source of competitive advantage, as it is now in many companies and industries, that means future needs are continually changing. Because organizations won’t necessarily want employees to keep doing the same things, it doesn’t make sense to hang on to a system that’s built mainly to assess and hold people accountable for past or current practices. From a compensation perspective, this requires a rewards strategy that is flexible and adaptable. This is best achieved by adopting a comprehensive pay approach that is effectively aligned with the organization’s business model and strategy and is managed in an operational construct that facilitates change and modification.
The Centrality of Teamwork. Moving away from forced rankings and from appraisals’ focus on individual accountability makes it easier to foster teamwork. This has become especially clear at retail companies like Sears and Gap—perhaps the most surprising early innovators in appraisals. Sophisticated customer service now requires frontline and back-office employees to work together to keep shelves stocked and manage customer flow, and traditional systems don’t enhance performance at the team level or help track collaboration. This kind of dynamic requires an organization to ensure that the payout potential of its value-sharing plans (such as annual bonuses and long-term incentive plans) is tied to a combination of company, team or department, and individual performance. Those factors have to be “weighted” in a way that is compatible with the employee’s ability to impact each area—but some percentage should be allocated to every category. This is how you align pay with an organizational performance model that is driven by centrality of teamwork.
Companies expose themselves to increased levels of peril when they ignore these kinds of trends and choose to go about things the way they always have. The business environment for talent is becoming progressively competitive and requires more strategic thought and effort than ever before. Hopefully, this preview of talent trends for 2017 will put you in a better position to embrace and prepare for this new direction.