People are the most important asset in any business. With pay rates and turnover expected to rise after a post-GFC slump, Sam Walker examines how boards can help their organisations retain their top people and attract new talent.
It is no secret there has been turmoil in the business world in recent years.
While much blame has been placed on the global financial crisis (GFC) and the trail of economic destruction it left in its wake, major shifts in business, advances in technology and changing consumer habits have added to the turbulence. And, senior executives have been caught in the crossfire.
Political uncertainty has added to the stress and many businesses have been so focused on survival they have taken their eye off their most important asset – their people.
"If we’re looking at the past five years, it’s been a very rocky ride for senior management," says Anne Hatton, joint managing director of Hattonneale.
While recent years have been peppered with redundancies and very little mobility in the senior management ranks, Hatton expects steady, more sustainable growth through 2013.
Gemma Ledbury, business director for Hays Executive Queensland, says the trends in senior management recruitment can vary from state to state and in Queensland, similar to Western Australia, a retraction in the mining market has affected the demand for senior executives.
She is seeing very high numbers of candidates applying for fewer positions.
But there are signs of a turnaround.
"This financial year we’ve seen roles being recruited that are growth-oriented," says Ledbury.
Heading for a pick up
It is the first financial year since the GFC that Ledbury has noticed signs of business growth and increased demand for experts able to drive that growth. And, she says that can only be a positive sign for the economy.
It is especially a trend in the small to medium-sized enterprise (SME) market in companies with turnovers of up to $250 million.
Yarmouth Investment Management executive director Andrew McNeil GAICD is also seeing signs of improvement and expects senior management employment activity to pick up in 2014.
Businesses have to spend money to grow, but McNeil says when they are uncertain about conditions they are understandably cautious about spending.
"Our firm view is the current political situation has hurt business confidence and the spending or capital expenditure of those businesses is sitting on the side line," he says.
"In the current situation, large businesses and SMEs have been reticent to spend because of the situation in Canberra."
There has been a lot of negativity, but McNeil says signs of recovery are starting to show and the federal election in September will give directors and management clarity on policy and some stability to make good business decisions.
"We expect for the first calendar quarter of 2014 that the employment market will improve for senior management," he says.
The growth sectors will vary from state to state. McNeil is seeing positive signs in capital inflows from off-shore investors in Sydney and Melbourne, while Ledbury says the financial services sector is likely to be sluggish in Queensland.
However, she says the state should see opportunities for senior executives in oil and gas and supporting industries.
Akyra Strategy and Development director Margaret Goody FAICD expects a global shortage of skilled people in the information technology (IT) sector in coming years.
Research shows school leavers are abandoning the technical services industry, which will have a flow-on effect through to senior management positions as demand for IT will continue to increase.
Hatton predicts demand in positions that support a business to grow, such as sales and marketing and commercially focused CFOs.
With increased demand for senior executives, McNeil says it will be harder for companies to keep their good people.
Boards need to think seriously about how they will retain those in key senior positions and how they will attract new talent to help grow the business.
McNeil warns now is not the time to be complacent.
"People are the lifeblood of your business. You need to work out how to keep them now." Don’t wait until the economy heats up because it could be too late, he adds.
When faced with increased global turmoil, Board Portfolio founder and CEO Kylie Hammond says it is very easy for organisations to take their eye off their people as they focus on issues affecting the bottom line.
"With market dynamics changing quickly in many industries, it has never been more important to ensure your senior executive team is truly engaged with the business strategy, that voices are heard and that there is a strong collaborative culture to help tackle and manage change," she says.
"Not only will a focus on people help an organisation to retain good senior staff, it will also help to attract the best talent.
"With the prevalence of social media, organisations can be quickly judged as places that top talent will either want to join or avoid."
Goody says reward packages appropriate for senior executives and manageable for the company are a good starting point when looking at retention.
While salary plays an important part, she says not all rewards need to be monetary. Organisations need to find incentives most appropriate for their employees.
She cites research from the US that has found the Flexible Friday is one of the most prized retention incentives.
Similarly, half-day Fridays or the nine-day fortnight are popular in an era where time is so valued.
"That is definitely something a board would need to consider as part of a retention strategy because it could have cost implications," she says.
Good communication between the CEO and the board and the CEO and senior management is also essential to ensure everyone is on the same page.
Boards need to be clear in their mission, their vision and their values and to ensure that senior management follows through on those values.
"If the talent management has a clear strategy – and it is planned for and is articulated and adhered to – the employer brand of the organisation will be very high, which means it is easier to attract the right people for the right reasons and that is always a cost benefit to an organisation," says Goody.
McNeil outlines open communications, remuneration structures, training and promotion prospects for the next three to five years as well as engaging staff as crucial tools for keeping senior management.
"If an employee is fully engaged, he or she is much more likely to stay," says McNeil.
Hatton adds that it is absolutely critical for organisations wanting to retain their best people to invest in them and help them with their personal and professional development.
Networking with like-minded professionals, mentoring programs and increased training are all good investments.
Pay has been reasonably flat for senior managers, and while flexibility and a positive culture within an organisation have been drawcards, McNeil predicts a recovery in pay levels and believes pay packages for senior management are going to be bid up.
While retention should be a key issue for boards, it is equally important to be looking at succession planning.
Replacement vs succession planning
Goody highlights the importance of realising the difference between replacement planning and succession planning.
Many organisations have a replacement plan identifying a few key people as back-ups for senior executive positions, but a succession plan is more forward thinking and aims to help develop the skills of people within the organisation.
"Succession planning means you’re looking at everybody in the organisation, not just the people in the team," she says.
Knowing the capability of the organisation across the board will enable directors to identify where the talent pool might come from.
It is important to also look for talent outside the company.
Hatton believes many organisations manage succession planning well, but recently this has become less of a priority for some businesses because they have been more focused on keeping their heads above water in uncertain times.
"In recent years, with some particularly large businesses cutting out layers of management, we fear succession planning is going to become quite an issue," says Hatton.
Removing management positions can create a gap in capability, which can cause significant challenges. "What organisations can be doing, and need to be doing, can be as simple as focusing on the issue," she says.
The board’s smell test
Not all senior managers are going to be a good fit for your organisation and sometimes the misfit can lead to a toxic culture the board needs to weed out.
"I’m a strong advocate for 360-degree reporting tools to uncover cultural, behavioural and managerial issues that often bubble under an organisation’s surface," says Hammond.
"While these tools can be at times confronting for a CEO or senior management team, they are also vital in enabling truths to emerge.
"Unexpressed discontent will have a far more negative effect in the long run on a CEO and the organisation in general through disengagement of staff, high turnover and underperformance."
Hammond says there are some simple signs board members can look for that might indicate a problem within the organisation’s management, such as high churn.
Directors should also consider whether the organisation is achieving its objectives. If it is constantly underperforming, particularly when other organisations in the same sector are doing well, there could be issues.
McNeil says a board’s ability to spot problems can depend on the organisation’s culture and the candour and honesty around the boardroom table. However, if the CEO is trying to block the board’s access to the C-suite senior executive team, it can be a warning sign.
He says there’s no "one size fits all" approach, but open communication, trust and honesty are essential.
It is a fine line that directors tread and while they need to keep in touch with some key managers, Goody says it is important they do not get involved with the operational procedures of the business.
Hatton says the overarching challenge for directors is knowing how far to go in engaging senior executives. But she says it is easy to underestimate the positive effect directors can have as mentors and their ability to offer guidance and counsel to those in senior positions.
Other measures and reports the board should ask for to assess the management of those in its senior ranks include employment engagement surveys, staff turnover levels and rates of sick leave and stress leave.
Hatton says looking at diversity reports is also important to assess the make-up of the organisation and whether it has the right fit to meet its customers’ needs.
When reports are tabled or presented to the board, Goody believes directors should have a good understanding of the organisation, the industry sector and be able to ask executives clear questions.
She recommends that the HR director should be at the boardroom table with the CEO and the CFO.
Members of the senior management team often make reports to the board and Hatton is finding increasingly that there is a representative on the board who has engagement with the HR director.
Questions presented to the HR director can reveal crucial information relating to workforce planning, outcomes of employment engagement surveys and can help to identify the skills, attributes and qualifications needed to achieve the organisation’s goals.
People are the most important asset in any business and investing time and money in establishing the best executive team can go a long way towards creating a positive culture, ensuring low staff turnover, maximising productivity and ultimately growing the business.
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