Today’s Biggest Talent Risks

Peter Cappelli, workplace expert and professor of management at the Wharton School
Photo by Alex Gagne Photography
A look at the most pressing concerns when it comes to talent—and what to do about them.

From the Great Resignation to quiet quitting, it’s been a tough few years for hiring and retaining talent. But if you think that’s going to change dramatically anytime soon, you’re mistaken.

That was the premise for a talk from Peter Cappelli, workplace expert and professor of management at the Wharton School, at the recent CFO Leadership Council’s Spring conference in Boston. During almost 50 years of a “buyer’s market” for talent, from the mid-1970s to 2017, said Cappelli, “the unemployment rate in the U.S. went below 4 percent only once. Since 2018, it has been below 4 percent every year except for that little period in 2020 when things were shut down.”

Birth rates are down, and immigration doesn’t look likely to rise anytime soon, he noted. “If you think about just the simple supply and demand dynamics, it’s looking like it’s likely to be a seller’s market more than a buyer’s market for a while.”

To adapt, organizations will need to think more creatively about talent going forward, and Cappelli had ideas for how to do just that, including:

• Reconsider downsizing during lulls. Citing numerous peer-reviewed finance and accounting journal studies on downsizing, Cappelli said that “none show companies do better financially afterwards” and “the companies that do best were the ones that could delay downsizing the longest.” The reason? “On the rebound, the companies that did a lot of downsizing struggle to catch up.”

• Go beyond cost-per-hire. “We measure cost-per-hire. And that’s because HR knows you want to see that,” he told the CFO audience. “They also measure time-to-fill because they know line managers want to see that. That’s fine. What they don’t measure: Are we hiring good people? Only 20 percent of firms even collect the data that would allow them to know whether they’re hiring good people. The whole purpose of hiring is to get good people. We’re not even looking at that right now.”

• Focus on promoting from within. “At the moment, we’re filling about 15 percent from inside; we’re filling 85 percent from outside. That means we’re hardly developing anybody.” A Wharton study found “it takes outside hires three years to become as productive as the people promoted from within.”

• Focus on retention. ADP data shows that 29 percent of people who get promoted quit within a month. In part, this is about not getting a raise with that title. “It’s so stupid,” said Cappelli. Only giving the title makes employees more attractive to other organizations, where they can then get that increased pay.

• Identify your best employees—and treat them accordingly. “The issue we’re worried about is not whether our worst employees leave—that’s a solution. It’s whether our best employees leave and what we might be able to do about that. What keeps people most powerfully? You probably think it’s pay because that’s what they talk about all the time when they’re quitting. But that is not actually what keeps people. A lot of that is about their immediate supervisor, and whether that person is paying attention to them or not. That’s fixable.”

One of the biggest talent risks today is the threat of big class action lawsuits: discrimination suits, safety suits, suits around hiring and firing. Keith Andersen, vice president of Travelers Insurance, discussed the impact of “nuclear verdicts” of more than $10 million, which have quadrupled from just under $5 billion in aggregate to over $18 billion in two years. One level under that, awards have almost doubled from just over $21 million to over $41 million.

There are several reasons for this, most importantly, that “a plaintiff’s bar has figured out how to maximize their returns,” said Andersen. “They’re approaching litigation as a business, investing in claims to maximize the return.” People are more comfortable litigating, and the public image of top executives has diminished, making it easier to demonize the C-Suite.

All of which gets back to one of Cappelli’s main points, and perhaps the most critical step organizations can take to defend themselves against the wide range of talent threats they face: “It’s all about how the supervisors deal with their direct reports,” he emphasized. “Nothing I said here was about necessarily just raising pay. It’s mainly about investing a little more in time with supervisors in your direct report. There’s a lot we can do better there.”

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