The U.S. labor market, after a loss of about 2.3 million jobs since 2001, finally seems to be on solid ground. Five months of growth amounting to over 1 million new jobs cannot be dismissed as a blip. Already, more than half the country has unemployment rates of 5 percent or lower. This is the point at which, according to most economists, the labor markets shift in favor of job seekers.

So what should an employer do now to prepare? The answer may be less obvious than you would expect. A job seeker's market has normally meant that organizations would focus their efforts on better and more proactive recruiting processes. But this time around, things are a little different. We are coming out of an era of extreme cost-cutting punctuated by mass layoffs: a nerve-wracking trend to offshore outsourcing; and productivity gains made largely on the backs of workers who have had to pick up the slack of their laid-off colleagues. To put it bluntly, employees are angry.

The "survivors" have in many cases, seen no real wage increases. As their hours, contributions and tenure increased, they have become more and more valuable to their employers - both for their knowledge (of customers and company culture, networks, institutional memory, etc.) and their increased skill sets. So while recruitment will be critical, the greater challenge facing employers over the next several years may be retention.

In fact, we can see the writing on the wall already. Several recent employee surveys, including those by Spherion and Gantz Wiley in late 2003 and early 2004, reveal that upwards of 75 percent of employees across multiple industries and professions are "likely to leave within one year." Gantz Wiley's survey of 10,000 workers earlier this year prompted CEO Jack Wiley to remark, "The opening of the job market may put a serious strain on an organization's retention efforts. While employees watch stock market prices going up and Wall Street recovering, they are not seeing their own jobs benefiting. Job security issues and employees' rising intent to leave their organizations are prevalent. These issues, coupled with employees feeling less of a personal connection or loyalty to their company, indicate they are more likely to actually leave their organization."

I posed this concern to Derrick Barton, CEO of the Center for Talent Retention, a strategic retention and employee engagement firm based in Denver, Colorado. Says Barton, "Employees have done more with less... stayed longer in their current positions than they might have planned... and built some great skills as they took on greater responsibilities due to downsizing. They have weathered the storm and now will be presented with a number of opportunities... will they take them?"

Employee turnover is a problem that feeds on itself and one that can easily become a vicious cycle. Credible surveys have shown that when respected managers and star performers leave, there is often a trail of employees behind them, and the good ones tend to go first because they have more opportunities. Their departures can translate into staggering bottom-line losses. Most experts estimate that an average employee costs one-two times annual salary to replace. Top performers can easily cost many times more. Especially if they negotiated their salaries in leaner times.

Organizations must work very hard to keep key individuals and almost as hard to identify and either change or remove under performers.

Barton believes the key to successful human capital management is in employee engagement. "The number one priority for all leaders, managers, and HR professionals is to engage each person to perform at their highest level,… which directly impacts retention," he says. One obvious way to impact employee engagement is to implement training, awareness and support programs to ensure that the leaders in your organization - from managers to executives - know what they're doing when it comes to managing their staffs. There is no greater key to retention than the strength of the relationship between a manager and his or her direct reports.

The second priority, according to Barton, is to "retain the talent you need to support the business strategy." Third priority? "Determine how you can attract the right talent to prosper in the long term." In the short term, organizations should determine who their key talent is in relation to their current objectives. Identify the smallest core group that you absolutely need to accomplish those goals and focus your retention efforts on those people. In the longer term, put in place the means to accurately identify the key mix of skills, experience and other attributes necessary to excel in various roles in your organization. Finally, systematically build this knowledge into your recruitment, retention and employee development efforts.

For small and mid-sized firms, the importance of employee engagement and retention of key performers takes on even greater importance. With fewer people to groom, small organizations often have to recruit top performers from other organizations to fill the void left by their own departing stars. In addition to the high costs, these organizations run the very real risk that the imported high performer will fall back to become an average performer, or worse, in their new environment (for a host of reasons too lengthy to list in this article).

The bottom line is, employers should prepare for tighter labor markets in more considered ways then simply improving their recruitment capacities. Strategic recruitment (of external and internal candidates), retention and employee engagement are intricately linked and should be planned holistically. Moreover, they form part of a greater "Talent Management Imperative" that organizations must understand in order to thrive in an economy that is increasingly driven by intangibles.

I welcome your feedback, questions and advice, and would love to hear about your experiences. You can reach me at: aschweyer@humancapitalinstitute.org


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