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Hiring Trends

Calculate the Value of Talent

by Dr. John Sullivan

Companies are as diverse as the people who run them, but all organizations benefit by taking a systematic approach to assessing employees and attracting top talent. And it's important to maintain your talent pool at all times, regardless of economic ups and downs. Why? It always pays, quite literally, to have talented people on board.

You may be thinking that I am going to recommend you do a forced ranking of your employees to weed out the low performers. In response, you may be saying that your company's culture wouldn't stand the test of a forced ranking. OK, I can live with this. However, you should understand the intrinsic differences between your top and average performers.

Top performers:

  • Produce as much as 10 times more than the average worker, while they often require less than two times the pay.
  • Generate most of the innovation and new ideas.
  • Help others to improve their performance, because they serve as mentors, trainers and role models.

You may think that even though these findings seem true, it would be nearly impossible for you to figure out the value of your company's top talent versus its average talent. Think again. If you need a better business reason than my warning to identify and retain your top performers over all other performers, then try this simple value-differential exercise using some of the people from your team.

Start by identifying several jobs with measurable results. Sales positions make for an easy starting point. Other easily measured jobs might be programmers (lines of code) or customer service jobs. The goal is to compare the differences in output or results between those with average performance and those ranked as the best in each job category.

Steps in Calculating the Top-Performer Differential

Here is how it can be done, step-by-step:

  1. Calculate the output of average and top performers.
    • Start with the output of the average performer (the average output per employee).
    • Look at the output of the very top performers or the average of the top 10 percent (the top-performer output).
  2. Calculate the top-performer increase factor.
    • Start with the top-performer output per employee as the base.
    • Divide into that number the output of the average performer (the small number into the bigger number). That is the top-performer increase factor.
  3. Calculate revenue per employee.
    • Calculate the average revenue for an employee for these jobs (total divisional revenue for a year divided by the number of divisional employees).
    • If that is not available, take the total revenue of the firm for a year and divide it by the number of employees.
  4. Calculate the revenue increase for top performers.
    • Take the average revenue per employee and multiply it by the top-performer increase factor. That number is the revenue generated by the top performer.
  5. Calculate the value difference between top and average performer.
    • Subtract the average revenue per employee from the revenue of the top performer. The difference is the value added each year by hiring or retaining a top performer.
  6. Add additional jobs.
    • Follow steps 1 through 5 for other measurable-output jobs. If the ratio (the percent difference) is close for most jobs -- and it usually is -- use that ratio for all jobs in the firm.

An Example with Numbers

The average salesperson generates $250,000 per year, while your top salesperson generates $400,000. Divide 400,000 by 250,000, and you are provided with a top-performer increase factor of 1.6.

Next, divide total revenues of your organization by the number of current employees, we'll say $100 million and 1,000 respectively, for this example. The result is an average revenue per employee of $100,000.

Multiply this number by the top-performer increase factor, and you get the average contribution to revenues by top performers, $160,000 in this example.

Subtract from this number the average revenue per employee of $100,000, and you see that on average, top performers contribute $60,000 more per year than average performers.

Determine Unit Labor Cost

How to Determine Unit Labor Costs for Contingent and Care Workers

1 Compensation, $/hr.(Rows 2 + 3 + 4)    
2 Wage rate, $/hr.    
3 Benefits rate, $/hr.*    
4 Agency fee, $/hr.*    
5 Productivity    
6 Output rate, units/hr.    
7 Performance appraisal    
8 Unit Labor cost, $/unit (Rows 1÷6)    
9 Pay/performance ratio (Rows 1÷7)    

To determine the percentage difference between core employees and contingent workers on each variable, make the following calculations:

Compensation: B1 - C1 =
Productivity: B6 - C6 =
Performance Appraisal: B7 - C7 =
Unit labor cost: B8 - C8 =
Pay/performance ratio: B9 - C9 =

*The benefits may be zero if contingent workers are supplied by an agency or no benefits are paid. The agency fee will be zero if contingent workers are employees not supplied from an agency. If no output/input measure is available for productivity because of the nature of the work, use performance appraisal data instead. If no performance appraisal data are available, adopt alternative "what if" assumptions about productivity differences. The end result you obtain will be either unit labor cost difference or pay/performance ratio difference between contingent workers and core employees.

Reprinted, with permission of the publisher, from Managing Contingent Workers: How to Reap the Benefits and Reduce the Risks, by Stanley Nollen and Helen Axel, ©1996 AMACOM, published by AMACOM, a division of American Management Association. All rights reserved.

Five Companies Doing Something Right

by Dr. John Sullivan

I am often known as a critic. But today, I focus my attention in a way you may not be used to by recognizing five companies currently doing something right.

The following companies have developed innovative practices to help build an effective recruiting culture within their organizations. Although the strategies are different, they are all designed to ensure these employers provide great places to work, ultimately resulting in others learning about them. Some of these firms may be too shy to tell their stories, but they all have a story worth telling.

Agilent: Bringing Programs to Life

How can a company move from a ranking of 46 to 31 on Fortune's "Best Places to Work" list in one year? Agilent has created a culture where employees feel their organization gives them so much that they are willing to sacrifice when management has to take something away. For two years now, Agilent has dedicated resources toward identifying both formal and informal people-related programs and then having employees tell personal stories about how those programs helped them.

Intel: Running HR as a Business

When most people think of HR, they think of administrative types, not hard-core business visionaries. Intel turns this stereotype on its head. Not only is Intel on the leading edge of chip design and technology marketing, it also kicks butt in HR. Whether you focus on Intel's HR Research and Development Group or its advanced redeployment model, it's clear that these folks get it. Instead of just looking for people who would typically fill an HR role, Intel also seeks the best and brightest up-and-comers from within the other functions of the organization, like finance and marketing. Managers then pick out those who have the right business savvy and skills for key roles throughout HR.

Synopsis: Getting Whom You Want

Recruiters often spend hours tearing through research to generate a call list of candidates who may or may not be appropriate for their organization, but this tech success seems to know well in advance. Synopsis knows who the must-haves, would-like-to-haves and definitely-don't-want-to-haves are. By developing a database and recording bits and pieces of news that relate to Synopsis's industry by name, Synopsis has built a recruiting database that minimizes the need for prescreening, thereby enabling true one-day hiring.

Google: Recognizing Top Performers

We all like to feel as though we have made a contribution to the business. But when the pace of life gets really fast, slowing down to recognize those who have played a key role is often tough for management to do. This Silicon Valley search leader understands that you get to the top by finding and retaining top talent. Google has built an impressive brain trust (core group of innovative top performers) of PhDs, accounting for approximately 24 percent of its headcount. The company also brings employees together weekly so the founders can announce key contributors and their contributions by name and thank them for their impact on the company's success.

nVidia: Getting to the Point

Growing from 500 to 1,200 in one year's time while performing at a rate that lands you on the top of the S&P 500 is no easy task, yet video chipmaker nVidia did it. From 1 percent market share in 1997 to 31 percent in 2001, nVidia just keeps growing. To keep up with that growth, nVidia has had to add talent at a dramatic pace, and folks there are not embarrassed to admit it. Take a peek in the company's corporate lobby, and you will see that nVidia gets right to the point in expressing its need for talent. Large posters dominate the new marble entryway, informing anyone and everyone in sight that the company needs people -- and will pay you for helping with the task. Employee referral programs are common. But taking them front and center and allowing vendors, customers and visitors to participate is aggressive and definitely the right move.

Prepare for a Shortage

by Roberta Chinsky Matuson

If you want to add some spice to the conversation at a dinner party, mention the words "labor shortage." Chances are someone at the table knows someone who has been laid off, and on a daily basis, newspapers highlight organizations going through major staff reductions. With so many people out of work and companies struggling to hold their own, how can there possibly be an impending labor shortage?

The Future Is Near

Early indications are that this will be a mild recession and job growth will outpace population growth. This predicted labor shortage is rooted in demographics. Over the next few decades, we will have a growing class of retirees and a shrinking workforce. HR professionals will face the challenge of staffing their organizations while developing new approaches for organizing and managing the workflow.

Facing Tomorrow's Challenge Today

As an HR professional, you may feel like you're working both sides of the street. One week you're finalizing your company's reduction-in-force plan, and the next week you are creating a strategic plan to address future workforce needs.

Smart companies are being proactive. They know the coming labor shortage could be worse than the one we faced before the recession hit, so they are using this slowdown in the economy to get their human resources in order.

Constant Communication

Maria Ferrante Wilson, senior staffing specialist for Beckman Coulter Inc. of Miami, knows firsthand what it is like to lay people off while continuing to staff other parts of the company. She believes open communication between company and staff is key to fulfilling this dual role. Her company told employees why the restructuring was needed and the impact it would have on specific jobs. It also followed up with outplacement services to support those employees who lost their jobs. This approach helped keep morale up during difficult times.

Effective channels for employee feedback keep the lines of communication open, too. Employee surveys, weekly employee meetings and open-door policies foster communication. "In most situations, you won't find out what people are thinking unless you ask," says Sheree Ruland, HR manager of employment for TriPath Imaging Inc./TriPath Oncology of Burlington, North Carolina. If your employees feel their opinions matter, they are less likely to bolt for a better offer. Retention will become even more important as talent gets harder to find.

Strategic Plan

It's hard to help move your company ahead if you don't know your destination. Wilson suggests surveying managers for input regarding what type of talent they will need going forward and how much. Then, develop a staffing plan that includes strategies for finding appropriate people for your organization.

Branding Your Company

Just as companies brand products for consumer recognition, employers need to do the same with their employment image. "Our company is building an employment branding strategy aligned with our corporate marketing efforts. We want people to know who we are and what we're doing. We want them to get used to seeing us out there in business and technical publications, various other print media, on the Internet, at biotech job fairs, etc.," says Ruland.

Look in Your Own Backyard

"We have a new program to identify key skills, knowledge areas and competencies of Liberty Mutual employees that match our business needs," says Elizabeth Tyminski, director of employment, for Boston-based Liberty Mutual. "This will enable us to manage and develop [the] talent within our organization."

Plant Your Seedlings Today

Maintaining relationships with potential hiring partners is critical, even if you aren't currently in a hiring mode. "Work with local high schools to provide mentoring and job-shadowing opportunities for students early on to ensure they are enrolling in key educational programs to support your business (e.g., computer programming, engineering, etc.)," suggests Wilson.

College internships and co-op programs are also an excellent way to nurture your future workforce. Liberty Mutual offers people career opportunities, rather than jobs -- a big selling point when trying to attract talent.

Tops in the Field

"HR, and particularly staffing/employment, need to stay a few steps ahead of the crowd if they truly want to be the top in their field," Ruland says.

Tips for Managing Temps

by Roberta Chinsky Matuson

by Roberta Chinsky Matuson

Organizations no longer use temps just to fill in for vacationing receptionists. Now, temporary workers are found in a variety of businesses, including those in need of unskilled labor and seasonal employees, and in companies whose workflow and talent demands vary.

If history repeats itself, the demand for temporary employees will increase significantly as we pull out of the recession. Develop a solid game plan now, and you will be one step ahead of your competitors.

No Time Like the Present

Marty Goober, managing partner of Overture Partners LLC, an information technology contract services company in Newton, Massachusetts, says this is the time to build relationships with your vendors. "Use your vendors as a strategic tool," advises Goober. "You should be revisiting your list of vendors and upgrading your list. This way when your projects hit, you will have the first opportunity at the best available talent."

Minimizing Risk

Just-in-time labor mitigates the risk of adding to your head count, notes Pam Murray, president of Boston-based Veritude, a Fidelity Investment company. Murray advises companies consider the following when deciding on whether to bring on a full-time hire or temp:

  • Does this project have a start and stop date?
  • Can the work be completed with a six-month person?
  • Is this a revenue item with questionable longevity?
  • Is your organization looking for elasticity?

If you answered yes to any of these questions, then contingency workers might be in your future.

Integrating Temps into Your Workforce

At Lands' End, in Dodgeville, Wisconsin, contingent workers are part of the culture. Diane Huza, director of recruitment and development, is a prime example. She started her career at Lands' End as a flex worker.

"We bring in more than 3,000 temporary employees a year to handle our peak holiday season, and the company retains many of the flex employees all year long," says Huza. "This model has been used at Lands' End for as long as I can remember."

The company treats employees like part of the family, even when they are not actively employed during non-peak times. Furloughed employees, who commit to returning to the company when business needs arise, can use their employee discount for purchases throughout the year.

Way of Life

Wirefab Inc., a Worcester, Massachusetts, manufacturer of wire products, uses temp services to supply unskilled labor. "Hiring temporary employees gives us the opportunity to evaluate people prior to putting them on the payroll," says James Samsel, president. As a result, turnover has been limited, which has been cost-effective for the company.

Vendor Selection

The best way to find a vendor specializing in the placement of contingent workers is through referrals. Ask your peers at other organizations for the names of temporary staffing companies that have serviced their accounts well. Murray adds that it is important to find a vendor that can meet your specific needs. If you're looking for IT professionals, for example, you may be better off with an agency that specializes in IT placements.

Companies that plan on hiring a large number of contingent workers should look for a firm that offers centralized invoices and on-line timecards. This way, you won't find yourself hiring a temp just to manage all of the paperwork generated by numerous service providers.

Other Tips

Huza says a good plan is key to hiring a solid contingent workforce. She also believes it is critical to work closely with front-line leaders and managers to ensure everyone is on the same page.

Accurate job descriptions are vital, according to Murray. They enable firms like hers to find candidates with the right fit. Candidates who fit better are more likely to complete their assignments.

Goober encourages his clients to be open to ideas expressed by contingent workers. "They have a lot to contribute since they are usually coming in with a fresh approach," he says.

Keep in mind that many contingent personnel are temporary workers by choice. They enjoy moving from company to company and taking on new challenges. Treat them well, and you will reap the benefits of having flexibility in your workforce as well as a constant stream of new ideas.