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Fending Off Corporate Raiders

March 1, 2004
Related Topics: Candidate Sourcing, Featured Article, Staffing Management

When John Sullivan served as chief talent officer for Agilent during the height of the Internet boom, he learned the hard way about protecting his employees from poachers. Agilent was the major employer in a Colorado town when a competitor decided to open a plant across the street. "At first we didn’t protect our people," says Sullivan. "We had to rapidly say, ‘Let’s prevent this.’ "

    Sullivan and the plant manager lost no time in instigating an anti-poaching strategy. "The real secret is to protect your own," he says. "We would bring in a recruiter to tell us who they’d steal, and then we’d try to protect those people," says Sullivan.

Double or triple whammy
   While this might seem like a distant memory from a long-forgotten era, Sullivan’s experience should serve as a cautionary tale. The fact is that after a hiatus, poaching is making a comeback. "The last two years have been much slower recruiting years," says Kevin Wheeler, founder and president of Global Learning Resources, a consulting firm on human resources strategy. "But today, if you need a higher-level person--director or above--the first thing you’re going to do is say, ‘Do we know anybody at a competitor that we can go and get?’ "

    While employee poaching is nowhere near as rampant as it was in 1999, recruiters say it’s bound to increase as the economy picks up. "Poaching will occur in any industry where there is a recognized talent shortage," says Wheeler. Today those areas are health care and the semi-conductor industry, and specific positions such as design engineers, automotive designers and salespeople, he says.

   "The cost of someone leaving is double or triple if they go to a competitor," says Sullivan. Company A not only loses a skilled worker and incurs recruiting costs, but also suffers from project delays and a decline in team productivity because of decreased morale. A sales rep with a $100,000 salary could ultimately cost Company A $300,000. The impact would be worse if that sales rep went to Company B, a direct competitor. Since that sales rep would likely take some customers with him to his new job, it could cost Company A anywhere from $600,000 to $900,000 in lost revenue.

    For the time being, poaching, or direct sourcing, as it’s known in the recruiting industry, will likely be limited to higher-level employees because it’s expensive. It requires a highly compensated person making hours of phone calls. "I might put 300 hours into a search," says Alan Darling, principal of Alan Darling Consulting, a Vermont-based private executive search firm. During the process, Darling might talk to as many as 200 executives.

    This investment of time and money can dwarf the cost of a help-wanted ad, but some recruiters think it’s worth it. "The best people out there are already working," says Darling. Schering-Plough will use direct sourcing to help it fill some of its district-manager positions.

    Julie Montgomery is vice president of the human capital division at Sentigy, a company that provides recruiting and consulting services. She says that companies such as Schering-Plough want to avoid hiring someone who’s not suitable for the job, and many are willing to pay extra to find the right people via direct sourcing. "For mid- to high-level employees, when you start measuring the quality of hire, companies that invest in a good direct-sourcing strategy--where the employment brand is communicated--find that the cost of recruiting is cheaper in the long run becauseturnover is less and they’re bringing in A players," she says. "Ultimately, it reduces the cost of a bad hire."

    Bradford Smart wrote about the cost of a bad hire in his book The Smart Interviewer. While these costs can vary greatly from one position to another, a general rule of thumb is that the higher the position, the greater the cost if it doesn’t work out. For a director who makes a salary of $70,000, Smart says, the cost of a mishire can amount to $521,000.

Give them their dream
    When a competitor sets up shop across the street, managers must be aware that this is a serious problem, Sullivan says. He recalls that one manager initially thought that having the competitor across the street would be good, saying that they could all go to lunch together.

    Sullivan has developed a host of anti-poaching strategies from his experience with Agilent and other companies over the years. Once a company has identifiedat-risk employees, it’s important to start using defensive techniques before the recruiters come calling. That involves asking employees why they stay at your company and what would cause them to leave--if you can get them to be honest. "By proactively starting to get them before the divorce started, I found better results," Sullivan says. That literally involved giving employees a blank sheet and telling them to write down their dream job, and then trying to give them some of what they wanted. "It’s seldom about money," he says.

    Beverly Kaye, co-author of Love ’Em or Lose ’Em, tells employers to "compete on dollars and win on culture." Salaries must be in the ballpark, but they aren’t the key toretention. Kaye recently conducted a conference for workforce-management executives who wanted to know how to prevent poaching. She predicts that the job market is going to turn around fast. "I’ve been preaching that recruiters had better be aware that the perfect storm is coming. The economy is on an upswing, and there are many, many unhappy employees out there."

    Michael Potters also emphasizes culture. Potters, a managing partner at The Glenmont Group in Glen Ridge, New Jersey, was hired to recruit a high-end sales specialist for a New Jersey company. One name he put on his list was a woman who worked for the company’s direct competitor. When he showed the list to his client, the client said, "She’s great, but she’d never want to work for me." Potters ultimately talked the woman into an interview by emphasizing his client’s outstanding corporate culture. "She was making phenomenal money, but there was a corporate culture conflict," he says. Potter's client hired her.

"Recruit them right back"
    Of course, having recruiters beating down your door and trying to entice your employees away isn’t entirely bad: it means you have a valuable workforce. Sullivan points to Apple as an example. "Apple wants their employees to be so good that they will be poachable, but they want to treat them so well that they won’t want to go."

    Aside from treating employees well, which most recruiters say should be the first line of defense against poaching, there are other tactical strategies to protect a company. It’s a good idea not to publicize organizational charts or telephone directories. Also, instruct employees not to give out names of other employees to outsiders, and teach receptionists how to identify recruiters who are digging for information. Try a pretend raid on your own company, and see how well your employees do at not giving out names and phone numbers.

    If a competitor is planning a large-scale expansion in your city, you might try putting all the local recruiters on a six-month retainer, says Sullivan. Or, the minute one of their recruiters comes to town, you might try recruiting that person to work for you. "Everybody in our company knows that if a good recruiter tries to recruit them, they try to recruit them right back," says Sentigy’s Montgomery.

    Some CEOs make anti-poaching pacts, whereby they agree not to poach each other’s employees unless the employee approaches them first. There are, however, tricks to get around this. One such trick is the fish bowl at local restaurants, where business cards are collected to win free lunches. Another variation is a bowl at a trade show where employees can put their business cards in to win a prize. Companies and recruiters often use this as a way to get employees’ business cards and thus get around the poaching agreement.

    Of course, in spite of a company’s best anti-poaching efforts, there may still be some employees who wind up leaving for a competitor. If it’s a valuable employee, Sullivan suggests telling the person that you plan to call once per quarter to see if he or she likes the new company. If the new company doesn’t work out, the hiring manager from the old company would be in an ideal position to hire that person back.

    In the industry, employees who leave and come back are known as "boomerangs." Those boomerangs can publicize the negative aspects of working for the other company, says Sullivan. When Sullivan encountered an employee who was thinking of leaving, he’d say, "Go talk to Joe, he was over there." Employees found their colleagues much more convincing than he was in talking about the pitfalls of working for the other company, Sullivan says. "It was an incredible retention strategy."

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