Win the War For Top Talent

December 1, 1998
The best talent is worth fighting for. At senior levels of an organization, the ability to adapt, to make decisions quickly in situations of high uncertainty, and to steer through wrenching change is critical. But at a time when the need for superior executive talent is increasing, big U.S. companies are finding it difficult to attract and retain good people.

Executives and experts point to a severe and worsening shortage of the people who are needed to run divisions and manage critical functions, let alone lead companies. Everyone knows organizations where key jobs go begging, business objectives languish and compensation packages skyrocket.

To understand the magnitude of this war for talent, we researched 77 large U.S. companies in a variety of industries. We worked with the companies’ human resources departments to understand their talent-building philosophies, practices and challenges. And to gain a line manager perspective, we surveyed nearly 400 corporate officers and 6,000 executives from the top 200 executives in their respective companies. And because numbers never tell the whole story, we also conducted case studies of 20 of the 77 companies widely regarded as being rich in talent. [These 20 were: Allied Signal, Amgen, Arrow Electronics, Baan, Enron, First USA (BancOne), General Electric (GE), Harley-Davidson, Hewlett-Packard, Intel, Johnson & Johnson, Medtronic, Merck, Monsanto, Nabisco, NationsBank, Sears, SunTrust, The Home Depot and Wells Fargo.]

What we found should be a call to arms for Corporate America. Companies are about to be engaged in a war for senior executive talent that will remain a defining characteristic of their competitive landscape for decades to come. Yet most are ill prepared to tackle the problem, and even the best are vulnerable.

After all this study and research, we feel companies can win the war for talent, but first you must elevate executive talent management to a burning corporate priority. Then, to attract and retain the people you need, you must create and perpetually refine an employee value proposition (EVP), senior management’s answer to why a smart, energetic, ambitious individual would want to work with you rather than go work with the team next door.

That done, you must turn your attention to how you’re going to recruit great talent, and finally, you’ve got to develop, develop, develop. And workforce managers must be key players in this corporate imperative.

There’s a war for talent, and it will intensify.
Many American companies are already suffering a shortage of executive talent. Three-quarters of corporate officers surveyed said their companies had “insufficient talent sometimes” or were “chronically talent-short across the board.” Not surprisingly, search-firm revenues have grown twice as fast as the gross domestic product (currently $7.6 trillion) over the past five years.

Part of the cause may be cyclical, the product of a strong economy at the peak of its cycle. But what should keep CEOs and HR execs awake at night is a number of trends that threaten a very wide-ranging shortage in talent over the next five years.

Until now, the executive population has grown roughly in line with GDP. This means an economic growth rate of 2 percent for 15 years would increase demand for executives by about a third. But supply is moving in the opposite direction; the number of 35- to 44-year-olds in the United States will decline by 15 percent between 2000 and 2015.

Moreover, no significant countervailing trends are apparent. Women are no longer surging into the workforce, white-collar productivity improvements have flattened, immigration levels are stable and executives aren’t prolonging their careers. This would be challenge enough, but the numbers tell only half the story.

Large companies also face three qualitative challenges in the war for top talent. First, a more complex economy demands more sophisticated talent with global acumen, multicultural fluency, technological literacy, entrepreneurial skills, and the ability to manage increasingly delayered, disaggregated organizations.

Second, the emergence of efficient capital markets in the United States has enabled the rise of many small- and medium-sized companies that increasingly are targeting the same people sought by large companies. Small companies exert a powerful pull across the whole executive spectrum, offering opportunities for impact and wealth that few large firms can match. As Julian Kaufman, director of human resources at Morristown, New Jersey-based Allied Signal Inc. explained, “We’re competing with start-ups, not General Electric. We’re not getting access to a whole raft of talent.”

Third, and not surprisingly given the above, job mobility is increasing. Ten years ago, a high performer might have changed employers just once or twice in a full career.

According to 50 senior executive search professionals we surveyed, the average executive today will work in five companies; in another 10 years, it might be seven. A war once conducted as a sequence of set-piece recruiting battles is transforming itself into an endless series of skirmishes as companies find their best people, and in particular, their future senior executives, under constant attack.

All companies are vulnerable to losing the war for talent.
Our research suggests that executive talent has been the most undermanaged corporate asset for the past two decades. Companies that manage their physical and financial assets with rigor and sophistication haven’t made their people a priority in the same way.

Only 23 percent of some 6,000 executives surveyed strongly agree their companies attract highly talented people, and just 10 percent strongly agreed that they retain almost all their high performers. Perhaps more alarmingly, only 16 percent think their companies even know who their high performers are. And only 3 percent say their companies develop people effectively and move low performers out quickly.

However, companies skilled at attracting, developing and retaining talented senior executives do exist. Of 20 cases that we studied, seven appear to have thrived largely because of a strong performance ethic. Nine had combined strong corporate aspirations with rapid growth, as well as wealth accumulation and attractive jobs for employees -- the employee value proposition, or EVP.

But many of these companies whose talent succeeds hadn’t managed talent particularly consciously until they began to see problems emerging on the talent front. And even now, they face important talent-building challenges.

Make talent management a burning priority.
Superior talent will be tomorrow’s prime source of competitive advantage. Any company seeking to exploit it must instill a talent mindset throughout the organization, starting at the top.

Leaders with a talent mindset share Allied Signal CEO Larry Bossidy’s conviction that “At the end of the day, we bet on people, not strategies.” They understand why, when a senior GE executive met with The Home Depot, based in Atlanta, to share what’s distinctive about General Electric’s approach to managing growth, he took two human resources executives with him. They believe building their bench is a crucial part of their job. “If it’s the most important thing,” says Dick Vague, CEO of First USA Inc., a Wilmington, Delaware-based banking organization, “your calendar reflects it. I’ve been personally involved in hiring everyone in the top management group, and many three or four levels below that.”

Leaders put in place a gold standard for talent, and act on it. The leadership group, whether CEO, COO or executive committee, should be directly responsible for applying the standard to the top 200 to 500 executives. At medical-devices company Medtronic Inc., based in Minneapolis, over the past seven years, CEO Bill George says he has upgraded the talent pool of the firm’s top 300 people. “At present, 25 percent come from the outside. Some people left because they could not meet the new bar,” he says. Similarly, when Atlanta-based SunTrust’s banking units needed more people to expand the business in large markets, “We assessed our top 120 line of business managers [and found] about 15 percent were underleveraged and about a third were over their heads. We’ve moved on more than half of those [who were] over their heads,” one executive from SunTrust noted. Once united by a talent mindset, the leadership group must foster the right talent-building behavior by holding regular discussions to review the performance of executives at every level. Because they’re the backbone of a company’s talent effort, these reviews must be candid, probing and action-oriented, and they must link talent to strategy. They also must set high standards, ensure that performance is assessed fairly, and act as a vehicle for fostering personal development. Ultimately, they should improve the quality of decisions about staffing.

To support the talent-building challenge, the role of human resources should be redefined. More than process managers, HR executives need to be effective, proactive counselors with personal and business credibility and strong relationships with business units.

Human resources executives at half of the top-quintile companies in the study strongly agreed that the statement: “Discussions in our meetings are frank and open, and everyone contributes actively,” reflected the behavior at their own company, whereas only 17 percent of HR executives at mid-quintile companies strongly agreed. At The Home Depot, the ethos is: “Say what you think in the room, not after the meeting.”

Companies must insist that their line managers are accountable for talent. At St. Louis-based Monsanto Life Sciences Co., half a senior executive’s bonus is based on his or her people management skills. At First USA, the ability to recruit talented new people is understood to be a criterion for promotion. Although 78 percent of corporate officers questioned in our survey agree that companies should hold their line managers accountable for the quality of their people, only 7 percent believe their companies actually do so. This was perhaps our most shocking finding. It seems that many line managers aren’t accountable for the quality of their staff. Clearly, things must change.

To support the talent-building challenge, the role of human resources should be redefined and its capabilities strengthened. More than process managers, HR executives need to be effective, proactive counselors with personal and business credibility and strong relationships with business units. The need for such a dynamic profile is fast becoming conventional wisdom (78 percent of corporate officers agree HR should be a partner in efforts to build a stronger talent pool), but it’s more honored in the breach than the observance (only 27 percent of corporate officers strongly agree that HR plays this role at present).

When all of these elements are in place, managers can take risks and deploy innovative solutions in the quest for talent. They can hire 650 military officers over two years, as GE did, or replace half their 400 manufacturing managers, like Allied Signal.

Create a winning employee value proposition.
Companies with superior employee value propositions have a compelling answer to the question, “Why would a talented person want to work here?” A store manager at The Home Depot told us, “This is my $50 million business; I can double it or run it into the ground. Where else could I get that independence and challenge at age 33?”

In our survey in terms of shareholder value, the top-quintile companies outperform mid-quintile companies in 13 of 19 employee value proposition dimensions we measured, and at par on the other six.

This stronger employee value proposition translates into a stronger pull on talent: 83 percent of top-quintile HR executives say their job offers are rarely turned down compared with 60 percent for mid-quintile executives, and 88 percent of top-quintile executives say they seldom lose top performers to other companies as against 73 percent of mid-quintile executives.

Creating a winning employee value proposition means tailoring a company’s “brand” and “products” -- the jobs it has to offer -- to appeal to the specific people it wants to find and keep. It also means paying what it takes to attract and retain strong performers, the “price”.

A company’s “brand” is the face it presents to the world. At its heart must be an appealing culture and inspiring values -- qualities that apply to every activity and function within the company, and to every aspect of its behavior.

If we carry our analogy with marketing a step further, the executive talent pool can be segmented into four groups. All care deeply about culture, values and autonomy, but each differs in what it looks for in a company:

  • “Go with a winner” executives seek growth and advancement in a highly successful company: they’re less concerned with its mission and location. This cluster most closely mirrors the overall top 200 population.
  • “Big risk, big reward” executives value compensation and career advancement over their company’s success or its active role in their personal development.
  • “Save the world” executives demand an inspiring mission and exciting challenges, and care less about compensation and personal development.
  • “Lifestyle” executives are more interested in flexibility with respect to lifestyle choices, geographic location and compatibility with the boss than in company growth and excitement.
We found that successful organizations tend to have a dominant talent segment, while their weaker peers have a bit of everything. But no company can be all things to all people. Ideally, a company should simply figure out who it’s aiming for, and make sure its brand is tailored to the talent segment it seeks to attract.

However, no brand can be transformed overnight. It’s an enormous task, and one that’s to be undertaken only in the most extreme situations, even though the excitement generated by a turnaround can itself be a powerful component of a new employee value proposition. Chairman and CEO Arthur C. Martinez’s commitment to shaking up Chicago-based Sears Roebuck and Co., for example, transformed perhaps the United States’ most traditional retailer into “a compelling place for employees, customers and investors.”

What a company can and should consider changing immediately are the products it offers workers: its jobs. If a company succeeds in attracting a target executive group with great jobs, the brand should take care of itself as the changing mix of employees reinforces the values the company is seeking to build.

So what is a great job? We see some half-dozen attributes: “elbow room” to allow executives room to maneuver, “head room” to allow them to make decisions without seeking constant approval from above, a clear link between daily activities and business results (even if not a profit and loss statement), a position that doesn’t defeat yet is something an executive can “get their arms around,” something new to work on as often as possible, and great colleagues, above, around and below.

If this seems too much to think about, companies might adopt First USA’s Vague’s rule of thumb: “I aspire to create an enterprise where everyone’s job consists of at least 80 percent of things they love doing.”

And naturally, there’s the question of money. As Jude Rich, chairman of HR consulting firm Sibson puts it, “Highly competitive compensation -- particularly long-term wealth accumulation -- is an essential ticket to the game of attracting and retaining top talent. Companies that can distinguish truly great talent and have opened the vault find the return on their investment is terrific.”

Many companies fear that deep differences in pay will create cultural problems, but the issue is too important to ignore. Money alone can’t make a great employee value proposition, but it can certainly break one. To get the people they want, 39 percent of top-quintile companies pay whatever it takes, compared to 26 percent of their mid-quintile counterparts. Once they’re on board, faster career progression is the most effective way to put individual high performers on a different compensation trajectory without disrupting overall pay structures.

Making sure top performers’ compensation is considerably higher than that of their average colleagues’ is a relatively straightforward way to keep the exit price high and raise barriers to poaching. When a senior manager at GE was told a division was going to give its highest performers a 10 percent salary increase and its average performers 5 percent, he said, “Ten percent? That’s not nearly aggressive enough! Go for 15 percent, 20 percent or 30 percent!”

The ability to define, develop and deliver a superior employee value proposition will be especially critical for large companies facing the small company challenge. Small companies offer employees a chance to satisfy their desire for meaning, excitement, flexibility, impact and reward. They may also offer equity ownership in a business small enough that a few talented executives can drive the stock price.

Many companies fear that deep differences in pay will create cultural problems, but the Issue is too important to ignore. Money alone can’t make a great employee value proposition, but it can certainly break one.

But large companies shouldn’t be too defensive. They possess natural advantages of their own, such as magnitude of impact (be a big fish in a big pool), depth (the resources to take risks, particularly with people), capital (the resources to support big decisions), and variety (a range of experiences over the course of a career). They can also make themselves feel smaller in a number of ways -- by creating smaller, more autonomous units, improving mentoring, differentiating pay, and so on.

Now is the time to start developing talent.
Establishing the right mindset, crafting a powerful employee value proposition, sourcing, developing, and retaining talent all makes for an enormous challenge. Companies start from many different positions and vary widely in the strength of their existing bench.

Some have powerful, sustainable employee value propositions, while some can’t even articulate why a talented person should join their organization. Some companies have a talent-building process but no follow-through, while others have no process at all.

There are also different ways of getting going. A company undergoing a turnaround will have to bring in top talent fast to bring about a transformation in its employee value proposition. Companies in less dire straits can work more gradually on refining recruitment, employee value proposition, development and compensation simultaneously.

The key is to start now. The coming war for talent may seem like a crisis, but like any crisis, it’s also an opportunity to seize -- or squander.

Workforce, December 1998, Vol. 77, No. 12, pp. 50-56.