June 10, 2021
TPL Insights: Building Peak-Performance Cultures #71 – Preempt the Coming Wave of Talent Poaching
With paraphrased content from Dan Bigman’s article in Chief Executive CEO Briefings June 4, 2021
It’s about to get uglier in the war for talent. Follow these four steps to get ready—so you’re not on the losing side of the battle.
I have long been a fan of Ram Charan. He wrote a Harvard Business Review article in October of 2018 on what brilliantly performing boards do in the CEO selection process that unperforming boards don’t. I read Dan Bigman’s interview of Ram in the June 4th edition of Chief Executive CEO Briefing and decided it had to be shared with my readers. Here are Ram’s words:
Most companies are gearing up for exponential growth after Covid, but a harsh reality could destroy their plans. The breakneck speed of economic recovery and the emergence of SPACs have unleashed a severe talent shortage and a poaching frenzy that could rob you of the talent you are counting on to grow. My daily contact with business leaders across the globe shows that no company has all the talent it needs internally, and every company is vulnerable to losing the talent they have. Competing for talent is a necessity, and it is not a level playing field.
Businesses owned by PE firms and SPACs are snatching talent by offering huge upsides tied to increases in market capitalization. Now some specialized headhunters are also upping the stakes by investing in companies they conduct searches for, thus benefitting from equity increases, not just fees, when they dedicate themselves to recruiting the right talent—perhaps from your company!
In fact, the more successful you are, the more likely you will become a target of talent poaching. Business Insider reported that between January 2020 and April this year, Amazon lost some 10% of its VPs and above, and its finance executives are in high demand.
A headhunter may see your company as a source of talent for multiple clients. Or another company may simply see your key person as the best fit for their needs. Losing one key person may mean losing many more if the person takes his or her team along, as is common in financial services firms. It has happened with marketing and sales teams and in the semiconductor industry.
You must be preemptive in acquiring and protecting talent, meaning that you have to anticipate and act now. Who in your company might be targeted? What gaps do you need to fill? Where will shortages intensify? It’s not enough to guard against the poachers. You must overcome your hesitation to do some poaching of your own. Here are some specific actions that will help.
Identify Your Critical Talent
Being preemptive means knowing who is central to your company’s value creation and preventing them from becoming susceptible to outside offers. It may mean breaking conventional HR practices to promote someone two levels or to double their compensation.
Segment your talent by thinking about skills and the market cap they could create in the future. Those who are critical to the company’s digital transformation, and in particular its money-making model, is one clear segment. A second segment is those who use social media to enhance your brand and target customers. A third is leaders of technical experts in a team-based structure. The need for organizational agility is pushing companies to organize work into teams, as Fidelity Personal Investing did. Every cross-functional team needs a leader. Talent shortages are likely in each of these segments, and you may have others.
Identify important individuals too. Steve Jobs recognized the outsize role designer Jonathan Ive played at Apple. Similarly, Mehmood Khan, an endocrinologist whom then PepsiCo CEO Indra Nooyi recruited to a newly created role of chief scientific officer, was key to making the Pepsi more health oriented. One biotech company I work with put extra effort into retaining a PhD who was a magnet for other researchers. His diverse pool of scientists were at the heart of the discovery that investors were banking on.
As you consider the value of segments and individuals, ask: What is the trajectory of revenues these people will help generate or costs they will save, and how will that translate into market capitalization? A great talent creates enormous value compared with those who are mediocre. In some cases, losing even one team member can disrupt the development of a high-revenue-generating product and put the company at a devastating competitive disadvantage. Think too about what value the person or team could create for a competitor that poaches them.
Be sure your OKRs and financial incentives are appropriate, especially in relation to the market value the person will create. But monetary rewards are often not the break point. People want to be in an environment where they can grow and be recognized.
Chemistry with the boss is a top concern for many people, or being listened to, or opportunities for personal learning. Bill Conaty, the long-time head of talent at GE, says he and former CEO Jack Welch never tried to match an offer dollar for dollar when a high-potential person was at risk of leaving. They focused on how bright the person’s future career would be if they stayed.
Take a risk on people who have high potential by giving them a much broader scope sooner. It not only creates excitement for the person, but also shows others they don’t have to leave to progress. Worry less about fairness. If you think you have to change compensation plans, assignments, or company practices to keep key talent, don’t hesitate to do it.
Move Quickly on the Outside Talent Your Future Depends On
If you are expecting fast growth and/or the loss of talent, and especially if your growth is based on new kinds of expertise, you need to move fast. Put scouting and recruiting in high gear. Keep the faith that even in a time of talent scarcity, the talent exists somewhere on the planet, and don’t think of poaching as a dirty word. Where expertise is scarce, as it is in artificial intelligence and machine learning, go after people with that highest level of expertise. Moving ahead of peers will help. I know of one digital consulting firm that is trying to preempt others by moving on its plan to recruit 10,000 people in the coming years.
Acquiring talent should get as much time and attention as acquiring customers. The CEO and CHRO should put a laser light on the recruiting function to be sure its methodology, activities, and judgments are up to par. The acid test of any recruiting effort is whether it brings the caliber of talent the company needs.
That scrutiny should extend to headhunters. You will likely need an ecosystem for recruiting talent. If you already use search firms, you may have to change how you work with them. Look for someone you can have a long-term relationship with, who will understand your issues and build a list of talent ahead of specific needs. If your company is sufficiently large, headhunters might even take an office on your site. You should clarify whether poaching from you is fair game, and be prepared to switch firms if results don’t materialize. I know of some recent cases where the agreed upon fees were negotiated down because the client was so disappointed.
Elevate recruiting for key positions by having whoever is in charge interact regularly with the executive team, not buried in the HR hierarchy. That person should have a written strategy for pursuing top talent and be expert in tailoring KPIs, compensation, assignments, and reporting relationships. Recruiting metrics should be on a dashboard monitored by the CEO and maybe the board. And keep the CFO in the loop so the funding is there.
It helps to make talent scouting continuous. Anish Batlaw, an operating partner and head of human capital at private equity firm General Atlantic, keeps a reserve of high performers around the world and gets to know people far ahead of a particular job opening. A large part of his job is to help identify the talent needs of the companies GA invests in. When the organizational diagnosis is done, GA has a go-to list of excellent people to pursue.
Speed matters, so be prepared to move from first interview to closure quickly when you’re hiring from outside. And overcome the psychological hurdle: Will this person have our values? While a deep dive on people before recruiting helps, assimilation is also important. You can’t just say “people from outside have not worked out before.”
Offset Higher People Costs
Count on rising costs for talent and prepare to offset the increase. If you simply absorb it, you could become uncompetitive. Higher productivity will help you, but most of the return on talent will take other forms. Link the anticipated cost increase to outcomes in product development, pricing, marketing, and even the portfolio mix.
If your talent is running strong, you should be able to increase pricing, perhaps selectively, because you will be creating something of greater value. You should be innovating more, or creating a better, higher-margin mix of products. Recruiting talent to apply digital technology to various parts of the business will lead to things like higher inventory turns and operational efficiencies, that will reduce costs and improve cash generation.
Be Ready to Fight—and to Concede
If talent has been high on your agenda, you’ll know when someone’s threatened departure creates a critical hole in your business. You can’t prevent other companies from coming after you. Anti-poaching agreements are illegal; indeed, Apple was once fined $10 million for such a pact.
Of course, you should fight for your talent, but you must also know when to give up. There will be a point at which you let talent go, because you just can’t afford to double or triple salaries, or it’s just not worth it in terms of value creation potential.
Prepare for the loss emotionally. Live with it and keep the door open. In the old days people who left a company were considered disloyal. There was a stigma associated with it. But there are situations where people left, then wanted to come back because they liked the old environment better. Keep contact with your people after they leave you and periodically test the waters.
As a livelong learner, operator and advisor to boards and CEOs, I ask you: Are you ready for the impending war on talent? Is your culture one of peak performance that attracts, engages, and retains top talent? Is your employment brand as strong as it should be? Are your training and development opportunities exciting and innovative? Are you proactive in your search for top talent? Let’s have a conversation.
Consultants in Retained Search & Leadership Advisory