Global Employment Strategies & Practices
Numerous reports from Accenture, Staffing Industry Analysts, The Economist, Deloitte etc… suggest that the current ratio of independent workers to salaried employees Is 33% domestically with expectations that number will reach nearly 50% by the year 2020. Organizationally the workforce mix varies and the percentage of independent workers most commonly ranges from 24-36%, with some outliers as low as 11% and as high as 53%.
There is extensive debate about the ‘ideal ratio’ or ‘workforce mix’, but the reality is that it depends. The ideal ratio of independent workers to salaried employees could and should depending upon an organizations by skill and location as well as their objectives and priorities. Increased focus on flexibility, and the need to ramp up or down in support of market conditions and client requirements will, in many markets yield itself towards higher ratios of contracted labor. Similarly when focused on cost efficiency, the country and organization is hiring in may or may not be more advantageous to engage contractors as opposed to salaried employees.
In order to ensure that maximum value is derived from an organizations workforce mix, the benefit analysis should be conducted at the country level in each market so that an assessment of regulatory, compensation, and competitive can be completed to determine which contractual model is best suited for the organization in that country.
The utilization of resources such as the Global Workforce Index, which provides a side by side comparison of the talent availability, labor cost components, related regulations, and productivity measures across 75 countries for both salaried and contracted workers is one way to conduct this comparison in a centralized way across a global organization. Additional insight into the Contingent Workforce Index can yield further details about country level considerations and is found here.
There are multitudes of sourcing models that are being leveraged to augment corporate talent acquisitions efforts globally. Among the most popular are direct staffing solutions, managed services providers, recruitment process outsourcing, leased labor, statement of work engagements, and outsourcing agreements. Then there are additional considerations among those models relates to vendor neutrality, diversity inclusion, performance rankings and newer options such as crowd sourcing or talent pools.
Staffing Industry Analysts and HRO Today report increased utilization of both MSP and RPO programs in particular, but it is important to note that solutions are being blended more often than they have in the past.
Among MSPs for example, only 82% of spend is contingent, while 17% and 1% are SOW and Outsourced spend respectively. Further, within that managed spend, vendor neutral and hybrid sourcing strategies have increased to 56% and 16% respectively while master vendor spend has decreased to 25% as of 2015.
Traditional staffing solutions remain the foundation of most external workforce strategies, however the globalization of hiring and competition coupled with increased regulation and escalating costs has increased the opportunity and value proposition of both MSP and RPO programs to provide objective and comprehensive oversight and analysis of hiring needs and performance. Just as prevalent is the use of SOW and outsourced projects to ‘hide’ headcount or spend and manage project based or localized cost controls.
Recently, the use of crowdsourcing and talent pools has emerged as an innovative way to enhance sourcing capabilities and tap into younger workers who are engaged through social and other medias more directly than through the traditional professional networking methods. Though these sourcing options currently represent less than 3% of all sourcing investments, they are gaining traction among employment leaders and global organizations as a means to tap into candidate pools that are increasingly difficult to source talent out of.
Best practice, though still not commonly applied, is thought to be the integration of these sourcing innovations into more established and cohesive workforce programs such as RPO and MSP where they can serve as enhanced vendors or alternate sourcing options based on tiered vendor management or prioritized requisitions. This is most often enabled with the technical integration of vendor management systems or bespoke HRIS platforms that can link to systems of record for sourcing and reporting optimization/alignment.
Outsourcing programs are also a substantial component of current sourcing initiatives, however recent studies suggest that employers have become less diligent in prioritizing and evaluating the hiring requirements against productivity measures and cost considerations as it relates to the allocation of outsourced spend. When outsourcing critical technology projects or functions within certain markets, best practices are to first audit vendors and ensure that appropriate headcount and retention requirements are being adhered to and then to validate that each outsourcing vendor is in full compliance with local regulations as it relates to:
- Statutory Burdens
- On/Offboarding requirements
- Data Privacy and Reporting Guidelines
- Social Benefits and Local Engagement Mandates
While outsourcing affords an added measure of risk mitigation in matters of co-employment, IBM is still in a position where it can be named an obligator if vendors are not compliant with local labor laws in most countries. As such, the utilization of outsourcing engagements should be determined by the critical nature of the work, the availability of the talent, and the relative cost of labor depending on the labor classification.
The value of employer branding varies substantially from a direct hire, direct staffing, RPO, or MSP model perspective, but once a candidate is selected, hired, and onboarded – the brand matters regardless. Not in the sense of talent attraction, but as it relates to retention. Concepts highlighted throughout this paper should be considered relevant, including, but not limited to:
- Job Taxonomy – alignment of workers responsibilities to those outlined in the hiring process
- Performance Management – observed and realized movement related to workers that creates actual opportunity or eliminates the perception of opportunity
- Competitive Wages – Gap analysis of the delta between ‘what can be paid’ vs ‘what should be paid’ suggests that paying as little as 10% less than top wage for in-demand skills can actually cost 23-25% more in time-to-fill and turnover costs in the course of a year
Actual engagement models for salaried, contracted, and outsourced workers need to fall within certain legal parameters, but should also be adjusted for organizational culture and perception. Particular attention should be paid to communications related to other opportunities within the organization, comparative positions within the business, and project based work distinction.
Regardless of an organizations workforce mix, there is an emerging trend to establish and manage collaboration across the business to achieve Total Talent Management. The traditional approach of having Human Resources manage talent acquisitions while procurement and operations oversaw contingent and outsourced labor is no longer an effective workforce strategy. Leading companies are investing in building integrated hiring processes which can range from a minimum of ‘establishing a joint task force’ to cutting edge strategies that involve joint capacity planning and workforce mapping.
Performance Management & Retention
Performance management is under fire across the market today. The archaic and ineffective practice of annual surveys for salaried workers and the lack of evaluation applied to contracted and outsourced workers results in incomplete and inaccurate data that cannot achieve the objective of managing based on performance.
Numerous suggestions and alternatives are being proposed and explored up to and including the use of business intelligence as the baseline for all performance based analysis.
Rather than aggregating input that is generated by individuals, technological advances now offer the means to aggregate outcomes-based data that can be tied to workers and used to quantify the performance of individuals and their impact on revenue etc…
Dependent upon the function or business, the specific metrics may be defined or measured differently, but the moderation or, in some cases, the elimination of the human component is driving efficiency and resulting in higher levels of engagement and performance due to the elimination of cumbersome and ineffectual practices.
Perhaps more interesting with this trend, is the potential for outcomes-based evaluation to allow for the assessment of both salaried and contracted workers for a comprehensive view into workforce performance that can facilitate decisions related to movement, downsizing, and planning.
In addition to engagement-based retention challenges is the matter of conversion. Global employers are reporting decreased success in converting contractors to salaried workers, with every indication being that trying to convert those workers to the same title within the organization often means little to no synergy between the two roles and vast compensation gaps which prohibit many conversion offers from being seriously considered.
Although wages are the largest component of total labor costs, they rarely represent the majority of those costs, which can make it counterproductive to over exert pressure to drive down compensation below competitive levels.
In the current state of candidate driven markets, talent shortages and increased workforce burdens; employers are making an effort to lower labor costs while still attracting quality candidates. Unfortunately, focusing on lower salaries and hourly wages as a cost saving strategy, often has a negative impact and results in lower candidate quality while driving more qualified candidates to competing organizations.
The bottom line is that lowering wages unnecessarily can negatively impact the following:
- Time to Fill
- Quality of Candidates
- Number of Submissions
- Competitive Advantage
Best practices in compensation management are:
- Engage in regular, formal, and systematic review of salaries and pay rates to make sure they reflect pricing levels attractive to candidates. If not, sourcing challenges and turnover can be impacted negatively. Review rate cards and salary levels annually. Even if no change is made, the analysis will verify that compensation levels remain relevant. When facing periods of change in the labor market or overall economy, these reviews should take place at least semiannually or the first sign of declining quality.
- Confirm that job titles and―more importantly―job descriptions represent the work performed. Continually collect job function data and associate it with the appropriate job title and therefore, compensation levels. This review not only ensures competitive compensation, but will support the establishment and maintenance of alignment between employees and contingent workers to improve conversion rates.
Beyond the wages, benefits warrant separate consideration. With the spread of parity regulations globally, there is need for rigorous evaluation of ‘required’ vs ‘competitive’ benefits packages.
Take Mexico for example, although benefit parity is ‘required’, that only relates to shift differentials, insurance, and leave. However, meeting the legal minimums for benefits does not result in competitive offers in the local market. Depending on the roles workers are being recruited for, they may expect meal allowances, transportation vouchers, grocery coupons, child care provisions, laundry services or other supplementary benefits. None of these added perks are required, but without some variation of them, it can be difficult to attract and retain certain pockets of talent in some Mexican cities.
With both compensation and benefits, it is no longer an effective strategy to evaluate ‘what worked for us last year’ or to do a generic market assessment, it is now imperative to benchmark against select competitors or other organizations to determine how to position your organization against the market and attract the necessary talent.
Digital Tools & Sourcing Innovation
Individual employers are taking varied approaches to the digitization of their sourcing and hiring process. Depending on the level of technical innovation within their business, their internal systems, and their processes these efforts can range from automated reporting all the way through automated sourcing mechanisms. Bespoke solutions and technological development of recruitment tool that take over when applicant tracking systems and vendor management systems leave off is one level of investment.
More common, is the selection and adoption of crowdsourced recruiting access and talent pools within their workforce programs. Through these investments there are a number of options to increase the automation of the hiring process:
Beyond technical innovation in sourcing through digital tools and talent pools, organizations have also begun to explore collaborative sourcing, particularly as it relates to their competitors and partners. In controlled circumstances, and with the right strategic objectives and oversight, this approach has yielded tremendous success for a number of organizations seeking to address the talent gaps they face with aggressive sourcing strategies. Additional information on competitive sourcing collaboration can be found here.