United States

The need for qualified personnel—and the challenge of attracting them

Tight labor market compels middle market to find innovative incentives

INSIGHT ARTICLE  | 

Sustained levels of low unemployment, increased competition for talent and high employee turnover are creating headwinds for U.S. companies seeking to augment their workforce. Middle market businesses, however, have clear opportunities to offer more nontraditional incentives to attract and retain a new generation of employees and, when appropriate, to look into technology or outsourcing to solve unmet staffing needs and augment their current labor force. According to a recent RSM US Middle Market Business Index survey, most midsize companies have yet to significantly engage on either front. Middle market businesses are offering enhanced benefit packages and making other improvements to traditional incentives—all positive steps—but these are likely not enough to cultivate and sustain a cutting-edge workforce of the future. These businesses have also shown a reluctance to invest in technologies that could help make their existing workforce more efficient.

The MMBI survey, conducted in April 2019, gathered the perspectives of more than 400 senior executives in nonfinancial companies and non-profits with revenues ranging from $10 million to $1 billion, and financial companies with assets under management of $250 million to $10 billion. The survey found that, although the types of jobs these companies sought to staff differed, companies both large and small were having difficulty attracting and retaining talent. Moreover, many companies are not engaging in aggressive hiring and instead are investing in new skills training, increasing compensation and improving business processes. Only about one-quarter plan to outsource some functions or capabilities.

A need for willing and available workers

Jobless claims remain near a 50-year low, and the number of employed adults is at an all-time high. “This should be good news and, for many households, it is,” notes Joseph Brusuelas, chief economist at RSM US LLP. “But for the middle market, these historic numbers are creating significant growth challenges affecting everything from holiday hiring on the retail side to commercial and residential housing construction, transportation, manufacturing and professional services.”

"This should be good news and, for many households, it is," notes Joseph Brusuelas, chief economist at RSM US LLP. "But for the middle market, these historic numbers are creating significant growth challenges."

In the last year, nearly two-thirds of middle market companies had significant or moderate hiring needs. Just over half of the executives participating in the survey said that filling open staffing positions was extremely or very challenging.

The types of jobs being filled varied, depending on the size of the organization. For more than half of middle market companies, administrative, clerical or general office positions were the primary roles needing staffing, followed by sales, marketing and business development. Larger middle market companies (those with revenues between $50 million and $1 billion), on the other hand, were most intent on staffing information and communications technology roles.

The search for candidates

One of the foundational challenges of hiring new employees is, of course, locating them. More than three-quarters of organizations that are hiring staff (79%) have difficulty simply finding qualified workers. In such a tight labor market, many are competing with other employers in their area (74%) or in their industry (67%).

In a reversal of fortune from the Great Recession, employees are finding the possibilities offered by so many open roles are creating a buyer’s market. Not surprisingly, given the opportunities and the competition for talent, employee turnover has become a challenge for eight out of 10 companies. Turnover is particularly pronounced in sales, marketing and business development roles among larger middle market companies.

Some roles have been more difficult to fill than others. Among organizations staffing positions over the last 12 months, just over two-thirds (67%) of those staffing line production, manufacturing or assembly positions indicated major or moderate shortages in the availability of qualified workers. Shortages among administrative, clerical or general office roles and among executive or C-suite management roles were experienced by about one-third of middle market companies.

Among large and small middle market companies, there are also differences in the types of positions being filled. In general, larger companies sought to fill management and operations roles, while smaller companies were filling more production-oriented jobs. For example, smaller organizations mentioned staffing line production, manufacturing and assembly jobs more often than larger organizations (43% and 27%, respectively). Larger organizations, on the other hand, mentioned staffing information or communications technology roles more than smaller organizations (58% and 23%, respectively).

The challenge to attract and retain

Increasing compensation was among the most popular incentives among employers (59%), especially at smaller companies. Yet this traditional incentive may not be as compelling as it once was. “In recent years, hourly wage growth is once again moving higher,” says Brusuelas, yet growth rates for hourly wages were at historically low levels.

Because traditional incentives such as increased compensation and health plans are ubiquitous, it can be difficult to stand out among those competing for the same talent pool. Few organizations are offering benefits with value to every cohort; incentives valued by potential employees will differ, depending on the generation. The growing ranks of millennial workers, for example, demand a more flexible workplace where the lines between work and lifestyle blur. Despite this, few middle market companies polled said they are providing the nontraditional incentives millennials crave, such as free Wi-Fi, flexible work hours, tuition reimbursement—even morning yoga sessions. These types of perks are offered by less than half—and as little as one-third—of the middle market.

Traditional incentives are ubiquitous, and it can be difficult to stand out among those competing for the same talent pool.

And while most baby boomers and Gen Xers might see the inherent advantages of retirement plans and health care benefits, significantly fewer millennials value these incentives, according to the job search site Flexjobs.

Nevertheless, most middle market companies (84%) offer health care benefits and retirement programs. Nearly three-quarters are actively taking steps to make their organization’s culture and work environment more attractive and appealing to prospective hires. Most prevalent among employers is investing in new skills training (65%). Enhanced employee communication—in the form of newsletters, websites and satisfaction surveys—was also popular. Many offered employees the opportunity to have input on how the work is done (63%).

To vie for talent, 71% of companies have implemented formal or informal programs for monitoring and enhancing the organization’s online presence; this is particularly true among larger companies. “The main thing is a much stronger presence on social media,” said one participant, a perspective echoed by others, to promote the company culture and appeal to future employees.

Closing the workforce gap

While it may seem intuitive to outsource some operations and invest in technology to close a workforce gap, few companies are doing either. Only about one-third or fewer middle market companies outsourced some functions or capabilities in the last 12 months due to staffing challenges, with sales and marketing and customer service roles among the most commonly outsourced.

When it comes to business-level decisions on capital expenditures, these companies take a somewhat restrained approach. “Middle market firms retain significant reservations about making substantial investments in the software, equipment and intellectual property necessary to keep up with the integration of technology,” says Brusuelas. Notably, 85% of middle market companies made investments in technology primarily for efficiency, and not labor replacement, as well as to appeal to younger candidates and employees. “In an environment where qualified labor is becoming scarcer and more expensive, now appears to be an ideal time to make technology investments,” notes Brusuelas.

Despite the challenges, 47% of survey participants said they added jobs in the past 12 month, and 54% indicated they would consider doing so during the remainder of the year.  

Notably, investments in technology were made primarily for efficiency, and not labor replacement, as well as to appeal to younger candidates and employees. 

Ultimately, the ability to attract and retain a skilled workforce will depend on management’s willingness to strike a balance between the incentives they offer and those potential employees value. That requires a robust exploration of opportunities or, as one survey participant succinctly put it, “trying new things.” The future of middle market businesses may depend on it.

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