Commentary: After the Jobless Recovery, a War for Talent

For two years, economists have looked at new unemployment applications with increasing alarm. But for managers on the corporate front lines, the real cause for concern in coming months could be a different population of job-seekers: the gainfully employed. With unemployment at its highest point in nearly a decade, workers lucky enough to avoid layoffs have had little opportunity to jump ship. That will change as the economy picks up. Companies will have to begin hiring if growing demand overwhelms the productivity gains that have allowed them to churn out more goods with fewer workers.

Experts predict that annual voluntary turnover could rise to 20% or more for white-collar workers, as companies bid for top talent and star employees start heading for the exits. For employers, "it's going to be quite traumatic," says Ed Jensen, a partner in the human performance practice at Accenture (ACN ) Ltd.

It has been three long years of doubled-up workloads, minuscule raises, and ungrateful bosses -- and American workers are fed up. In the late 1990s, when even modest performers could drum up multiple job offers, such treatment would have led to a mass exodus. Today, it has many workers quietly updating their résumés and biding their time. After three rounds of layoffs in three years at her magazine, one New York editor says she's now pulling all-nighters every other week. With an out-of-work husband, she can't afford to quit, but she'll depart as soon as hiring picks up. "You feel grateful for having a job, but because of downsizing I'm doing two other people's jobs," she says. "It has just been hugely stressful."

How many people are in the same boat? Sibson Consulting says one out of six is ready to bolt. Walker Information says its survey of 2,400 employees found that 34% were at high risk for departure. And Accenture says half of all U.S. middle managers are actively looking for new jobs or will be soon. The bottom line: After years of cracking the whip, employers who want to win the coming war for talent need to start giving their troops a compelling reason to stay.

None of this should come as a surprise. As a yearlong jobless recovery that followed the 1990-91 recession gave way to vigorous job growth in 1992, voluntary departures surged. This time around, the battle for talent could be fiercer. The current recovery's jobless stage is both more severe and nearly twice as long as in the early '90s -- and it's not over yet. The result: large numbers of employees who feel trapped in their jobs and who have no qualms about leaving. Says Frederick F. Reichheld, a Bain & Co. loyalty expert: "They're very susceptible to an offer they can't refuse."

Most susceptible of all are the people companies can least afford to lose. With budgets stretched to the limit, there are fewer rewards to go around. In 2003, pay raises for salaried employees have averaged 3.4%, down from 3.6% in 2002 and 4.3% in 2000 and 2001, says Hewitt Associates LLC. Compounding the problem, many outfits are offering the same raises to stars and laggards alike, and top performers feel underappreciated. In a recent survey of 1,100 employees, Sibson found the best workers had the worst attitudes and were more likely to be planning a job search.

For companies left in the lurch by mass defections, it's not just a question of temporary inconvenience. Replacement costs for professional employees can be staggering -- 18 months pay, according to Hay Group, not including lost sales and productivity.

To avoid that fate, businesses need to get moving -- now. Managers need to do a better job of differentiating stars from underachievers. Well-structured incentive pay, such as stock or options tied to specific performance goals, can help. But even that will do little to motivate employees if the job feels like a dead end. Managers should be looking for ways to give star players more responsibility, greater autonomy, and a clear shot at advancement. After all, the best time to talk your most valuable players into sticking with the team is before they've begun scouting opportunities with competitors.

By Louis Lavelle

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