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WHITE PAPER: TALENT – DEMAND AND SCARCITY

by McDermott + Bull | Nov 10, 2021 | Brandon Biegenzahn, Financial Services
Articles, White Paper


THE DEMAND FOR TALENT

To state the obvious, the pandemic has brought about tremendous change across
the global landscape. The most glaring impact in my world, brokering in
executive level talent in financial services, has been the massive demand for
talent, and the scarcity of that talent.

Across nearly all industries, other than retail and hospitality, the demand for
talent at all levels of the organizational chart is at a record high. We are
seeing this at McDermott + Bull, and a quick glance at the earnings reports of
our publicly traded executive search competitors reveals the same. We are also
hearing similar reports from the recruiting firms that play below the executive
level. As an aside, it is striking that in the financial services space, demand
for executive level talent did not wane in 2020. Instead, it surged. I believe
that the Paycheck Protection Program (PPP) and the Unemployment Stimulus drove
much of this, as commercial and consumer financial services firms got shots in
the arm (pun intended) from the government (pun not intended, and neither is any
specific political leaning, just a factual statement regarding fiscal
policy.) With Q4 upon us, the majority of other industries have caught up in
their need to build their executive ranks, and it is impacting us all.

DOWNLOAD WHITE PAPER


WHAT IS DRIVING THE DEMAND?

As the grip of the pandemic really took hold in Q3 of 2020 across all
industries, companies were preparing for a long and harsh recession. In
response, many companies laid people off, and put a pause on most hiring. To
compound the issue, with hiring on hold, internal recruiting teams made up a
large segment of those laid off. These dynamics put companies behind their
hiring goals, while also dismantling the hiring machine created to meet those
goals.

Ultimately, the crash was not as bad or nearly as long as anticipated. For many
financial institutions, they sheepishly had some of their best performing years
on record thanks again to PPP and increased unemployment benefits. Over the last
three quarters, we have been experiencing a bull market — U.S. private equity
deal making through Q3 2021 has already eclipsed 2019’s annual record for deal
value at more than $787 billion; venture capital’s strength continues to support
the country’s economic recovery as exit value reached $187 billion, pushing the
total for 2021 past $582 billion — more than twice 2020’s record figure; and the
major stock markets have hit records as well.



Furthermore, according to CareerArc’s 2021 Future of Recruiting Study, which was
completed at the beginning of 2021, 76% of companies anticipated the 2021 hiring
demand would exceed pre-pandemic levels. We’re now seeing this play out. All of
the backfills where companies went without during COVID are now back in play.
Those same companies are putting their paused expansion plans back into motion,
and all of the strategic hires that weren’t approved due to unpredictable
revenue forecasts came back from February through May. Usually, those are spaced
out throughout the year, but in 2021, they have come back all at once.

Finally, in what is being referred to as the Great Resignation, many workers are
either changing employment or leaving the workforce entirely. A survey conducted
in June by Monster showed that 95% of respondents are considering a job change.


THE TALENT SCARCITY SITUATION

In the U.S., where recovery in the labor market has been impressive, record job
vacancies are being reported. According to the U.S. Bureau of Labor Statistics,
job openings in the world’s largest economy sat at 10.4 million in September
(the latest available figures at the time of publication). This number is well
above the number of hires in September, at about 6.5 million. The incongruity
indicates a huge mismatch in the American labor market right now.

To provide a more global context, in Europe, the Middle East, and Africa (EMEA),
signs of a strengthening economy and labor market are also growing. Eurozone
business activity recently grew by its fastest rate in 15 years. In the U.K.,
businesses face the worst labor shortage since 1997, and a combination of higher
demand and border restrictions has led to the fastest drop in talent
availability on record.

The most vexing aspect of today’s market is that demand for labor is rising,
while millions remain unemployed around the world. In Organization for Economic
Co-operation and Development (OECD) countries — including the likes of the U.S.,
U.K., most of Western Europe, Japan, and Korea — there is still a deficit of
eight million jobs, as well as 14 million more people who are voluntarily
staying out of the labor market compared to the end of 2019. Unemployment
figures also fail to reflect underemployment problems in places like Australia,
where a growing number of people can’t get enough work to meet their income
needs. Additionally, we know that the pandemic forced more women out of the
workforce than men due to factors such as family obligations.

A number of factors have played into the scarcity within the talent market. The
movement dubbed the Great Resignation is one of them, and it appears to have
three main drivers:

1. RETIREMENT


For the last year and a half, people have had the opportunity to “try on
retirement for size.” Many are realizing that life away from the office is more
appealing than they thought. The marriages of many baby boomers have
strengthened over more glasses (read: bottles) of wine than in the
past. Coupling up the happiness on the home front with the rebound in the stock
market, people are feeling flush with cash, and confident to pull the rip cord
early on retirement.

2. THE EXISTENTIAL CRISIS

Many are asking, “Do I want to do this for the rest of my life?” Meaning, many
people are asking if they’re fulfilled in their career — be it with their
company, or within their industry as a whole. For those of whom the answer is
no, they are open to new opportunities, and with the demand so high, they are
aplenty.

3. FORCED RESIGNATION


Many employees were constrained to run the cost-benefit analysis of staying home
to manage familial matters versus their careers. If the numbers didn’t pencil
out, many left the workforce.

Another contributing factor is the shift to a candidate’s market, where we see a
combination of high demand for talent, scarcity of that talent, and increasing
flexibility in working arrangements.

⇒ The pandemic has brought about an entirely new way of conducting business,
with many companies operating with a “distributed workforce” model (put another
way, work from anywhere). We have found that remote work, defined as working
outside the office the majority of the time, is now, and perhaps has always
been, a massive currency for people.

⇒ We are seeing a snowball effect that is driving the candidate’s
market. Meaning, if a company doesn’t offer remote work, they are forced to
increase pay. With such a demand for talent, companies that are willing to offer
remote work are also matching increased compensation. Furthermore, with so few
viable candidates, companies are forced to look beyond industry lines, thus
causing cross-industry norms to be adopted when they historically were not.

With this confluence of events, people now have the freedom to choose a path
that was not available to them just two years ago. In summary, the perfect storm
caused the current talent crisis:





 * * Layoffs due to COVID-19;
   * pent-up demand of projects that were delayed during the COVID-19 pandemic;
     and
   * demand associated with a V-shaped recovery in an expanding U.S. economy.


HOW LONG WILL IT LAST?

Though it may prove impossible to forecast, I believe the demand for talent will
be with us for the next five years. Pandemic or not, boomers are going to
continue to retire. Additionally, the easing of formal working arrangements is
our new normal – I believe it will not change. My two preschool-aged children
will likely not have to factor in a commute when they look for their first jobs,
or perhaps any of their jobs. Bizarre and hard to believe, but that time is
here. As big companies across industries shut down their management training
programs, those early in their careers will receive training in specialized
verticals, but not across the organization. Thus, leaders who truly understand
the totality of a business will be fewer and farther between. I forecast that
demand will increase, perhaps exponentially. Ultimately though, I hope we are
left with a new set of leaders who have worked across industries and thus bring
diversity of thought to the boardroom. However, I believe that to be a
generation from now. 




HOW TO COMBAT IT?

While what has been discussed herein may seem overwhelming, I don’t believe it
is as dire as it may appear.  While the prospect of greener pastures sounds
interesting, many people are genuinely happy right where they are. So, keep them
that way. Let them know they are valued and keep them busy.

Compensation

Keep your compensation up to market. Run annual compensation surveys to
understand the market. Look at your peers, but remember that the definition of
peer is changing. It may no longer be the institution that looks just like you.
In fact, it likely isn’t. 

Be intentional about interpersonal relationships

With a remote work environment, people lose touch and culture is difficult to
establish and keep. At least they are in the traditional manner of water cooler
talk or grabbing a drink after work. However, you can still create unique
moments to bring your people together and ensure that they have time together in
person. 


Flexible work arrangements

This is hard for me to admit, as I’m one of the few who likes a suit and tie and
the formality of my workday, but flexibility reigns. If you want people in the
office because you like having people around, it’s the wrong reason. Look at
productivity. If it’s high when working remote, then keep it that way or at
least offer it. To make this easier to stomach, clients of ours who offer fully
remote work arrangements are able to attract talent at a lower price because the
ability to work remote is a currency in and of itself.

Change is always difficult, but it is frequently accompanied by positive
progress. With respect to talent attraction and retention, here’s to adaptation
and advancement.


ABOUT THE AUTHOR

Brandon Biegenzahn
President
biegenzahn@mbexec.com

Brandon Biegenzahn is the President of McDermott + Bull and the chair of the
firm’s Financial Services Practice Group. Brandon is a corporate attorney who
practiced with Sheppard, Mullin, Richter & Hampton, and Buchalter Nemer in their
corporate finance departments. Brandon received his Bachelor of Arts from the
University of Southern California and his Juris Doctorate from Penn State.

 


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