Why Companies Aren't getting the Employees They Need

http://economix.blogs.nytimes.com/2013/05/31/how-to-cure-the-college-dropout-syndrome/?ref=business

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"In preparing for battle, I have found that plans are useless, but planning is indispensable." (General Dwight D. Eisenhower)

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Peter Cappelli is the George W. Taylor professor of management at the Wharton School (UPENN) and the director of Wharton's Center for Human Resources. Cappelli coined the term "purple squirrels" to describe what employers say they want when searching for employees because they are in no hurry to fill jobs. So, unless they find the perfect person, they won't fill the job.

As Cappelli says, "Employers are quick to lay blame. Schools aren't giving kids the right kind of training. The government isn't letting in enough high-skill immigrants. The list goes on...But I believe the real culprits are the employers themselves...With an abundance of workers to choose from, employers are demanding more of job candidates than ever before. They want prospective workers to be able to fill a role right away, without any training or ramp-up time...In other words, to get a job, you have to have that job already...It's a Catch-22 situation for workers - and it's hurting companies and the economy."

Cappelli concludes: "To get America's job engine revving again, companies need to stop pinning so much of the blame on our nation's education system. They need to drop the idea of finding perfect candidates and look for people who could do the job with a bit of training and practice."

From Cappelli's article in the Wall Street Journal which was recently re-published this past week, Cappelli quotes data from the staffing company ManpowerGroup which reports that 52% of employers surveyed say they have difficulty filling positions because of talent shortages. As Cappelli says, "...the problem is an illusion." More data from that survey:

* 47% of employers blame prospects' lack of hard job skills or technical skills
* 35% of companies cite candidates' lack of experience
* 25% of companies blame lack of business knowledge or formal qualifications
* 28% of companies are increasing staff training and development

With that last bullet above, I suspicion that these are departments that were eliminated to reduce costs and are now being restored as companies realize the positive impact these departments have on productivity.

Now, if we could link up Cappelli's thoughts with the work of Jeffry Selingo, former editor of The Chronicle of Higher Education and author of the new book College (Un)Bound, there might be some progress in how we look at employment and training for high school and college graduates.

Selingo's perspective is: what needs to be done about the fact that slightly more than 50% of American students who enter college leave with a bachelor's degree? It begins with college selection: students end up poorly matching their campus - a third of students now transfer and many drop out. In addition: "...we have this fascination with the bachelor's degree in the United States, and we think everyone needs to earn one at the same point in their lifetime, enrolling at 18 years old." Not everyone is ready for college at 18.

Plus, as Selingo looks at it, campus culture and money play a role, "If you go to a college with a low graduation rate, your peers have an impact on your thinking: if no one else is graduating in four years, why should I?"

So, why does everyone have to go to college at 18? Again Selingo, "For some, a two year degree might be more appropriate at 18. And, recent studies of wage data of college graduates...show that the wage returns of two year technical degrees are greater than many bachelor's degrees in the first year after college...Let's think of extending the period for a bachelor's to be sure more students succeed in getting one. We don't need alternatives to the bachelor's degree, just more constructive detours on the pathway to college for those who are not ready at 18."

The Way Forward

According to Selingo, in 2023 the biggest difference in the college curriculum will be that more courses will be taught in the hybrid format: a mix of face to face and online. That will allow for a more personalized experience for students so they can learn at their own pace and break the traditional idea of the academic calendar where everyone needs to start in September and end in May.

According to Cappelli, there are three ways in which employees can get the skills they need without the employer having to invest in a lot of upfront training:

* Work with education providers: community colleges in many states have proved to be good partners with employers by tailoring very applied course work to the specific needs of the employer.

* Bring back aspects of apprenticeship: apprentices are paid less while they are mastering their craft - so employers aren't paying for training and a big salary at the same time.

* Promote from within: employees have useful knowledge that no outsider could have and should make great candidates for filling jobs higher up.

If the best companies and colleges listen to what Cappelli and Selingo have to say, unemployment rates will go lower and college graduation rates will go up.

I hope for the best.

CEOs & George Costanza

http://www.nytimes.com/2013/06/02/magazine/ceos-dont-need-to-earn-less-they-need-to-sweat-more.html?ref=business&_r=0

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"Ultimately, a genuine leader is not a searcher for consensus, but a molder of consensus." (Martin Luther King)

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Deep Thoughts For This Week (Adam Davidson - NY Times):

(1) A lot of people want CEOs to make less money.
(2) So why are they making so much more?
(3) Maybe they should be more afraid.

While the Dodd-Frank law requires a shareholder vote on executive pay at least every 3 years, the vote is not binding. So, Rex Tillerson's shareholder vote on his CEO pay at Exxon ($40 million) dropped from 78% approval last year to 70% this year (numbers approximate) but nobody's wringing their hands over it - that may be because Exxon is coming off its second biggest profit ever, earning $44.9 billion for 2012.

Technically, the board controls CEO pay, but, as Adam Davidson points out, boards suffer from knowing less about what a CEO does than the CEO himself. In addition, the consultants show the board third quartile pay trend lines that end where Tillerson is - he's the "top dot!" Davidson calls this the "principal-agent problem" where the "employer" (principal) doesn't know as much about the job as the "employee" (agent). So, "George Costanza was a comic incarnation of the principal-agent problem. He constantly invented schemes to make his employer think he was doing his job well when he wasn't doing much at all. 'When you look annoyed all the time', he once told Jerry and Elaine, 'people think that you are busy'."

Again, according to Davidson, "Boards and CEOs don't suffer from Costanza-like ineptitude, but they are harder to rein in. They are often rewarded when they don't succeed but are not usually penalized enough when they do a lackluster job."

So, "Whether it's Jamie Dimon or George Costanza, capitalism works only when people are truly anxious, not faking it. CEOs need to be afraid that shareholders will cut their pay if they don't do better."

And, how much did the Dodd-Frank law help with that?

Larry Summers

http://www.slate.com/blogs/moneybox/2013/05/27/summers_for_fed_chair_no_way.html

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"Leaders are made, they are not born. They are made by hard effort, which is the price all of us must pay to achieve any goal that is worthwhile." (Vince Lombardi)

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A good friend sent me a blog post from "Slate" about Larry Summers and how he's being pushed as a replacement for Ben Bernanke as chairman of the Federal Reserve. Bernanke did not attend the annual Fed meeting in Jackson Hole this year which is considered a sign that he might be leaving.

If Bernanke is leaving, that would be a shame. He's done everything he could to put "liquidity" back into the U.S. system since the worldwide recession and has connected that to the unemployment rate: basically, he won't let up until the U.S. unemployment rate drops to 6.5%. That's never been done before and it shows a certain social awareness that more people in government ought to have.

On to Larry Summers: this is a guy that got fired when he was president of Harvard! That's hard to do. So, how did he achieve that lowly distinction? Let me quote the blog post: "...the guy who said women don't succeed in academia because math is too hard for them..."

Really.

Yet, President Obama saw fit to appoint him guru of economic matters in an effort to respond to the worldwide economic crisis. Obama was rewarded, in that case, with Summers' great quote that "...there's no adult in charge." I'm sure that President Obama likes to think of himself as an "adult."

Janet Yellen is vice chairwomen of the Federal Reserve and the next in line. If we don't like that, then Christina Romer is a good choice for many reasons, not the least of which is that she pretty much disagreed with Larry Summers on everything when she was part of the administration's economic team.

So, let's have anybody but Larry Summers.

Fair Pay

http://knowledge.wharton.upenn.edu/article.cfm?articleid=3262#.UaIrILV8JrM.email

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"Before you become a leader, success is about growing yourself. When you become a leader, success is all about growing others." (Jack Welch)

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K@W has put out an article this month that addresses the issue of pay equity. There aren't many people who know what they're doing on this issue.

Doing it right involves relative ranking of jobs inside a company and those relationships can be different in different companies.

It all starts with competitive pay data. If you can get salary survey data for your industry or function, then you can reduce it to trend lines by job or job area. Place your salary data up against the industry quartiles and see where you rank. If your overall pay trend line is "average," then expect "average" performance. If you want to be a "third quartile" performer (Top 25%) for your industry, you better pay like it. Third quartile pay is the norm for top companies in the Fortune 500.

Once you get base pay to third quartile, then what happens when bonuses kick in? Usually, management bonus plans kick in for the top 100 or top 200 executives. That's a separate "total cash" trend line. Most companies that are third quartile in base salaries want to be there with their bonus trend lines as well. Here, specific goals that relate to incentive payouts are critical.

Believe it or not, what's important here in any company, is what the employees think of the pay system. If they feel that the relative ranking of jobs internally in a company reflects both the "market" and how "their company" values a job versus other jobs inside their company, then things move along smoothly. This is hard to get to. You have to have excellent competitive pay data and you have to have an excellent job evaluation system that reflects how the line management views the "value" of jobs in a company. For example, GM may pay its sales people less in base and bonus than Ford does because GM places less value internally on their sales force. GM may spend more on advertising than Ford does. You have to know what you're doing and your employees have to feel that you do.

The 204 multiple (CEO pay versus the average pay of a worker) referred to in the Wharton article helps to define the issue of "fair pay" but CEOs tend to be outliers in many cases anyway because they are turning around companies or keeping companies at the top of whatever industries they're in. Under the heading of "how much would you have to pay me to jump off a cliff..." what would our pay gurus think it took to get Ron Johnson to leave his former company to join a sinking ship in a different industry? In situations like that, the termination pay (if you can't get the job done, or the job is impossible) is in the contract.

Smart companies watch turnover rates at every level. They might adjust pay levels for certain jobs or departments if they thought they needed to. That's management.

The "Apple" example referred to in this article implies that the company has all the money in the world to pay their college graduates more (than $12 to $14 an hour) to work in their retail stores. Actually, Apple does have almost all the cash in the world but why would they pay more money than what's "competitive" for retail store employees. They're not stupid.

The better you communicate pay systems to employees, the more the "procedural fairness," as John Paul MacDuffie explains in the article. In many cases, it's not the pay that's unfair, it's the communication that's lousy.

Jobs, Wages & the Sequester

http://www.nytimes.com/2013/05/04/opinion/jobs-wages-and-the-sequester.html?hp

http://economix.blogs.nytimes.com/2013/05/03/keeping-up-not-getting-ahead/

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"I've never known anyone who said, 'I love problems,' but I've known many who have admitted that their greatest gains came in the middle of their pain." (John C. Maxwell)

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The Times Editorial Board points out that the employment report released Friday showed job growth for March revised upward to 138,000 new jobs followed by April even higher at 165,000.

So, quoting the Times: "But both tallies represent a big drop from February, which showed a healthy gain of 332,000 jobs. One interpretation is that the sequester-induced economic headwinds that began in March are hurting job growth, which might otherwise have taken off this year. Seen in that light, the April report portends elevated joblessness and low wages for at least as long as the sequester lasts, and possibly longer, depending on the extent of the economic damage from self-inflicted austerity."

Further: "At the average pace of job growth this year, it would take 5 years to return to the prerecession unemployment rate of 5%. It is doubtful that even the current pace can be sustained."

This Editorial Board note followed an article by Binyamin Appelbaum (Economix, 5/3/13), Keeping Up, Not Getting Ahead, where the perspective was that the American economy continues to add jobs in proportion to population growth: "Nothing less, nothing more."

The most important thing in Appelbaum's article is the "chart" which which shows the share of American adults with jobs has barely changed since 2010, hovering between 58.2% and 58.7%. This is roughly four percentage points lower than the employment rate before the recession, a difference of roughly 10 million jobs.

Appelbaum: "The lack of progress has been obscured by the steady decline of the high-profile unemployment rate, which continued in April. But the unemployment rate is easily misunderstood. The government counts as unemployed only those who are actively looking for new jobs. As people have given up, the unemployment rate has declined - not because more people are working, but because more people have stopped looking for work.

The federal government counts 11.7 million Americans as unemployed. The real number is more like 17 million.

If the labor force participation rate should be at (roughly) 63%, what's being done to give us confidence that there will be 10 million job opportunities out there? Government employee lay offs don't appear to be helping anything. Wait, those lay offs are saving money. But taxes from companies investing in the U.S. economy because of lowered tax rates would have paid for those jobs.

Investment, innovation and job creation seem to go together. We need to encourage whatever makes that happen!