Talent risks and the board

Last week I had a few conversations with friends who are candidates in the middle of recruitment processes.

In one case, the person is being headhunted back by his former employer – a BigCo – after he has done two stints in startups where he did stellar and strategic work way beyond the title and scope of his earlier job in BigCo. BigCo is also now hiring him back in an expanded role. However, having known them before, he fears they will ask for his startup salary which, while smaller than his previous BigCo pay, is bolstered by stock options, and then lowball their offer to him. In the second case, the person is interviewing for a new, expanded role in another organisation where the hiring manager is using his knowledge of this person’s current line manager to judge her fit in his own organisation’s hierarchy. The hiring manager is not sparing a thought for the fact that the candidate’s current organisation has a more mature capability in the function he is hiring for and this candidate is uniquely positioned to help him shape that capability since he himself has far less experience in the domain than the candidate herself does. In a third conversation, a senior exec friend seeking a commercial role in a different sector reported being left deflated by how fragmented, absurd, and exhausting senior level hiring is.

I was also reminded of the many conversations I have had about employees seeking lateral moves that were eventually thwarted with the internal applicants being treated disrespectfully to add insult to injury.

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I wish I could say I am surprised by these conversations but after years of seeing different facets of “talent acquisition”, from the inside and the outside, I am not. These stories illustrate the power imbalances and utter chaos that competent professionals face even though the organisations seeking to hire them – in case of lateral moves, their own but in another part of the business – actually need their skills and experience.

Bad hiring results when biases about another organisation’s hierarchy shape your organisation’s hiring decisions. There is no suggestion here that one takes an inexperienced person from one organisation and places them into the CEO’s role in another (although see the next point about bad comparisons). But when people leave an organisation to go to another there is usually a reason. Bad managers and being stuck in the pay grade slow coach as new hires keep getting paid more money are just two of those reasons.

A hiring manager, who uses a candidate’s previous organisation’s hierarchy or pay scale to decide what the candidate is worth to their own (hiring) organisation, is demonstrating a clear anchoring bias as well as an inability to understand the basics of motivating and retaining people.

Bad hiring leans on comparing incomparable contexts to draw lazy and flawed conclusions about compensation. Comparing a startup, that may offer a lower salary bolstered by stock options but also greater freedom and reward for an entrepreneurial aptitude, with a BigCo, that offers a market salary with inflationary pay hikes and occasional performance bonuses, is never going to be a fair comparison. The two kinds of organisations are built on very different philosophies of attraction of talent, contribution, recognition, reward, and retention.

And yet both failed and successful founders and former startup employees make great hires as they have had intense experiences of the kind hierarchical BigCo may not give them. As BigCo seek to innovate and drive “change”, talent from startups can be valuable but is unlikely to accept low-balled pay offers because the real tradeoff they are making is loss of agency and degrees of freedom and it is fair to expect to at least be paid for that. Bad hiring managers with their lazy like-for-like fit of compensation would prevent this talent infusion across different contexts.

Bad hiring damages equity and diversity in an organisation. The above two behaviours could lead to two people being hired in identical roles but with different compensation, based on where they were previously employed. Unless the hiring organisation is exceptionally alert at addressing equity in compensation design and keeping track of pay gaps and active discrimination, going beyond gender and ethnicity considerations, these behaviours can embed and entrench inequity.

Further bad hiring managers discourage or maltreat experienced career changers or returners to the workforce (e.g. parents or caregivers who took time out) whose capabilities they themselves are not able to assess. That is the exact situation in which my highly experienced friend seeking to change sectors in the third story finds herself. This – at scale – is a gross waste of talent even though we all know at some level, most hiring is a crapshoot.

And then there is the issue of internal hiring and lateral moves.

Bad hiring demotivates and enables attrition. Internal mobility, lateral moves – whatever we call it is an excellent way to retain talent. In reality while it is seen as a great tool, it does not always work. Many reasons are enumerated in this Deloitte report from 2019, including poor information, unclear incentives for hiring managers and managers whose team members are seeking lateral moves, and the relative ease with which the same employees can quit and find another role than try to navigate their own organisation’s politics and processes. That last one is something! Even though it is widely known that retention is far less expensive than new hiring, organisations seem to be missing a trick here.

Further my conversations seem to suggest that in internal hiring/ lateral moves, when candidates are rejected, they often get given no feedback and there is often no transparency. This sounds like less courtesy or professionalism extended than to external candidates. Hardly a good move.

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Boards have oversight of the strategic intent of the organisation. It follows that talent that delivers on that strategic intent is a board issue.

Stated another way, bad and inequitable hiring decisions add up over time and can pose a substantial talent risk – attraction, motivation, retention – to the organisation. Without the right people, who do the work and keep the going concern going, really, what are we overseeing as board directors?

The scale at which these poor hiring behaviours occur suggests not all boards are paying attention to talent. They could start, of course. Here are some ways to get started.

Review hiring processes. No, this does not mean that the Remuneration or Nomination committees need to go over every job advert the organisation puts out. This does however require asking questions about how candidates are being sourced, whether the interview process works to minimise (or entrench!) biases, and how offers are made (and accepted or rejected, and the reasons why). Asking questions sharpish about what lateral moves/ internal mobility would also be useful because that would link directly back to how the organisation approaches employees’ professional and career development.

Ask for compensation data beyond the senior executive team. Far be it from me to suggest that pay inequities do not exist within executive teams, but inequities are embedded and hidden far more easily and at scale in the wider organisation below the exec team. Remuneration committees should ask for broader compensation data and ask deeper questions about how pay is set and how increments and promotions are awarded.

Drive the commitment to fairer and equitable hiring and pay from the top. The board needs to make unequivocally clear their intentions to treat the people in a business fairly. Further, the reward for senior executive teams should be linked to advancing that commitment to fairness and equity – as well as adequate professional development – in people issues. Organisations with shareholders are already finding that if they do not change themselves the shareholders will make them. A good board should lead on these matters rather than wait to be rebuked at the AGM by shareholders.

(Disclaimer: These are my own views and do not reflect the views of the boards of JP Morgan US Smaller Co.s Investment Trust or Temple Bar Investment Trust or London Metropolitan University, where I serve as a non-exec director, and chair various committees.)