Best in Class Employers - How Employer Brands Will Create Competitive Advantage in the New Economy

We have all read about changing demographic trends and the impending labor shortage, but it seems that few are aware of its potential implications. The data suggests that we are on the verge of an employment 9/11, and many employers are completely unprepared for it.

In the past, it has been product and service innovation that have been the drivers to long term revenue growth. In our view, there are four emerging employment trends that in combination will create a tipping point in the labor market, resulting in a clear competitive advantage for companies who invest in becoming best in class employers:

1. Changing Demographics - According to the U.S. Bureau of Labor Statistics, 40% of managers will be eligible for retirement by 2012. By 2016, there will be a projected shortfall of 3 million American workers. The exodus of baby boomers from the workforce will be nothing less than extraordinary. With the growth rate for workers between the age of 30-44 in decline, there will be a void of experienced managers, the traditional pool for mid-management bench strength. Immigration policy is at the very least uncertain, but the prospects of more rigorous regulations are a real concern.

2. Cost of Health Care - Recent polls suggest that Health Care is now American's number one concern (passing the Iraq war). The average employee contribution for health care has increased by 85% in the last 6 years. At the current rate of health care inflation, by roughly the year 2020, the cost for an employer to fully fund the average employee's health care benefits will exceed their salary. Starbucks currently spends more on health care benefits than coffee beans.

3. Globalization - Even our smaller clients have gone global, with offices and factories in remote locations around the world. The labor pool is in constant flux, with professionals from Asia to South America having gained competency in engineering, computer science and other skilled positions.

4. Need for Work / Life Balance - Hyper-competition has put immense pressure on the typical U.S. worker, and margin erosion has led to job cuts, resulting in less people doing more work. The average commute time in U.S. cities exceeds 25 minutes each way and is far greater in some urban areas. The average father in the U.S. spends 4 minutes per day of meaningful interaction with his children. 65% of workers are overweight. As a result of worldwide political unrest and terrorism, American's are shifting their priorities and desire more time at home with their families and have greater interest in maintaining a healthier lifestyle.

These factors have created a witches brew that will create an unparalleled demand for talent (especially management talent) in the next 10 years. Companies will be forced to keep older employees longer, and pay for their more costly salaries and health care. 3 out of 4 boomers believe that they will not pursue a traditional "retirement". This will create an unusual shift towards untraditional roles for these workers as consultants and contractors. There will be pressure on government regulators to relax rules against independent contractors.

Highly educated workers such as MBAs will be in high demand. Boomers have a tough time relating to the X, Y's and Millennials who they view as lazy and self absorbed. The reality is that younger workers think differently about the work than the generations they will replace. The average worker 55 to 64 has a tenure of 9.3 years, while the average worker 25-34 average tenure is 2.9 years. Younger workers are far more capable of leveraging technology than their older counterparts.

Employers must recognize the fundamental shift in the supply and demand of labor and the emerging social trends that are affecting employee behavior. In the eyes of the employee, there employment tenure is a complex decision making process that considers numerous variables such as compensation, commute time, job security, benefits and vertical mobility. These needs vary dramatically, and thus the employment offer must consider individual needs as opposed to providing a one size fits all approach to compensation, benefits and office environment.

While the concept of being best in class and developing an employer brand is in vogue, it is certainly not new. Top 100 Companies to work for lists are all the rage. Our research reveals that many of these companies do not necessarily excel in terms of benefits or compensation, but in providing a stimulating job climate. #2 on Fortune's 2006 list was Wegman's, a regional grocery chain in Northern New York state. Whenever Wegman's opens a store distant from their headquarters, the entire staff is flown to Rochester to personally meet the CEO and supporting staff. Those elevated to the senior position of store cheese manager are flown to Italy to learn about cheese.

When Wal-Mart came to Wegman's market area, they had a difficult time gaining share, in part because according to J.D. Power, Wegman's has the highest customer satisfaction score of any grocery chain in the country. Companies such as Wegman's and Southwest Airlines clearly leverage employee relations as a driver for competitive advantage.

Best Buy is leading the charge on "Results Oriented Work Environments" (ROWE) where participating employees in the Minneapolis HQ have no work schedules, no assigned office space and work as they see fit. The only criteria by which employees are measured are their actual business results. The productivity gains were so extraordinary that Best Buy is now taking the remarkable step of testing the ROWE program in their retail operations. Over 45% of IBM's global workforce is "virtual", many working from home or at client sites. With higher energy costs and HQ overheads, companies are clearly looking for more efficient working arrangements, and our digital, laptop, PDA, webcast world provides us more flexibility to work as we want than ever before. In a climate where business results are king, managers should be more concerned about results and less concerned about enforcing arbitrary work rules. Job satisfaction amongst people who work at home is 76% compared to 56% for on-site workers.

The peanut butter approach to benefits is misguided in the face of our emerging individualism. To provide the same benefit package to a 25 year old single male and to a 45 year old single mom is wasteful for the employer (some benefits are paid for but not used at all) and less useful to the employee. Flexible benefit plans provide employees the opportunity to select those benefits that align with their individual circumstances.

For years, companies have been building sophisticated CRM (customer relationship management) programs so that they can meet the individual needs of customers. The same thinking should be applied to employees to improve the likelihood that they will stay engaged and retained. Much like a customer, it is well documented that the cost of losing an employee can be as high as 200% of their annual salary, and at an average turnover rate of 17% and climbing; retention will become a key success metric for every organization in the new economy.