TODAY'S JOB MARKET: Peak Economic Cycle Edition

If the chart below were an investment chart, you'd be looking to start scaling back tech stocks in your portfolio right now.

Take a look and let's talk about this visual after the jump (email subscribers click through for image):

PeakEconomicCycle

What this chart tells us is that over 50% of businesses are reporting they have few or no qualified applicants for job openings today.  Look at the chart closely, and you'll also see that percentage is higher than at any point between the 01 and 08 recessions (gulp). You'll also see that the latest spike has us reaching recruiting difficulty at its highest level in 20+ years.

That seems like a picture that tells us we are at what I like to call "peak economic cycle" right now.  Here's what that means for your recruiting/people/talent function:

--It's going to be harder to find people. You'll need to spend more on recruiting than you traditionally have to acquire talent in 2017.

--At times, you're going to have to buy candidates with expensive offers to get the talent you need in key positions.

--If you have compensation issues, now's the time to be aggressive to do equity increases in key roles that are under-comped vs the market.  Make those adjustments and you can buy yourself another year.  Refuse to do it in key roles, and there's a great chance you'll lose experience AND pay more for the talent you ultimately recruit to replace the great people who leave.

Peak economic cycle = Turd Sandwich for the companies who don't like to spend much on recruiting and have a "trail" strategy related to compensation in key roles.

That's right - "turd sandwich".  You won't see that in the reports from economists, but that's what it is for a lot of you.

Take this chart to your CEO/Ops lead and get some more money.  You're going to need a bigger boat until this thing cools off.

 


Uber: The Right HR Leader Depends On Your Company's Maturity...

This post previously appeared at my other site - Fistful of Talent.  I thought it was important enough to share here as well.

If there's one thing that's true in HR, it's that today's HR leader right for a company may not be right for the same company 3 years from now.  Things change. New leaders come in, new strategies are developed and deployed. And if you're really lucky, your company experiences exponential growth that causes you to need a different type of HR leader. Uber fits that example, and they just had a trade out - an early CHRO has left, and a new one - dramatically different - has entered.  Here's the rundown of the changeout I ran across on the web:

Uber is bringing in Liane Hornsey, a longtime VP at Google and current operating partner at SoftBank, to be its new Chief HR Officer.

The move gives Uber a seasoned executive with public company experience to help manage the $66 billion ride-hailing service's rapidly swelling ranks and to guide it through the various challenges facing startups as they evolve into giant businesses.

Travis Kalanick announced the hiring in an email to Uber employees on Friday, calling her "one of the most sought-after 'people people' in the world," according to a source inside the ride-hailing company.

Uber confirmed Hornsey's hire to Business Insider, but declined further comment. SoftBank and Hornsey didn't immediately respond to a request for comment.

The opening at Uber, one of the fastest-growing companies in tech, became available in July when its former head of HR Renee Atwood left to join Twitter. Atwood had been at the company from when it was 605 employees to more than 5,000. 

Hornsey's LinkedIn shows she had spent nine years at Google as its Vice President of Global People Operations before she moved to being a VP on the sales side, reporting to Nikesh Arora. 

She followed Arora to SoftBank International in September 2015 to be its Chief Administrative Officer and operating partner, helping other startups with their HR needs. Arora left his position in June 2016, and now Hornsey's departure follows nearly six months after. Hornsey will start at Uber in January.

Couple of things come to mind here from an HR leadership perspective:

  1. If you go look at the profile of Renee Atwood (former CHRO at Uber, now at Twitter), you'll see a pretty good background.  Now go look at the background of Liane Hornsey.  They're different.  Neither one is right or wrong - they are just different. One's growth and the other one is more mature from a career perspective, focused on things that a 5,000 person company focuses on.
  2. Atwood joined Uber when it had 500 employees and left at the time it had grown to 5,000 (both FTE numbers do not count driving contractors).  Anyone in HR would tell you that those are two dramatically different companies as evidenced by the size and the fact that it's Uber only adds an exponential factor to that difference.
  3. Uber's a unicorn and increased market cap from $13B to $70B during Atwood's tenure.  Atwood chose to leave for a cool company in Twitter, albeit one that doesn't have a clear path moving forward.

I think Atwood's background is very strong.  Former client group leader at Citi and Google, got a great opportunity at Uber - I really like that progression. But Uber's issues today are dramatically different today than they were in 2014.  The fact they changed out the CHRO - a seemingly voluntary move by Atwood - is evidence pointing to the fact that the HR pro you have today may not be right for you tomorrow.

If you're a CEO out there, looking at your HR leader (and determining whether you still have a fit as you grow) should be as important as looking at your CFO fit for the stage your company is in.


The Netflix Approach to Movies: Notes for HR

Do you watch Netflix?  Have you ever been frustrated that the movie selection, for a lack of a better word to describe it - sucks?

Of course you have. If you're a business focused individual, you might think this fact is a canary in the coal mine - meaning it's a signal that Netflix won't be in a dominant position 2-5 years from now.  That would be a reasonable assumption - after all, if the product's not right, decreased viewership and profitability is sure to follow, right?

Wrong. As it turns out, Netflix has figured out that its customers don't really care much about what's available on the movie side of the business. I think there are some HR parallels you can learn from with this.  First the notes on Netflix from Business Insider, then we'll talk after the jump about the similarities with HR:

"No matter what movies Netflix has on its service, subscribers spend about a third of their time watching films on Netflix, according to the Best-movies-on-netflix
company's content boss Ted Sarandos.

On Monday at the UBS Global Media and Communications conference in New York, Sarandos was asked about the perceived sparseness of Netflix's movie offerings. "No matter what, we end up with about 1/3 of our watching being movies," he responded.

Sarandos cited two contrasting examples: the US and Canada. In Canada, Netflix has five major movie studio output deals, while in the US, it basically has none, with the exception of the just-starting Disney one. And yet in both places, Netflix sees about 1/3 of its viewing being movies.

Research earlier this year showed that Netflix's selection of IMDb's 200 highest-rated movies had gone down in the past two years by a substantial amount, as had its total catalog of movies. And given what Sarandos revealed Monday about the viewing habits of Netflix subscribers, that decision makes total sense. Why would you pay a bunch of money for blockbuster movie deals if it's not going to make people watch more Netflix?"

When I think about how my generation treats Netflix (as well as my teenage son), we're much more likely to binge watch a series that we are select a movie from the streaming service. There's just something about binge watching a series together that is good for relationships.  Also, if you're watching alone, binge watching provides a chance to become emotional connected with the characters, etc.

But just as importantly, I think there are some similarities to how movies are treated by consumers of Netflix with our HR practices.  

Employees act in a certain way within our companies.  There are several employee/candidate behaviors that aren't going to change much year to year, and with that in mind, there's no reason to spend more on these behaviors than you have to.  Examples include the following:

  1. Job Boards - You've got a spend. You get candidate flow and hires out of that spend, but at some point there's a diminishing point of return on additional investment in job boards.  You need to find the optimum spend, then never go over that - instead pushing additional spend to new sources that are rapidly gaining candidate attention.
  2. Employee Referrals - You've likely got a program, right? You may or may not monetize it, but spending more on referrals is not a guarantee that you'll get more flow.  At some point, you're paying more for the same number of hires, and you've just experienced what I'll call the "netflix movie effect".
  3. Employee Development - Complex one here. There's a lot of spend you can make to try and make your employees more than they are, but a lot of your employee base just wants to do some work, go smoke and leave at 4:58pm. You can spend to try and make them more, but they're not going to give you more performance given your additional spend on them. 

Netflix has learned that additional spend on movies doesn't equate to better results/profits.  We can learn a lot in HR from that Netflix lesson.

You've got a limited budget in HR.  Never feel guilty about not spending money (or more money) on things that don't produce results.


HEY HR FOODIES: Stop Dreaming About Opening a Restaurant - Here's Why...

A bottle of white, a bottle of red
Perhaps a bottle of rose instead
We'll get a table near the street
In our old familiar place...
 
You and I, face to face
A bottle of red, a bottle of white
It all depends upon your appetite
I'll meet you any time you want
In our Italian Restaurant...

--Billy Joel

If there's one false positive in the business world, it's that a person should start a business simply because they love something.

Why doesn't that work?  Two reasons:

  1. You love something but have horrific business instincts and management skills.
  2. You love something and have good instincts and management skills, but the economics of the business SUCK.

A lot of you who read this blog are foodies. That means you've dreamed of starting a restaurant.  You might have heard that it's hard, but you still dream. You think you're the snowflake who can make it. Bill joel

You're probably not. And if you are, recent studies show that your success or failure is probably cemented before you even open the doors. More from the New York Times:

The New York City restaurateur’s perennial lament — that staying afloat is tougher here than anywhere else in the country — grows louder each time another restaurant closes. Rents are astronomical, the complaint goes; wages are rising, regulations are byzantine, and don’t even talk about the price of fresh produce.

One thing we do know: There is a rigid formula for survival. Whether a restaurant opens in hyper-competitive Manhattan or in California’s gold-rush dining scene, it has to make the same equation work: The costs of real estate, labor and food should add up to about 75 percent of its projected sales, leaving a profit margin of roughly 10 percent once smaller expenses are figured in.

Did you catch that? Let's say you're kicking ass and grossing and average of 3K a night with your idea for a different type of bistro (I like your idea by the way). The numbers tell us that you'll only keep $300 of that a night - if you're performing at a high level.  Depressing, isn't it?

A large restaurant group or chain may be able to skate below 10 percent because its volume is so high, but a chef who opens a starter full-service restaurant can end up in trouble if profits dip below that threshold.

To further break down the formula, a healthy restaurant aims to spend about 10 percent of its sales revenue on rent, utilities and other occupancy costs; 30 to 40 percent on labor (your specialty if you're readying this blog) including payroll taxes and benefits; and 30 percent on food and beverages.

This is a HR/Talent blog, so it stands to reason we should take a look at labor costs first.  More from the NYT:

The federal Bureau of Labor Statistics reports that annual mean restaurant wages in New York City in 2015 were about $49,000 for a head chef, $28,580 for a cook and $29,290 for a server. In San Francisco’s much smaller labor force, pay was about the same for a head chef, $31,120 for a cook and $32,040 for a server. Wages were lower in Los Angeles: $40,740 for a head chef, $25,300 for a cook and $27,570 for a server.

In all three cities, restaurants pay more than the federally mandated minimum hourly wage of $7.25, and each city plans an increase to $15 over the next few years. New York businesses with more than 10 employees will reach $15 in December 2018, up from the current $9; smaller businesses, a year later. San Francisco will increase its minimum wage from the current $13 in July 2018, but Los Angeles will not reach $15 an hour until 2020 or 2021, depending on staff size.

New York State allows employers to pay a lower minimum wage for tipped front-of-house employees, while California is one of seven states that have abandoned the so-called tipped minimum wage — so a New York restaurateur pays those staff members less than a California owner does.

You might be thinking of opening your bistro in a smaller metro than the three cited - doesn't really matter, since your prices will be lower and the 10% profit target will still hold true - if you're performing at a high level.

But we can't end this missive on the danger of opening your own bistro without telling you that your success or failure is likely locked up before you even open the door.  How well you find and negotiate your rent probably matters more than anything else:

CoStar, the nation’s largest source of commercial real estate data, tracks more than 980,000 listings. Though they are not broken down by use, Joseph Sollazzo, an economist with the firm, created a rough category of “restaurant friendly” spaces for us: listings from 2,000 to 5,000 square feet, a popular range for independent full-service restaurants, that met criteria like “available for all uses” and “ventilation.”

Some San Francisco landlords offer promising but unproven tenants a bit of help known as a percentage deal. If a restaurant performs below an agreed-upon level of sales, the tenant pays only the base rent. If it takes in more than the stipulated amount, the landlord collects an additional percentage, which can double the monthly rent.

 Some New York tenants paying as much as 13 percent for occupancy costs, which he considers a danger zone. “You get past 15 percent and you get into trouble,” he said.

What's that all add up to? Your dream of opening a restaurant is undoubtedly cool.  But it's a bad deal as a business proposition. Do great things related to negotiating your lease, have a great idea and drive traffic and you could be the recipient of a 10% profit margin.

Find another idea, HR and Talent foodies...

Miss on any of those items? You could lose your retirement.

Better to play a song like Scenes from an Italian Resturuant and dream.

 


Here's the Best Minimum Wage Increase Idea I've Ever Heard...

Can't take credit for this but it's gold - A recent episode of the Recode/Decode podcast featuring Bradley Tusk, the 3rd Party Legal Counsel for Uber, included a great idea for a minimum wage hike Tusk thought would bring both sides to the table:
 
1. Raise the minimum wage to $15-20 per hour. Min wage
 
2. Figure out the delta to business and give tax credits that directly give back the money to businesses.
 
3, This was Tusk's logic - Citizens get most of every dollar as opposed to inefficient government services, where they might see ten cents on the dollar if they're lucky.
 
4. The theory is that people who need social services won't need them at $20 per hour, so tax credits become the way to force/get both sides to the table.
 
As a moderate, I loved the idea of this solution.  Will it ever happen?  Probably not - The democrats who have pushed for the increase can't deal with the thought of government losing control of increased funding, and the GOP who has traditionally hated the idea can't give up on the free market narrative to look at a solution that makes senses.
 
Small business owners? They'll be stuck in the middle with super high turnover and impossible recruiting challenges.
 
A great idea that will likely never see the light of day.  That's a shame.

CHANGE: Insurmountable Positions Get Leapfrogged By New Access Points...

When you think about big companies going down over the last couple of decades, it's really about corporations thinking their positions are insurmountable and being slow to try to develop new technologies and approaches that would replace the cash cow they found themselves with.

For example:

--Internet Explorer got overtaken by Chrome

--Blockbuster got overtaken by Netflix, and at the retail level even by RedBox

--<insert your own example here - there are many>

What's interesting to me about this aspect of change is that insurmountable positions aren't always replaced by better products per se.  Instead, those strong competitive positions often get leapfrogged by competitors creating new access points.

Example - Microsoft was fat and happy with IE, but Chrome leapfrogged it as the operating system became less important and less central to the user experience.  Of course, Chrome was a Amazon-echobetter product as well.

Another Example - Blockbuster loved it's retail approach, but Netflix started eating into it's market share as much by the mail order DVD access point as it's pricing model.  Once broadband showed up, it was done.

That's why an interview a few years ago with then Google CEO Eric Schmidt uncovered that fact that Google views Amazon - not others routinely associated with search - as the biggest threat to its search business.

 

With the emergence of the voice controlled Echo from Amazon, it would seem the future is now on that front. More on Amazon's threat to Google via Techcrunch:

We all suspected the Echo’s purpose was – at least in part – to drive more Amazon sales. And that’s exactly what’s happening, according to a new study by NPD Group. The research company found that owners of the Echo spent around 10 percent more after they bought the voice-powered smart speaker than they did before.

Data for the study came from Echo’s full term of availability, which surprisingly actually spans two years (it feels like it’s been a lot less time to me). NPD also found that about half of the online spending done by Echo owners happens at Amazon.com once they pick up a device.

It’s not a huge deal for other retailers yet because of Echo’s somewhat limited reach thus far – NPD says it estimates around 1.6 million have sold thus far. But it’s a trend that could be very good for Amazon long-term, especially as it brings the Echo Dot back to market at a new, more affordable price point.
 
Voice search.  That's a different access point that the way we've traditionally thought about search, and Amazon was first to the mass market with the Echo.  The Echo  is capable of voice interaction, music playback, making to-do lists, setting alarms, streaming podcasts, playing audiobooks, and providing weather, traffic and other real time information.
 
You know, the stuff you use Google and your smartphone for. It can also control several smart devices using itself as a home automation hub.
 
To Google's credit, they've never been slow to experiment.  They're doing what they can to get Google Home (their competitive answer to the Echo) launched, but it's still not here.
 
New access points create change that eliminate dominant positions.  Will Google always be dominant in search?  History tells us no.

 


3 Candidates Walk Into a Bar and a Recruiter Asks Each One Of Them What They Make...

I love all of you who read this blog - Thank you!

But you've lost your minds if you think the reason we want to ask for salary is so we can lowball someone and perpetuate discrimination. Greatvalue1

I'm posting about this based on the reaction to my post on the Massachusetts law that outlaws asking a candidate what they currently make. See the post and some comments (received many more via email) here.

Some of this comes down to whether you view the world as an HR person or a recruiter.  I've always had to be both. 

If you're a recruiter serving a client, you get paid for a higher level of service. The expectations aren't the same as your internal recruiting group, who are more conservative and risk adverse as a rule.

Say you have 3 candidates with different sets of experience and different abilities to impact the business. Assume for now - and I know it's hard for a lot of you - that protected class has nothing to do with it.

Knowing the salary that it's going to take to land each of those candidates means opportunity for a candidate. Let's say you're an  up-and-comer and there are some things we like, but you don't have all the things we need. You needing 70K in salary instead of 95K can make a difference in you getting the job. And no, you won't add the same value that the more experienced candidate will provide in most circumstances.  You're not as deep.

But if my client likes the potential and can save money to deploy elsewhere on their staff, that's a viable option.

For a recruiter worth their salt who has to plow through the market, having salary info specific to the candidate isn't about screwing someone. It's about making the best match possible.

The workaround is obvious.  I'm going to tell them what my client can pay for their experience.  Then I'm going to ask them if they'll accept the offer at that level if we get to the end of the process and they're my candidate.

And yes, males get the same treatment.  Every time.

Great recruiters are like stock traders - we help clients understand whether someone's a buy or a sell based on their price.  


CHANGE: Randstad's Purchase of Monster Proves You Should Budget R&D to Kill Your Primary Business...

This one is about change and the conversations we get into as HR leaders related to strategy.

It's also about change management in a way that HR pros will understand.  Ready? Let's go.

Randstad just bought Monster for $423M.  Does that sound like a good deal to you? Here are some more detail from TechCrunch:

"Today Randstad Holdings, an Amsterdam-based human resources and recruitment specialist, announced that it would acquire job hunting portal Monster Worldwide, for $429 million in cash. The deal works out to $3.40 per share in cash and is a premium on Monster’s share price at closing on Monday of $262 million."

But before you label it a good deal, consider the following:

"It is a far cry from the heady days of 2000 — when Monster, which had gone public soon after being founded in 1999 (itself the result of a merger of two early job startups), had a share price of over $91 and a market cap of nearly $8 billion. Even in 2007, when its stock was around $51, Monster was valued as high as $5.5 billion."

To really get your head around that, consider the following chart of Monster's stock (email subscribers click through, you'll want to see this one):

Monster stock chart

Translation: DAAAAAAAAAAMN.

Let's think about that chart a little bit and try to learn from it as HR leaders.  The older we get, the more we discover that nothing is forever.

Monster is the HR version of Blockbuster.

There were two very fat phases of Monster's existence - namely 2001 and 2007.  At any point, Monster could have broken off some R&D funds and, in addition to pumping you for as big of a job board buy as possible, could have been thinking what the future held for them.

The future ultimately arrived in the form of Indeed, the power of SEO in directing traffic to a careers site, LinkedIn, social and a thousand niche job boards.  

Monster was late to the game on a bunch of trends.  I like to think of the downfall of Monster in this way - over time, Indeed redefined the job posting with their SEO model and the subsequent sponsored listings.  LinkedIn obviously owned the database and even fringe players like Glassdoor made inroads by owning company reputation.

Monster protected the cash cow.  To be fair, it's happened to so many companies you can't blame Monster.

But from an OD perspective?  How do you not only emphasize funding R&D when times are good, but how can you make sure that R&D spend is focused on eventually killing the cash cow of your company?

Those are hard questions, but the example - near and dear to the heart of HR that Monster provides - is too good not to share.

Monster=Blockbuster.  Monster=RIM/Blackberry.  Monster=Kodak.

Harsh but true.  


BUDGET SEASON: How Your Finance Team Treats Turnover REALLY Matters...

Welcome to the early days of budget season, American HR Leaders!!

Snuggled up to the friendly Finance and Accounting pros in your organization lately?  Great... Here's a little snigglet to make sure you have enough cash to fund all the hyped pay-for-performance initiatives you are cooking up in the test tube you call a laptop...

The type of budget model you have?  It matters. 

Duhhhhh, you say.  You get the budget.  Hold on there, Donald Trump, because I'm not talking about theTurnover_factor fact you have all the salaries loaded into the budget.  I'm talking about the FORMULAS the Finance quants are using underneath the names and the numbers. 

The big one you need to be aware of is this - Does your comp budget model have a Turnover Factor, or do the funds vacated by positions that are vacant remain in the comp budget, available for proper use?

It matters a lot.  A turnover factor projects the amount of turnover a company/division/department is going to have during the budget year, then automatically reduces payroll by the appropriate amount.  The logic used when putting a turnover factor in the budget model is that those funds should be unavailable in the budget since there won't actually be PEOPLE in those jobs (for that time period).

Details, details....

The effect of the Turnover Factor?  Your compensation budget gets a lot tighter, and you'll have a lot more variances to explain month to month.  And that kind of stinks... But it's actually the right way to do it from a business perspective...

Additionally, the Turnover Factor puts a LOT of pressure on the pay-for-performance system.  Have a lot of managers who have a hard time telling low-performing employees they're not doing that great with no raise or a limited increase?  A turnover factor means you are dealing with a truly zero-sum game.  For every dollar your manager gives to a low performer, he won't be able to give that dollar to the star. 

Especially if you have a Turnover Factor - because there's no built in slush fund.  Budget 4% for increases?  With a Turnover Factor in play, that's exactly what you have - with your active employees.  Without the TF in play, you've got some wiggle room from a budget perspective.

So give your Finance pro a pound today and learn more.  As your company grows, the Turnover Factor is a way of life, but maybe you can delay it a little bit longer.  Remember - you're doing it for the PEOPLE - and who could blame you for that?


The Smartest "Hot Take" I've Read About the Microsoft Acquisition of LinkedIn...

Microsoft said last week that it would acquire LinkedIn in a $26.2 billion cash deal. The acquisition, by far the largest in Microsoft’s history, unites two companies in different businesses: one a big maker of software tools, the other the largest business-oriented social networking site, with more than 400 million members globally.

As you would expect, there's been a lot of hot takes related to the reasons from the acquisition, the potential of the deal and what happens next.  See my post for 3 ways Microsoft could change the corporate talent scene with LinkedIn by clicking here.  For the most part, everyone's guessing about the impact and what's next.

That's why this post from John Sumser was my favorite take on the Microsoft/LinkedIn deal.  You can always count on John to get deeper than most observers.  Observe and learn:

"The single largest limitation to growth for LinkedIn is the inability to monetize the real value it delivers. LinkedIn preps knowledge workers for the next meeting. It expands  the individual human capacity to recall and interact with others. It shaves time off the warm up cycle in conversations. It creates multiple additional points of stickiness between people who are not so close. This is how non-mediated job hunting works.

The problem for LinkedIn and its struggling stock is that there is no hard cash in this productivity improvement. LinkedIn turned out to be the single greatest monument to PowerPoint dollars – PP$ (those savings and ROIs that only exist in the presentation justifying a large enterprise purchase.) LinkedIn increased individual efficiency in a way that must be worth trillions of PP$."

You can go read the rest of John's post here.  Smart stuff.  Now take a look at LinkedIn's stock since going public (email subscribers click through if you don't see the image):

LinkedIn Chart

LinkedIn's stock dived from 250 to 100 in 4 months as the market started holding it accountable for results in the absence of earnings.  As REO Speedwagon once said, I believe it's time for me to fly.

To John's point, the things that make LinkedIn most valuable are the ones that are impossible to monetize on their own.  But they are things that the right strategic (as well as giant) partner could justify monetizing as part of a deal.

LinkedIn did what they had to do.  Can Microsoft find a way to monetize the real value of LinkedIn?  It's hard to say, but finding ways to unlock the value of LinkedIn that John alludes to  - perhaps across the Office product line and the CRM business - might be the best chance to print those vapor dollars.  

After all, a dollar of retention is cheaper than a dollar of new revenue.