Hiring in a hot talent market can be challenging

Throughout 2021, the labour market experienced a phenomenon which has since been labelled ‘the Great Resignation’. It was the year workers quit their jobs at historic rates, largely in part due to the pandemic.

Before the pandemic, unemployment across most of the globe was the lowest it had been for more than 50 years. The disruption which followed, partly caused by furlough schemes, widespread redundancies and shifting talent mindsets, means several businesses are entering recovery mode with a depleted workforce.

In a post-pandemic recovery phase, it will be vital for businesses to not only retain their existing talent, but ensure roles left vacant are filled with the right skillsets.

A new research report from Canadian-based software company Visier, shows external talent remains an important part of a company’s talent acquisition strategy. However, the competition and cost to hire externally requires companies to consider the untapped potential of their existing employees.

Visier, which has developed an analytics platform to help businesses improve their workforce planning, conclude that by using data, business will be able to implement smarter hiring strategies at this crucial juncture.

Bolstering the workforce externally

According to Visier’s events-based data, businesses struggled to replace talent lost throughout 2020; unsurprising given the cost of recruitment and toll the pandemic had on company bottom lines.

However, by May 2021, external hiring rates began to finally outpace employee exits which include terminations, reductions in workforce, retirements, disability, and maternity leaves again. As part of their research, Visier’s data science team calculated a replacement metric to find out how organisations fared in replacing talent that resigned with new external hires through this period.

“In 2019, replacement rates were 180%, and then a little lower (170%), in 2020 and 2021, but that’s still reasonably high,” explains Andrea Derler, principal of Research and Value at Visier. “It means that organisations hired a lot more people externally than they lost through resignations.”

Businesses are again heavily relying on external recruitment to fill their vacant positions, according to Visier’s data: New external hires entered organisations at an annualised rate of 27% than internally with an annualised rate of 19% in 2021.

“Primarily, the advantage for going external is if you are growing rapidly and need more talent than you currently have, you cannot just backfill roles to existing talent,” Derler explains, adding external hires often bring a pool of new skills and mindsets to an organisation.

But there are also numerous pitfalls when hiring externally, especially in a hot talent market. Pay inequality between existing and new employees for example, can arise when companies pay higher wages to new hires in order to remain competitive. While this is lucrative for workers looking to switch companies, if not monitored closely, higher salaries for new hires could cause wage compression for existing talent that experiences no or only low salary increases.

According to Visier’s research, these issues not only risk disrupting compensation budgeting plans but also cause perceptions of unfair treatment amongst employees.

Another risk associated with external hiring is the quality of talent being recruited. In the palls of the pandemic, companies are desperate to fill vacant positions as quickly as possible. A lack of awareness about the return on investment, and the success of new hires, can waste company time and resource.

A lesser know risk to external hiring is candidate ghosting. As Visier’s research notes, the plethora of job opportunities has led to a phenomenon where candidates cease communication with potential employers without giving a reason – ‘ghosting’ them.

Losing candidates through ghosting not only disrupts hiring plans but can also hinder business growth as organisations waste time seeking skills to fill open roles. But it can be avoided.

Understanding whether there are roadblocks to candidate engagement, ensuring there are no hiring biases, and pinpointing where candidates abandon the recruitment processes can help to reduce the risk of ghosting in the long term.

Benefits of internal talent development

Internal hiring has several benefits, however– the main one, arguably, being employees already have the “institutional knowledge”, Derler says. “They know their way around, they have existing networks, and they collaborate already.”

Matching roles internally also allows for career progression whilst simultaneously retaining talent. Derler says conducting regular performance reviews and looking closely at the performance status of employees will allow businesses to elevate their existing workforce to new heights.

“This is where you combine business data with talent data and that’s something that many organisations are becoming very interested in,” she says.

Visier’s latest research reveals women resign more often than men and move within their organization significantly more often—yet women are hired externally only slightly more often than men.

This suggests diversity and inclusion efforts deployed by specific businesses may be having their desired impact in retaining and developing female talent. However, it also suggests wage growth differences between men and women continue to exist.

Data driven

Becoming more data-driven should be a given for any modern organisation because it allows for more informed decision-making. “You need the hard data to determine where the problem lies” Derler says.

If an organisation does not track the metrics about candidate quality, they risk hiring employees who leave within a short space of time.

“If [a business] is losing a lot of its workforce, then it has a huge business problem,” Derler says. “Business leaders need to understand it is theirs, not HR’s problem to lose talent. Many organisations simply do not comprehend that yet because they have siloed processes and data” she explains.

Being aware of success rates for replacing roles with external hires, compared to internal hires, will not only help businesses better design their recruitment strategies, but also see if they are falling short of their development responsibilities.

“If businesses have the technology and the tools to see that they are short on talent and that that is impacting their business revenue, then I think that will convince them,” Derler says. “We are trying to combine people and business data so that organisations can see the implications”.

Data-driven talent recruitment

As the world transitions into the period being dubbed ‘the Great Rehire’, there will be several core factors which dictate whether businesses are able to retain and hire talent.

These will include compensation; learning, growth, development, and career path opportunities; and a positive workplace culture. Ensuring companies are making data-driven decisions will be key.

But there are a number of steps companies can take to avoid some of the pitfalls around recruitment. Regularly analysing wages for external hires versus internal staff, and ensuring companies are abreast of their gender and ethnicity pay gaps, are two options available.

When deciding whether to hire externally or internally, companies should consider conducting an applicant source analysis to pinpoint where the best places to recruit are. Similarly, analysing the retention rate of external hires – and conducting performance reviews over time – will show businesses whether external hiring is the right choice for their business.

“There is a lot to be done, a commitment by senior leaders to use data needs to be a long-term strategy that somebody needs to be prepared to actually follow through” says Derler.