A Multi-Pronged Strategy: Global Talent Acquisition, Geographic Diversification, and Operational Excellence
Firms are hiring again, but where?
Talent data to consider while forming a global location strategy.
Despite formidable initiatives undertaken by the Fed, the United States is witnessing persistent inflation alongside elevated compensation expectations. These interconnected pressures are influencing corporations to:
When we look across hiring and job posting metrics, financial services firms are:
Escalating inflation rates have catalyzed a significant upward revision of employee wage expectations relative to the pre-pandemic era. This fiscal metamorphosis has compelled U.S. corporations to reevaluate their talent acquisition strategies. While some firms are strategically gravitating towards the Southern states (TX, FL, NC, TN, and AZ among others)—predominantly characterized by a more economical operational expenditure—to bolster their workforce, multinational conglomerates are increasingly leveraging the benefits of global labor arbitrage by augmenting their employee roster from nations with a comparatively lower cost of labor (India, Singapore, Philippines, and Malaysia) thereby mitigating financial pressures.
Navigating the Double-Edged Sword: How Inflation and Compensation Expectations Are Interconnected and Redefining Talent Acquisition in the U.S.
As these changes take place, it is essential to consider the symbiotic relationship between worker compensation expectations and inflation rates. As inflation pushes the cost of living higher, employees naturally demand greater compensation to maintain their standard of living. This uptick in salary expectations can further intensify inflationary pressures, creating a feedback loop that complicates the efforts of U.S. companies to manage labor costs effectively. In this dynamic scenario, businesses are compelled to explore cost-efficient hiring strategies, such as recruiting from states or countries with a lower cost of living, thereby contributes to a widening geographical income disparity. On the flip side, one could argue that moving jobs to regions with lower living costs might stabilize or even reduce inflation rates over the long term. By redistributing jobs and wealth, areas with a traditionally lower cost of living could see increased economic activity, which, in turn, could lead to a more balanced cost of living across various regions. However, this optimistic view also risks overlooking the negative impact on communities that suffer from job losses, potentially leading to socio-economic polarization. The interconnected relationship between worker compensation and inflation serves as a double- edged sword for businesses, particularly those in the United States. While some firms may find temporary relief in hiring from regions with a more favorable economic climate, the underlying issues associated with the cycle of increasing employee compensation expectations and rising inflation rates remain unresolved. Thus, a more holistic approach may be necessary for companies to truly navigate this complex landscape.
Table 1 above, presented by the United States Bureau of Labor Statistics, depicts the Employment Cost Index (ECI) from March of 2018 to June 2023, and offers an insightful analysis into the dynamic shifts in labor expenses. The ECI serves as a specialized metric that quantifies fluctuations in labor costs, while effectively neutralizing the impact of compositional changes in job roles and industry sectors. An interpretation of the chart reveals the following pivotal moments:
a.) In the pre-pandemic years spanning from 2018 to 2020, labor costs exhibited a relatively stable trajectory, showing minimal fluctuation.
b.) Amid the 2020 global health crisis, there was a noticeable contraction in labor costs in Q2.
c.) Following the implementation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted on March 27th of 2020, labor costs and worker financial expectations began realigned to levels that approximated those prior to the pandemic.
d.) After the enactment of the American Rescue Plan Act enacted on March 10th of 2021, there was a marked acceleration in inflation rates and employee compensation expectations (reaching its peak in June of 2022), culminating in levels that many economists consider to be unsustainable.
e.) At the peak point of Employer Cost, commencing in March of 2022, the Federal Reserve initiated a series of rate hikes with the objective of tempering inflation and reining in expectations surrounding worker compensation. Starting in 2022 and continuing to the present, labor costs have experienced a decline; however, they continue to be elevated when compared to averages prior to the pandemic.
The Employment Cost Index (ECI) and other data provided in the article illuminate the fluctuating nature of labor costs in the financial services sector, especially in the face of Federal Reserve policy shifts. While the link between Federal Reserve decisions and hiring trends is evident, it's pivotal to consider that other macroeconomic variables could also be influencing the hiring landscape. Thus, in the context of your talent acquisition strategy, continually updating your insights with real-time market analytics becomes essential. One might go so far as to say that this multi-pronged approach could serve as a mitigating strategy against the complex and ever-changing interplay between inflation, federal policy, and labor costs.
Decoding the Fed Factor: The Ebb and Flow of Financial Services Hiring in an Era of Monetary Policy Shifts
As one might anticipate, the escalating labor costs coupled with Federal Reserve interventions have significantly influenced corporate hiring. This is particularly evident in financial services sector hiring (Table 2), which is inherently susceptible to fluctuations in federal interest rates. To illuminate this point, the subsequent graphs offer an analysis of the Federal Reserve's impact on hiring in financial services. Upon examination of each chart (which are also provided in full scale within the addendum), one can readily identify a notable surge in hiring activities during June 2022, and the Federal Reserve's influence becomes increasingly apparent during the period characterized by the most aggressive rate hikes, spanning from June to November of 2022. Below, Table 3, is drill down view into Tier 1 bank hiring.
The data underscores the intricate relationship between federal policies and employment trends in specialized industries like financial services. It’s worth also considering the counterpoint that correlation does not necessarily imply causation. While the Federal Reserve's actions are undoubtedly influential, other macroeconomic factors could also be at play, affecting the hiring landscape in ways that are not immediately discernible from the data presented. However, in a normal year, hiring typically plateaus (with some variation) between the months of March and October. The Fed’s effect on hiring cannot be understated.
Crafting a Multi-Pronged Strategy: Global Talent Acquisition, Geographic Diversification, and Operational Excellence
Crafting a global talent location strategy necessitates a nuanced approach. Intensifying pressure exerted by rising inflation rates and wage expectations in the United States. In this backdrop, there is clear merit in adopting a multi-pronged approach: one eye on domestic relocations to states like Texas, Florida, North Carolina, Tennessee and Arizona which offer more economical operational expenditures, and the other on international locations like India, Singapore, Philippines, and Malaysia that offer skilled talent at a comparatively lower labor cost. These international locations should not only be selected based on the cost arbitrage but also on the availability of relevant talent and compatibility with the company's broader corporate culture. However, this strategy is not without its pitfalls. Relocating jobs to cheaper labor markets, while potentially cost-effective in the short term, runs the risk of engendering socio-economic polarization and challenges in maintaining corporate culture across geographically dispersed teams. Additionally, financial services firms are uniquely vulnerable to regulatory environments, cybersecurity risks, and geopolitical tensions, all of which must be assiduously navigated when recruiting internationally. A robust global talent strategy should encompass a balanced domestic and international portfolio, aligned with the nuances of macroeconomic indicators, and tailored to navigate the complexities of the financial services sector. By doing so, your firm can achieve a blend of cost-effectiveness and quality, while also preparing for unforeseen macroeconomic shifts.
CROSS REGIONAL STRATEGIES
Real Estate and Infrastructure
Talent Acquisition and Development
Technology Integration
Sustainability
Government Regulations and Policies
Optimizing Real Estate for Fiscal Efficiency
The downsizing and redistribution of physical office spaces by multiple companies indicate an emerging trend towards more flexible work environments, likely in response to the challenges posed by shifting worker expectations and inflation. It is essential for companies to reconcile this with the need for collaboration and cultural coherence within the organization. Several firms have taken significant steps in reducing their office space, demonstrating a focus on cost management and operational efficiency:
In the face of these challenges and opportunities, companies need a nuanced global talent location strategy. This strategy should not only aim to optimize cost but also focus on acquiring high-quality talent that aligns with the company's broader mission and culture. Diversification across multiple geographies provides a hedge against local economic volatilities. This approach requires organizations to hire executives who have intimate familiarity with the international regions of interest — it is particularly essential for financial services firms which are inherently susceptible to regulatory environments, geopolitical risks, and cybersecurity threats. In sum, the complexities of the current economic landscape, characterized by rising inflation and fluctuating federal policies, necessitate a multifaceted approach to talent acquisition and management. Firms, particularly in the financial services sector, should adopt a bifocal strategy: one that balances domestic and international interests, aligns with real-time economic indicators, and is agile enough to adapt to rapidly changing market conditions. This approach should be complemented by an effective real estate strategy and a flexible work model to attract a diverse talent pool. By doing so, corporations can not only navigate the existing challenges but also position themselves advantageously for future macroeconomic shifts and disruption from emerging technologies. Given the increasing importance of data analytics, insights, and real-time market conditions in executive decision-making, please contact us to learn more about Willard Powell’s consulting services and how we guide companies in crafting location and talent acquisition strategy.
By: David McInnis has nearly two decades of global talent intelligence experience and is President and Founder of Willard Powell, Inc., a retained executive recruitment firm specializing in hiring transformational talent in the financial and technology industries. As a firm, Willard Powell is focused on Building Teams that Build a Better World and removing bias from corporate recruitment through systematic talent research. In addition to his work at Willard Powell, David serves as a Board Trustee at Lasell University in Newton, MA and Board Advisor of ViaTrustUSA, a Veteran support network. David can be reached at [email protected].
A look forward towards our next publication
With the rise in democratization of generative AI capabilities, firms are focused on hiring AI/ML talent. For example, JPMorgan is advertising of 3,600 AI-related jobs. The war for AI talent is intensifying. As a follow up on Mark Muro, Julian Jacobs, and Sifan Liu’s comprehensive article: “Building AI cities: How to spread the benefits of an emerging technology across more of America,” we will provide our assessment of AI/ML hiring at major financial services organizations.
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领英推荐
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Dave -- this is very informative and clearly illustrates the interconnectedness of policy, business, and labor. From a talent management side, guidance and tools on skill availability across locations becomes increasingly critical to drive our workforce planning.
Retired- Vice President, Human Resources, TIAA
1 年Thanks Dave, an informative review of the socioeconomic issues impacting business, and labor markets and the strategies and plans necessary to effectively navigate for success. Businesses are grappling with a variety of factors including public sector policies that have the effect of crowding out the private sector. While some of these policies seemed reasonable and necessary, they remind me of the words of Milton Friedman who said: “One of the great mistakes is to judge policies and programs by their intentions rather than their results." Successful businesses are those who are able to create and sustain competitive advantage by effectively managing limited and valuable resources in a way that drives innovation and value creation. This requires access to timely, accurate and relevant information, data analytics and consultative services. Success requires that you surround yourself with smart, capable motivated people and that you seek their counsel and value their input. Proverbs 15:22
Leadership Coach for Rising & Seasoned Executives Who Want to Grow and Lead with Positive Impact| Builder of High Performing Healthy Teams| Culture Rebooter| Founder| Forbes Coaches Council I Former Fortune 50 Executive
1 年Great insights David. Thanks.
Hi David, thank you for sharing. Very insightful, as always.
I agree that data analytics, insights, and real-time market conditions are essential for executive decision-making. Companies need to be agile and adaptive to the changing economic landscape but so do candidates. Recruitment firms and other servicing companies can help companies craft a location and talent acquisition strategy that is resilient and effective. The talent pool is saturated and weeding through it is a full-time job. It is a truly doggy dog market unlike we have seen in many years and formulating strategy based on data is essential.