A Short History of Events Leading to the Inevitable Great Resignation

No doubt, there has been a lot of hand wringing in the C-suites of multiple industries the past year. The seeds for this phenomenon, the Great Resignation, were planted in the 1970's. The prevailing view in the US through the mid-20th century held that government had a responsibility to ensure full employment, with federal spending on infrastructure as a way to fill in gaps when the job opportunities in the private sector were insufficient. Though this expectation began to fade in the aftermath of World War II, the economic boom of the next few decades nonetheless served to ensure that workers remained in popular demand, while unions and the regulation of the airline, banking, trucking, telephone, railroad, and utilities industries served as further backstops for workers.

What happened? In one word: deregulation. Seeking a more competitive business environment, deregulation of these industries with increased mergers and acquisitions primed the pump for a new tactic to create shareholder value in the late 1970's and throughout the 1980s: mass layoffs. An additional, critical event occurred when the Reagan administration used union busting tactics during the air traffic controllers' strike in 1981. Within a decade, many of the protections afforded employees vanished. Between 1980 and 1985, Jack Welch earned the reputation, "Neutron Jack" and 118,000 employees at GE lost their jobs. In the mid-1990s, AT&T CEO Robert Allen layed off 50,000 employees and earned a substantial raise, from $6.7 million to nearly $16 million. At the annual meeting, he even stated, "I feel no pain in accepting the compensation." It was a slap in the face to thousands of former employees at AT&T. The layoffs alone were bad; the manner and malice in which they were done rubbed a bit of salt in the wound.

Another notorious CEO was?Al Dunlap known as “Chainsaw Al,” who posed with pistols and made his name with?"slash-em and trash-em" tactics?at Scott Paper Company and the home-appliance company Sunbeam. His last big move involved firing half of Sunbeam’s 12,000 employees in 1996—only to be ousted 23 months later with Sunbeam’s finances in tatters. Within fifteen years, most American workers were employed in an unstable, shifting business environment with the potential for job loss hanging over their heads like a Sword of Damocles. Additionally, pension plans, no or low-cost health insurance and other benefits disappeared. Company and employee loyalty, once a two-way street, was essentially extinct.

The boom days of the 90's tempered the impact of these events, but the enthusiasm of the internet and dot.com era came crashing down in 2000 followed by the 2008 economic crisis. Uncertainty piled on uncertainty and workers began to feel helpless and somewhat desperate. Workers were and are vulnerable. Meanwhile, CEO pay increased and employees were and have been treated as a commodity not sharing in the spoils of success. It's tough to find employee loyalty and engagement with stagnant wages while those at the top earn more and more.

In 2020, the ratio of CEO-to-typical-worker compensation was 351-to-1 under the realized measure of CEO pay; that is up from 307-to-1 in 2019 and a big increase from 21-to-1 in 1965 and 61-to-1 in 1989. CEOs are even making a lot more than other very high earners (wage earners in the top 0.1%)—more than six times as much. From 1978 to 2020, CEO pay based on realized compensation grew by 1,322%, far outstripping S&P stock market growth (817%) and top 0.1% earnings growth (which was 341% between 1978 and 2019, the latest data available). In contrast, compensation of the typical worker grew by just 18.0% from 1978 to 2020.

What fueled these compensation increases? The idea of shareholder value emerged as a concept to measure company success in the 1980's along with the principle of value-based management or "managing for value". CEOs were now rewarded financially for creating shareholder value, and most investors, lacking long-term patience, expected high returns. Employees and labor costs were nothing more than a line-item expense. Cutting labor expenses to increase profits fueled the layoffs.

Enter COVID-19. Overnight, employees were forced to work from home or in some type of hybrid environment. Many employees lost their jobs and for millions, there was a respite in the daily grind. With this time to reflect, workers began to realize their discontent. Prior to COVID, Forbes published an interesting article on worker satisfaction. Sadly, less than 50% of U.S. workers felt that they were in good jobs. The pump was now primed for the Great Resignation.

As much as increases in compensation, benefits, and flexible work hour schedules can help corporations alleviate the employee exodus, there is another way, too. The?single best thing that organizations of all industries can offer workers in this time of the War for Talent to attract and keep them is empathy. All of the prior events leading to this event were exacerbated by a lack of empathy. Restoring empathy means restoring respect for the employees, sharing in the success of the organization, and valuing what employees bring to the company. Investing in retaining top talent and offering promotions and leadership positions is also critical.

There is a powerful financial incentive to keep current employees in place.?The Society for Human Resource management reported that on average it costs six to nine months of an employee's salary to replace him or her. For an employee making $60,000 per year, that comes out to $30,000 - $45,000 in recruiting and training costs.

Companies also need to recognize the expectations of millennials, Gen Y, and Gen Z. These generations are very conscious of the concept of social justice and are untethered socially. Many of these younger employees are not married and do not own homes. This gives them the flexibility to quit and look for greener pastures. Gen X is now in their prime, and as a Gen Xer, I think our generation feels somewhat cynical about our future. We have paid into Medicare and Social Security for decades now, and the benefits our parents enjoyed are vulnerable to reductions. We are fully responsible for our own financial future. Many Gen Xers are seeking better positions while in the prime of our careers and at peak earning potential.

Some companies will emerge from the Great Resignation in better position for the long-term. These companies will listen and engage their employees and begin to once again share in some of the collective success. For others, they will fall victim to this famous quote, "Insanity is doing the same thing over and over and expecting different results." The game has changed.