Are You Hiring to Fit the Budget or Hiring to Fit the Job?

If you work in a small firm, many of your new hires are one-of-a-kind.  They are your only HR person, or your only IT manager, or your only Development Officer.  So when it’s time to hire someone new, you are often unfamiliar with what to pay, or what the “going rate” is for those skills.  And there is nothing wrong with not knowing.  Not knowing is actually a good thing – you can be more open minded.

But sadly, many people are really uncomfortable with that uncertainty.   Perhaps they need to budget for a position, or justify it to their boss.  Perhaps they are the boss and they feel like they must dictate salary to control costs.  So in order to feel more certain, hiring managers turn to salary surveys, or worse, they ask a few other small firms what they are paying, or even worse they assume they can pay what their last employee earned in that position (like the one who failed, or the one who quit).  But worst of all are the people who ignore the reality of the job market entirely and say “I budgeted $60,000, so let’s get the best possible person we can for that amount.”

All of these are bad ideas.  OK, some of these are really bad ideas.  They all force you into hiring to fit the (arbitrarily determined) budget, instead of hiring the right people to fit the job, and then figuring out how to make the budget work.  Like the aspiring young snorkeler in the picture, hiring to fit the budget is a bass ackwards hiring practice.  Here’s why:

The purpose of a budget is to control costs.  High performing people are a great bargain, it’s the underperformers who are expensive.  When you limit your interviewing to consider only those people who fit your budget, who do you think you are most likely to exclude?  The high performers.  And who are you most likely to include?  The underperformers. Funny how that whole cost control thing can backfire on you.

Salary surveys tell you what some small sample size of average people in that job title get paid – as if everyone with the same title has precisely the skills you need…absurd.  The same problems occur when you ask around.  If all you ask is “What do you pay your IT Manager?”  the answer is always meaningless.  But it’s worse than meaningless, because you probably felt like you just learned something when in reality, you really did not.  

Admittedly, it’s no easy task to keep salaries equitable for your employees.  And overpaying new hires can be demoralizing to loyal current employees.  And yet, and yet, and yet…when you are hiring for a critical position and are not sure what to pay, you owe it to yourself go about it in this order:

• First, decide what skills and abilities you need to achieve the results you want to achieve.
• Second, go recruit people who have all those skills and abilities, who actually want to work at your firm.  
• Third, interview people across the spectrum of skills, experience and salary levels.  If you recruit a robust candidate pool, you will almost always find a “sweet spot” – a salary level where most of the good people tend to cluster.  If the best qualified people are clustered around $120 – 130k, but your salary budget is $115, you really owe it to yourself to understand this before proceeding.  When you ignore this market reality and hire the people who fit the budget instead of hiring people who fit the job you will end up spending far more on turnover than you save on budget.  Lower performers also consume more training and management time, and are less productive, hardly a bargain for your budget.  
• Fourth, having looked at people with a wide range of skills, decide what level of skill is worth paying for to achieve the business results you require.  
• Fifth, find the money to make them a job offer at a fair market rate.  Don’t lowball your job offers to fit budget – if you want to keep great people, pay fairly.
• Sixth, if in the search process you learned that the current market rate is higher than what you pay your other people, either bring their salaries up to market, or plan for more turnover.

Great people who drive business results are always worth what you pay them.

Hiring in Washington DC

New clients often ask me why recruiting great people in Washington DC remains stubbornly difficult.   One of my favorite job aggregator sites – Indeed - explains why in a very simple graphic that compares unemployed people relative to job postings.   (9/15/09 Note:  Indeed updated this chart recently).

Washington and Baltimore have 1 job posting for every unemployed person.  This is the best performance of any major city listed.  Other cities,  like New York have a ratio of 2 unemployed people for every job posting.  But poor Detroit comes in last with eighteen unemployed people for every job posting.  

The graphic illustrates that recruiting is essentially a local business.  Hiring difficulty varies widely from city to city.

By the way, it’s also a good reminder, that if you want to hire better people (at least in Washington), you have to write a better job ad.  Something I have been ranting talking about for quite some time.

Stop Thinking About the National Economy

Thinking about the national economy is, by and large, a waste of time (unless you are Ben Bernanke, or Tim Geithner, in which case, please stop reading this blog and get back to work!)

The Brookings Institute suggests we do not have some monolithic national economy, but instead really have an interconnected group of 366 metropolitan economies.   It makes sense, as this is exactly how staffing actually works.  At it’s core, staffing is a local business.  The labor pool, the jobs, the pay, what’s considered a good job, what’s considered a good commute – all this varies widely by region.  Ignore it at your peril.  The national unemployment rate is irrelevant in hiring.  Nurses might be in oversupply in one region and there might be a nursing shortage elsewhere.  Whether you are hiring  20 construction workers in Miami or 2 Mechanical Engineers in DC,  the local  economic situation matters more than the national numbers.  This is why we are seeing a talent migration to Washington DC, which has one of the strongest regional economies in the country.

Every day this week I talked to a local employer who had run ads to find candidates, but still had not found the ideal candidate for an open position.   A strong local economy like DC, can be really irritating if you thought hiring was going to be easy.

Why is the DC Job Market so Irritating?

Employers - here’s more bad news:  The DC job market is showing signs of returning to “normal.”  While hiring for some jobs is easier now, “normal” for DC means that employers will have an increasingly difficult time finding highly qualified people to fill every critical opening.   

The daily drumbeat of bad economic news that has pummeled us all since November is slowly letting up.   Government recovery plans are taking shape, and government money will soon be flowing (yea!)   Layoff notices are not coming quite so quickly.   And a once in a generation hiring opportunity is slowly beginning to slip away from you.  You are now missing one of the best chances to upgrade your workforce that you may ever experience.

I know hiring managers find this hiring difficulty both astonishing and really, really irritating.  They want to upgrade to better people, they really do, but most just don’t know how.   HR professionals (who are often short-staffed themselves) are hearing managers bitterly complain about their internal recruiting efforts:   

“Are you kidding me?  In the midst of the worst recession in twenty five years, we can’t find better candidates than this?”

“I can’t believe I have to pay a search fee in a recession?  Seriously.  Where are the good people?”

“Are you telling me that we received 300 resumes from our ad on Monster and only three are worth interviewing?”

So why didn’t this huge financial calamity, this Near Great Depression, this global fiasco make hiring easier for ALL of us here in DC? 

Well the recession did make hiring easier, if you were looking for people to work in Detroit.  Or if you were looking for construction workers, auto workers, or Wall Street types.  But you aren’t looking for those people, now are you?  No, you are looking for the same skills everyone else is, and those skills are still in relatively short supply, because very few firms in our area had big  layoffs of people with really hard-to-find skills.  (Circular logic, I know, but it’s still true.)

So what evil forces are conspiring against your recruiting efforts?   Why are you still missing out on this once-in-a-generation hiring opportunity? 

First, don’t confuse national unemployment rates with local unemployment rates.  We are deeply fortunate to work in the strongest job market in the country - our unemployment rates for most occupations never really spiked.  But to take it a step further, don’t confuse the macro unemployment rate with the number of highly qualified job seekers who have the skills you need to thrive in a recession.   It’s a darn shame that thousands of unemployed auto workers don’t make it easier for you to hire your next CFO, but they don’t.

 Second, “post and pray” job advertising does not work any better now than it did before - you just get 300 desperate unqualified people instead of 100 or 150.  Sure you get a few gems in there, but not as many as you would expect, given that everyone tells us this is the worst economy they have ever seen. 

But the biggest reason you are not seeing great people lining up to take your jobs, is you haven’t thought enough about who you want to hire yet.   When you post a job without first taking the time to think hard about it, everybody who reads your ad can tell right away.  And the person you want?  That hard charging, no excuses, high achieving, go-getter who gets results in a recession?  They are results oriented, so when they know you are not seriously thinking about your business, they do not even apply.

In the past few weeks I have had a dozen clients tell me the same thing, almost verbatim:  ”We’ve been trying to hire someone on our own for several months now, and with the economy so bad, I really expected we would have filled it, but all I’m doing is sifting through resumes and nobody jumps out at me – I just don’t have time for this and I can’t afford to leave this critical position unfilled any longer. 

Hey DC, welcome back to your “normal” irritatingly familiar ways.

100,000 New Federal Jobs

A recent Washington Post article suggests that between 100,000 and 250,000 people will need to be hired by the federal government to fulfill the demands of the President’s ambitious budget.  White House budget director Peter Orszag was quoted as saying:

“in several key areas — from properly auditing contracts to providing quality medical care to veterans and reducing errors in Medicare and other programs — investing in skilled professionals will not only pay off over time but also immediately deliver better service to taxpayers.”

The Department of Veterans Affairs expects to hire 17,000 people by year end.  And with a proposed budget increase of 10%,  the Social Security Administration expects to hire people in field offices, hearing offices and teleservice centers.

Bring on the federal hiring blitz!

Where the Jobs Are . . .and Other Fallacies

I’m looking forward to an onslaught of news articles about how the stimulus package will create jobs in different industries.  And I will dutifully devour that material and breathlessly report back to you on how it will affect the DC region.  And I will be wrong in ways I cannot even imagine.  As Yogi Berra once said, “It’s tough to make predictions, especially about the future.”   (He’s a national treasure, that guy).

So Yogi’s comment is my first disclaimer as I share with you a snazzy state by state interactive map of economic forecasts, but before you have fun with the interactive forecasts, let’s first review the forecasts made LAST year by BusinessWeek’s impressive panel of notable economists.  In December of 2007:

“The economy won’t sink into a recession next year. That’s the overwhelming view among the 54 economists in BusinessWeek’s annual economic outlook survey.”

OK, so 14 months ago, literally 2 of 54 economists actually predicted this recession we are in.   And these are the guys who are telling us how long it will last?

If you still believe in economic forecasts, just slog through Black Swan, and your misplaced trust in economic forecasts will be forever put to rest.  

This is not to say I am pessimistic, far from it.  I just have no confidence that anyone can accurately forecast the future. So we all need to be ready for an unpredictable future, which very few firms are doing.  Being ready does not just mean cutting costs, it means challenging old ways of thinking and reallocating resources to support your future growth.  It means asking new questions about the business.  “Where are our strongest growth prospects?  Do we have the right team in place to capitalize on those opportunities?  What costs can we eliminate if we try a different approach?  Who is effectively driving results for me right now, and who is just lost in the turbulence?”  (Are you a CEO?  Click here.  Are you a recruiter? Click here) 

More Jobs in Washington DC

When most media outlets converge on a single story line – like layoffs -  it’s easy to overlook the other stories.  So, to give some balance to the pack journalism angle about the terrible economy, here are a few recent news stories and how they might positively affect job creation in Washington DC.

From the Washington Post:  If Spending is Swift, Oversight May Suffer.   How will the economic stimulus plan affect hiring in our area?  Well, for one thing, it takes ALOT of people to oversee billions of dollars in spending.  Excerpts from the article:

“Since 2000, procurement spending has soared about 155 percent to almost $532 billion while the growth in the acquisition workforce has fallen far short, rising about 10 percent. . . The government’s watchdog infrastructure, including inspectors general, also will face new challenges. The House and Senate bills each include about $200 million in additional funding for inspectors general. But some observers say that may be insufficient given the demands.”

From CNBC:  FDIC to run “Bad Bank” – FDIC Chairwoman Sheila Bair has strong support for a “bad bank” which will buy up the so-called “toxic assets” which are clogging the banking system.    The way I see it, a bad bank = good jobs, right here in Washington for all the people will be needed to run it.  Again, it takes lots of smart people to spend that kind of money wisely.

From Reuters:  Mortgage Rescue Plan  – The Obama administration is designing a mortgage rescue program that would ask Fannie Mae and Freddie Mac to ease payments to thousands of borrowers.  And hey, aren’t they both headquartered right here in our region?

From The Washington Business Journal: Stimulus Offers $6B Green Boost to Federal Buildings - the wounded construction market could certainly use a federal bailout, and they’ll get it in the proposed stimulus plan.  But there will also be jobs created for oversight of the program.  Excerpt from the article:

Recruiting Myths: Good People Don’t Look for Jobs in a Recession

One of the many reasons I like to blog is to gleefully disagree with conventional wisdom.  I don’t know if “good people don’t look for jobs during a recession” qualifies yet as conventional wisdom, but it does meet my four criteria:  It’s widely repeated, simplistic, unexamined, and outdated.  Therefore you can gain a serious competitive advantage by challenging it.    

In every recession, a few search professionals advance the argument that “top talent does not look for jobs during economic downturns” (so presumably employers need to hire those same search firms to find the “A players”).   The concept is that in a bad market good people with good jobs become risk averse and hunker down – you practically have to dynamite them out of their chairs - and only a silver tongued headhunter with uncommon skill can recruit them away.   The theory is that good people will rarely answer ads, and mediocre recruiters (or what Josh Letourneau hilariously calls  “Big-Box Publicly Traded Candidate-Grinders”) will never be effective.  As with most conventional wisdom, this is all partly true (naturally it’s the part that’s not true that I think about).

Quite a few blog posts have been written about wooing passive candiates in a recession (Look here and here). I’ve heard variations of this argument from people I really respect in the industry (all vaguely implying that “active” candidates are somehow inferior to people who are not looking).     Finally, the cherry on top of the conventional wisdom sundae -  is the advice that you have to a pay a huge salary premium to get someone to “take a risk” on a new job – see “How Much Cash Does it Take to Steal a Passive Candidate?.   Perhaps I’ll revisit the whole “passive candiates are better than active candidates” myth in a future post, but probably not.  It definitely meets my 4 criteria for conventional wisdom – but Ronald Katz already did a brilliant job of eviscerating it in his post “What’s So Great About Passive Candidates.”  (For balance, be sure to read the comments -  the people who disagreed with him also made some decent points).

Ok, so why am I convinced that great people look for jobs in a recession?  Well mainly, because we’re talking to them every day.  Lots of them.  They are migrating to DC in droves. 

Center of Gravity Tips Toward DC

Washington’s power and influence is growing as a direct result of the economic crisis.  And talented people and high paying jobs will surely follow. (See my previous posts about The Great Talent Migration).  

The Washington Post ran an editorial this weekend - ”The Height of Power” – outlining how Washington is emerging as “the undisputed center of national power and influence.”    This is not so much due to our inherent greatness (as much as I love this area)  but rather it is due to the collapse of other centers of power such as New York.  The author points to our region’s well educated workforce, relatively low unemployment, and relatively high household income.  But the real power in Washington right now is the federal government’s power to print money and distribute it.  As the editorial puts it:

“All this is bad news for much of America, but it should mean great business for many residents of greater Washington. . . Office buildings in the District and surrounding environs can now expect a new rush of tenants, both from the private sector and the soon-to-be-expanding federal bureaucracies.”

All month I’ve been talking about the “hiring blitz” at the FDIC, at Treasury, at the State Department, and at the FBI.  And more will surely follow.   Just follow the money.

Where the Jobs Are…NOT

“Green collar” jobs, infrastructure investments, financial bailouts…just exactly where will the new jobs come from?  In the Washington region – where the federal government accounts for almost a third of our total economy - we benefit when when Treasury struggles to fill jobs to support the $700B rescue package,  we benefit when the  FDIC hires 1400 new bank examiners,  and when the State Department adds 1,500 positions, and when the FBI starts its Hiring Blitz.  This is why Dr. Fuller reported at the GMU Economic Conference that our local economy still has a “worker shortage” and is still ”importing” people from other areas to fill our jobs.  I’ve been calling it The Great Talent Migration, and it appears it will only increase in 2009 as massive government spending offsets job declines in other areas like construction.  in 2009, DC is projected to gain high paying jobs, not lose them.

Our search practice is thriving.  Maybe it’s because we get better results for far less money than traditional firms, but mostly it’s because hiring is still a challenge for most organizations.  Across the region we have small firms who are expanding, association clients filling key roles in education, certification, and member services.   We’re filling jobs in marketing, nonprofit development, finance and accounting, IT, and HR.   And more and more of our best candidates are coming from outside the region.

So is the “green revolution” overblown?  Well, it depends what you call a green job.   According to a recent analysis done for the DC Office of Planning, the so called “green collar” jobs are often just the same construction workers who were being laid off  in the downturn.  But I think their survey placed too much emphasis on just the green building movement, and not other green jobs. Commenting on the study findings, GMU economist Stephen Fuller observed that the green jobs thing is “substantially oversold.”   

How to Make the Most of the Economy Right Now

Bob Corlett

Come join me on February 18th when I talk to the Montgomery County Chapter of the Society for Human Resource Management (MC-SHRM).

The topic is “Recruiting in a Recession:  How to make the Most of the Washington Economy Right Now.”  We’ll be talking about what recruting strategies are working best right now and how employers can best take advantage of the current job market conditions.   Since I am the speaker, naturally we’ll be talking about  my favorite topics including:

• Trade-in Time – How you can trade in your mediocre people for better people.
• The Great Talent Migration – Highly qualified people are moving to Washington DC because of our strong job market- so get ‘em while they last.
• Hiring for Performance - How can you raise the bar on  performance expectations with your new hires?
• What the CEO Wants from HR – what kind of conversations should HR be having with senior management right now?

Registration is only $20 for non-members.  Bring me your toughest recruiting challenge, but leave those rotten tomatoes at home - no hecklers please!

Is the Foreign Service Right for You?

Who is hiring right now? The State Department and the United States Agency for International Development (USAID), that’s who.  The State department wants to add 1,500 positions this year, but are you cut out for the Foreign Service?  Take their online quiz to find out.  (Here are two thought provoking questions from the quiz:  “Would you enjoy spending 2/3 of the next 20 years living overseas?”  or “Are you willing to repeatedly get people out of problems they got themselves into?”)

The New York Times recently reported that Senator Clinton has also been pushing for more resources to help the State Department more effectively deal with reconstruction in Afghanistan and Iraq, and play a larger role in speeding the recovery from the global economic crisis.

In a recent survey, BusinessWeek found that the State Department was rated one of the five most desirable employers among undergraduate students, ranked even higher than the Peace Corps.

I do love news articles about employers hiring in Washington DC . . . don’t you?

Thankfully, This is Not 1929…or 1982

These are uneasy times, but far from catastrophic.  Newsweek provides some valuable perspective on this.  In a recent article, they outline a few key points to keep in mind:

• Many economists expect this recession to end sometime in the summer of 2009, not go on for 43 months like the Great Depression. 
• National unemployment in this recession is likely to peak at about 7.6 percent, not even remotely close to the 25% of the Great Depression, and nowhere near the 11% from 1982.  

Unemployment in the DC suburbs is currently running about 3.5% right now (about 7% in DC, and just over 4% overall).  At the Annual President’s Forum of Metro-Washington, the keynote speaker, GMU economist Stephen Fuller, told me he expects unemployment in this region could still rise about another one percent – remaining the best job market in the country - and well within the range that most economists call “full employment.”   

A Time for Vigilence

It’s the Monday before Thanksgiving and as Washington begins its’ predictable slide into “let’s put that off until next year” it bears reminding that this is no ordinary year.  And it’s no time to coast, just putting things off for later.  Quite the opposite.

 

On the downside, how are you positioned for the downturn? Are you tracking performance?  Do you know exactly who you will cut and when you will take action if things get worse?  Do you have a layoff plan you can immediately put into action before things get really bad?

 

If everything stays the same, how are you staying close to your customers? Will you know right away when something significant is happening?  Do you have key positions filled with the right people?  Are you saying the right things and inspiring confidence in your key stakeholders?

 

On the upside, will you be positioned to take advantage of new opportunities, or will you be caught by surprise?  The firms who thrive in this economy are the ones who best understand their environments and react quickly to opportunity.  Same old, same old will not be enough.

 

DC Reaches a Tipping Point – The Great Talent Migration Has Started

An astonishing shift has occurred in the DC metropolitan area job market just in the past few months.  We are now importing the brightest and best candidates from weaker job markets in record numbers.   The combination of lower real estate prices, a strong job market, and a tidal wave of planned federal spending makes our region a powerfully attractive place to live and work.

How do I know this?  Well if you’ve been reading this blog or my newsletter you already know all we enjoy one of the strongest job markets of any metropolitan area.  What caught me by surprise was how many of our recent searches were filled by candidates from New York, Michigan, Pennsylvania, and the west coast.  In our last 12 searches, fully a third of the finalists came from out of area.  This is a tenfold increase in just a few months, and the numbers are rising.