As talent acquisition teams continue to grapple with acute talent shortages, they've also seen higher acquisition costs in 2022 compared to prior years. Recent research shows the cost per application (CPA) rose by 43% last year alone.
These rising costs have started to weigh on today's world-leading companies. Uber's CEO recently shared that hiring will be treated as a privilege despite beating expectations as they look to bring rising spend under control.
Many organizations have increased their talent acquisition budgets to better attract and retain talent in the new year as a result. So why are talent acquisition costs rising, and what can talent acquisition teams do to ensure they are spending their budgets wisely? We answer these questions and more in this blog.
Reason 1: An Inability to Retain Talent (The Revolving Door Problem)
Organizations are finding it increasingly difficult to hold on to their employees. McKinsey research shows that 58% of employees are somewhat likely to almost certain to leave their current job in the next 3-6 months.
This uptick in employee churn impacts the company's bottom line. Activities for replacing an employee — sourcing, vetting, interviewing, and onboarding candidates — are time-consuming and pull the business's focus away from revenue-generating activities. And even when a new hire has been introduced, it takes up to eight months until they reach peak productivity.
While employee turnover has always been a major challenge, it’s even more damaging to organizations given the current skills shortage. Talent shortages in the US are at a ten-year high, having tripled in the last decade. Estimates suggest that the global talent shortage could cost $8.5T in lost productivity by 2030.
Why organizations are struggling to retain talent
Today's workers (primarily Millennials and Gen Z) expect more from their employers than their predecessors. They're less accepting of always-on cultures, recognize the perils of burnout, and will not stay somewhere that does not make them feel welcome.
More generally, however, they want to work somewhere with a great employee experience — and their expectations for what this constitutes are increasing.
For example, the pandemic showed that people could be productive working remotely and therefore don’t see the rationale of returning to office — at least not full time.
It's, therefore, not surprising that companies enforcing return to the office programs are the ones suffering the most. Simply put, today's employees crave flexibility. Businesses that are unable or unwilling to provide flexibility will continue to see their human capital leave.
So how can you respond to high employee turnover?
While it depends on the individual company’s context, you can begin by focusing on improving your employee experience.
Deploying regular surveys to assess how employees feel about your company and analyzing the results can serve as a great first step in improving the employee experience. Remember: ‘What gets measured gets managed.’
Another approach companies can consider is upskilling employees. Instead of looking externally to replace a highly valued departing team member, ask yourself if you can upskill a promising junior employee. This has three benefits:
- It allows organizations to plug critical gaps without spending time or money searching for a replacement.
- It improves engagement because the promoted team member will likely be more engaged at work — they'll feel recognized for their continued performance and will be more loyal to the company.
- It reduces turnover by showing other employees that they can move up through the ranks, which can decrease overall employee turnover.
Reason 2: Traditional Approaches to Talent Acquisition Keep Costs Up
Organizations have historically tended to take an onboard a full-time employee-first approach to address capacity and capability gaps on their teams. But in what is believed to be the tightest labor market in recent history, these traditional approaches may be holding companies back.
They are inflexible, don’t guarantee results, and have long lead times — meaning it’s unsuitable for companies that are unable to solve the herculean challenges they are facing in these uncertain times.
Rigid when agility is needed most
Investing in full-time employees is core to the long-term success of every organization. They understand strategic vision and build plans to execute against them while understanding and executing against operational needs.
However, by their very nature, full-time employees build some level of inflexibility since they are onboarded for specific skills that seemed like a priority at the time. Yet, in a business environment where priorities are rapidly evolving across supply chain challenges and changing customer and employee expectations, the rigid model of traditional talent acquisition approaches can pose challenges.
Simply put, companies today need flexibility. They can’t afford to spend a couple of months (and thousands of dollars) sourcing a candidate for a rigid, well-defined role only to find out that what they need has now changed completely.
But companies are quickly realizing that if they want to compete in this global economy, they need to be more agile than in the past. They are tapping into the rapidly growing independent workforce to scale teams with agility by onboarding the right subject matter expert on demand.
Doing so enables the organization to fill an immediate need in uncertain times. Companies are able to onboard a highly skilled independent expert typically within 13.5 days. It’s why leading companies spent 90% more YoY in Q1 2022 on onboarding independent experts to their teams.
An outdated approach that doesn’t align with business outcomes
The approach of thinking of onboarding a full-time employee first often involves support from recruiting agencies. Given how recruiting agencies are compensated, they tend to focus their attention on filling roles instead of helping meet business goals.
What's more, whenever the firm places a successful candidate, they also receive 20-25% of the hire’s first-year salary. These costs quickly add up, especially when hiring industry-leading talent with specialized, niche knowledge. Or, in the case of a bad hire, having to repeat the process all over again after waiting several weeks to onboard and subsequently onboard the employee.
Reason 3: Rising Salary and Benefits Expectations
It’s an employee-centric market right now. The US labor market is rebounding strongly from the Covid pandemic, adding 1.7 million jobs from January to March. Meanwhile, claims for unemployment insurance recently dipped to their lowest level in 50 years. And it seems like employees are taking advantage of this trend.
Talent acquisition is becoming a race to the top
Companies across all industries are increasing salaries. For example, tech giant Amazon made waves by announcing that it doubled its maximum base pay. Professional services firms are in the same boat.
MBBs increased starting salaries by $10,000, while large legal firms have increased associate salaries by $20,000. Similarly, companies are also bumping up their benefits packages to attract quality candidates.
HBR has found that 98% of leaders plan to offer a new benefit or expand an existing one, with most companies prioritizing child and senior care benefits, flexible working models, and stronger mental health initiatives.
That said, it’s not all about more money and better benefits. While candidates might jump ship for bigger pay, they will only stay if the employee experience is up to scratch.
As McKinsey says, "If the past 18 months have taught us anything, it's that employees crave investment in the human aspects of work… Yes, they want pay, benefits, and perks, but more than that, they want to feel valued by their organizations and managers. They want meaningful—though not necessarily in-person—interactions, not just transactions."
Keep An Eye on What Matters Most
As talent acquisition costs continue to rise, companies must work smarter — not harder. They need to prioritize time-and cost-effective tactics to plug critical capability gaps and ensure ongoing agility while keeping an eye on the employee experience.