Unemployment is at a 30 year record low

Business growth is being constrained

For staff members, “loyalty” has been replaced by “employability”

This article explains how SME owners and managers can develop
strategies to “beat the labour market”…
Martin Price - Director
Online Executive Search

As one indicator of future expectations, 60% of employers in

WHAT’S HAPPENING IN THE LABOUR the HR Equations survey forecast no change in labour market
MARKET-THE KEY EXTERNAL TRENDS conditions, 39% expect conditions to worsen and tellingly, only
1% see the market as easing.
THAT IMPACT BUSINESSES
“People-factors” have increasingly become
Low unemployment is here to stay
mission-critical in determining financial results
Current unemployment is at a record low of 3.8% and is
Since the 1980’s, people-management and Human Resources
predicted to remain low for the foreseeable future - not an
practices are becoming an increasingly important determinant
economic blip that we can hope will go away if we baton
of financial outcomes for businesses, for example:
down the hatches and keep our fingers crossed:
‰ In his book ‘The Age of Unreason’, Charles Handy
‰ We have an aging workforce. It is estimated that in three
estimates that intellectual assets are usually worth three to
years, two workers will retire from the workforce for every
four times the tangible book-value of an average
new one entering it
business, across all industries.
‰ Steady, positive economic growth of around 3% is
‰ Handy also notes that financial capital is in abundance
predicted, which will reinforce demand for labour, not
whilst at the same time, individual employees are
reduce it
becoming increasingly aware that the key intellectual
‰ Mismatches between skills demanded by the labour
property that is needed sits inside their heads and is
market and output from the education system. NZ
owned by them , not their employer.
continues to produce far too many lawyers and
‰ A 1999 study by the University of Southern California
accountants and far too few tradespeople, technologists
showed that companies which implemented certain HR
and engineers
practices showed a 13% higher return on equity, a 20%
‰ Rates of new immigrants coming into NZ has slowed
higher return on investment & assets and a 60% higher
‰ NZ immigration policy is several years behind the needs
return on sales.
of the labour market. There appears to be a tendancy to
‰ Research by the Saratoga Institute shows that anywhere
favour migrants with strong academic qualifications as
from 15% to 30% of a company’s total value can be
opposed to less-qualified people with good English-
correlated with the existence of specific HR practices.
speaking skills who can “land running” into new jobs

(NB In a major Labour Market survey of NZ’s 100 largest
employers undertaken by HR Equations in December 2004,
the existence of inadequate outcomes from Immigration policy
and programmes was a key finding)
Employees are becoming much more
expensive assets for businesses and this trend
will intensify
The cost of employees is increasing and this trend is here to
stay. It is a massive increase in cost, driven by big increases in

www.onlineexecutivesearch.co.nz
voluntary staff turnover, more investment in training as
‘knowledge-jobs’ increase compared to ‘process-jobs’, a
mismatch between education and skill-requirements,
demographic changes due to an aging workforce and talent
shortages in certain ‘scarce-skill’ areas.
For example, some research from a human resources
perspective by the Saratoga Institute and Rainmaker Thinking
Inc. shows that human capital in the US economy has the
following features:
‰ Cost-per-hire has increased 40% since 1997
‰ Training costs have grown by 36% since 1997
‰ Over the same period, the rate of voluntary staff turnover
has increased 80%
‰ Since 1996, an increase in absenteeism of 14%
‰ Low unemployment, even in a recession, of 5%
In NZ as well as offshore, the recessions, redundancies,
restructurings and cut-backs of the last 15 years have
reinforced the ethic amongst employees that being mobile in
the labour market is desirable. Thus, we now have an
embedded culture in the NZ workforce that changing jobs
every 18 months-to-3 years is both acceptable and a valuable
thing to do.
The HR Equations survey shows that:
‰ remuneration for skilled-labour jobs (positions over
$40,000 salary) has increased by an estimated 30% net
of inflation over the last ten years
‰ staff turnover rate for jobs up to $50,000 salary is, on
average, 23% per annum for businesses
‰ Recruitment has become a “more for the same” scenario
– it takes employers more time, money and effort to get
the same recruitment result as it did 5 years ago
FIRST: CHOOSE A LABOUR SUPPLY
STRATEGY
Labour Market conditions mean SME’s need to plan their
supply of labour, applying the same business planning
principles as they might apply to the purchase of any major
asset or investment. It makes financial sense to do so;
personnel costs are usually 40% to 70% of a SME’s annual
expenditure.
“25% of companies cite labour as the single factor
that most limits their ability to grow revenues”
- NZ Institute of Economic Research
The key is to choose the right mix of recruitment tactics for the
parts of labour market you deal in. As some hypothetical
examples of a Labour Supply Strategy:
1. ‘Company A, Hi-Tech Software and Equipment Business
This company has a highly-skilled workforce, which is
reflected in a median salary of $70,000. It decides to do its
own recruitment for 80% of its vacancies. To equip its line
managers with the right knowledge and tools to make this
strategy work, line managers are trained in recruitment
techniques and efficient processes are developed. To maximise
candidate-drawing power, the company adopts a ‘Everyone is
a Recruiter’ tactic including a Reward scheme for staff
members who refer job candidates. The other 20% of
vacancies are ‘scarce-skill’ positions which are contracted to
an executive search/headhunting firm.
2. ‘Company B, Retail Service Business’
This organisation has a mainly semi-skilled workforce with a
median salary of $30,000. A large ratio of the workforce
have broadly common job descriptions in retail & customer
service. It decides to outsource its recruitment to one preferred
recruitment supplier, who also develops an assessment centre
for the company to ensure consistent high standards across the
country of incoming retail & customer service staff. The
company utilises job fairs and contact with community groups
to increase the reliability and volume of its intake.
A successful recruitment improvement programme will often
have a Return on Investment of 40%-200%. This is excellent
investing given that typical investments in capital such as IT,
plant or machinery have ROI’s of 20%-40%.
There are a range of measures that can be adopted to help
calculate the financial impact of recruitment improvement
programmes, including productivity lost from voluntary staff
turnover, recruitment & induction costs and productivity loss
per new hire.
SECOND: MAKE SURE YOU’RE
PAYING RIGHT
In a tight labour market, its vital to support a Recruitment
strategy by making sure you’re paying competitive levels of
Remuneration and have an effective Pay Review process. Part
of this should be to ensure your very best performers are paid
toward the top end of the market. Top performers deliver
productivity far greater than the average person and find it
very easy to get new jobs. As a result, it’s easy for them to fall
behind their true market worth.
Of course, Remuneration is only one piece of the staff
retention pie. However, when sound, reliable staff members
can readily pick up a 10% pay increase by changing jobs and
top performers gain a 20%-30% pay increase, then it pays to
know in detail where one’s pay rates sit in the market.
Again, it can be a ‘more-for-the-same-scenario’; Economist
Brian Fallow notes in the NZ Herald that for many NZ firms,
increasing wage pressures will have to be found from existing
profit-levels.
“The relentless upward pressure on wages … is
likely to continue for another two years”
- Brian Fallow, Economist

RECRUITING SUCCESSFULLY -
COMPETITIVE ADVANTAGE BY
TAKING ON SOME NEW TACTICS
The HR Equations survey shows a significant trend for large
businesses to diversify their recruitment channels (or sources)
to maximise the number of relevant candidates for job
vacancies. There are a wide range of recruitment tactics SME’s
can implement to ‘beat the labour market’. Some solutions
include:
1. Preferred Supplier and Master Vendor Agreements –
formally outsource to a recruitment firm
Outsourcing all of the organisation’s recruitment to one
(Master Vendor) or a few (Preferred Supplier) recruitment
firms has taken off in the last five years. The quality of
candidates improves. The recruitment firm takes on less risk &
cost and prices therefore drop significantly. Assessment on
which candidates best fit the culture becomes more reliable as
candidates are not “sold” by the recruiter to earn a fee. A
win-win contract and partnership can be created.
The HR Equations survey found that these types of Agreements
are rated much more highly than general use of recruitment
firms. Organisations with these Agreements reported the
following :
‰ 73% have reduced cost via reduced recruitment agency
fees
‰ 64% report reduced time to recruit and another 9% that
it’s too soon to tell
‰ 77% report improved calibre of external candidates
‰ 55% report improved candidate assessment standards
2. Improve your recruitment results - train your managers &
improve the process
By providing your line managers with knowledge on how to
Interview and undertake Verbal Reference Checks you can
significantly improve the reliability and quality of your staff
intake. Similarly, a recruitment process that is fast as well as
thorough will add value because you will recruit faster and
with a high ‘strike rate’ on quality.
3. Taking advantage of the technology-much better contact
with the skills you want, faster, for longer and at lower cost
For skilled labour, the internet provides tremendous
opportunities to improve the reliability of bringing buyers and
sellers of labour together. Companies can market themselves
directly to high value employees over a sustained timeframe
via searchable job banks and auto-notification of vacancies.
Candidates are easily provided with value-add services such
as CV builders & storage, advice on interviewing, news &
trends. Recruitment cycle times and costs are reduced.
The HR Equations survey shows that the internet is now on a
par with the newspaper in terms of advertising effectiveness,
yet newspaper costs are often between two times and ten times
more expensive than the cost of the internet.
The internet also provides the opportunity to unbundle
recruitment firm services and take a modular approach. e.g.
you advertise yourself and collect CV’s but then pay the firm to
undertake short-listing and appraisal.
4. Everyone is a recruiter - maximise your company’s
knowledge of labour supply to improve results
All of your organisation’s employees will know people who
have skills that you will need. e.g. employees often have
excellent knowledge of which company’s and individuals are
good performers within their field within the labour market.
This information can be systematically captured and used to
great advantage.
A ‘Reward & Recognition’ programme can be established to
help get staff involved. For each placement, the ‘Reward &
Recognition’ programme will cost a fraction of otherwise
paying recruitment fees.
The HR Equations survey notes that referrals from existing
employees is “rated highly by 60% of organisations as a
source of candidates but vastly untapped.…..almost always
left to chance with few organisations making a systematic,
thorough job of it”.
5. Labour supply plans-working out where the replacement
skills are before you need them to improve candidate quality
and reduce costs
This requires a commitment to developing a detailed
understanding of the labour market niches pertinent to a
company. Line Managers should have a detailed
understanding of their key supply markets that make for
competitive advantage, including labour.
Labour Supply Planning means identifying skills/qualifications
required for jobs; where those skills exist, (likely current
employers, job functions, tertiary education); and what is the
best channel to reach those skills. In effect, knowing where
good candidates are before vacancies actually occur makes
for faster, more reliable recruitment.
6. Create an ‘Alumni’ or ‘Networking Association’ for former
staff members
Keeping in touch with former staff members on a regular basis
makes it easy to retain contact with key skills. The company
can tap into their knowledge of their particular labour market
niche and perhaps, re-hire good people either permanently or
for a project. In return, the Association enables previous staff
members to expand their own networks, keep abreast of
commercial developments and keep in touch with colleagues.
7. Pre-qualify pools of immigrants to fill future vacancies on an
on-going basis
Businesses with reasonably large volumes of one job-type may
find value in this approach. For example, one company sent
management staff offshore and pre-qualified/selected 50
potential new employees for a current intake (a large one-off
demand) and future on-going vacancies. Cost-per-hire by pre-
qualifying candidates en-masse was much lower than the
blow-by-blow approach of recruiting separately for roles as
they came up within New Zealand.
8. Formalise links with UK and Australian recruitment agencies
for returning Kiwis
“Intellectual property now has a person’s name attached to it . . .
For specific job/skill categories, employers can established
In a bizarre way, Marx’s desire and prophesy, that workers
formal links with recruitment firms in the UK and Australia with
should control the means of production, will have come true.”
a view to recruiting returning New Zealanders before they
- Charles Handy
physically arrive back.
9. Develop relationships with immigrant communities
Employers of unskilled and semi-skilled staff can find a ‘win-
win’ value proposition in forming relationships in a variety of
ways with immigrant communities, from advertising in
community newsletters to establishing a regular dialogue with
community leaders and representative groups.
10. For seasonal workers, form partnerships with other
employers
Where seasons-of-work are complementary, different
businesses can form partnerships which encourage and
facilitate staff to move from one employer to the other and
provide work-continuity for employees.
11. Job fairs or ‘open homes’ for semi-skilled workers
Job fairs or ‘open homes’ can be used to attract semi-skilled
workers, providing a good opportunity for the employer to
show the benefits of working for them, making it easy for
prospective employees to take a look at the employer and the
job and also, convenient to drop in a CV or fill in an
application form.
12. Developing a programme to attract older workers
As the labour market tightens & people are staying healthy for
longer and mature workers are showing they possess the same
creativity as workers of any age and greater loyalty, the
traditional recruitment practice of ‘Age-ism’ (discriminating
against older workers) is disappearing fast.
13. Different methods of recruitment advertising- “get behind
the eyeballs of the targeted candidates”
Various kind of media are being actively trialed, as employers
seek to more accurately target their audience. Some actual
examples include advertising jobs in the bathrooms at a major
sports stadium; letterbox drops; advertising in shopping
centres; specialist magazines for specialist staff; community
and special interest group newspapers are also regularly
being used.
14. Changing the hours and location of jobs to increase the
response rate from candidates
Depending on the job concerned, adopting formal policies to
put meaning to the term “flexible workplace” can increase
recruitment response rates as well as appeal to existing staff.
Examples can include changing the hours of shifts so parents
can collect children straight after school or implementing a
‘Work-from Home’ programme, enabling office workers to
have more flexible hours and avoid some rush-hour traffic
(especially pertinent in Auckland).
OUR TEAM
Martin Price – Director
Martin worked as a Recruitment Consultant and Regional
Manager with profit-centre accountability in the executive
recruitment industry for eight years before joining Telecom
New Zealand, NZ’s largest public-listed company. He held
several senior Human Resources Manager roles over an eight-
year period for the Group, including General Manager
Human Resources (Acting), Head of Organisational
Development and Head of Remuneration & Benefits. He then
established HR Equations Ltd, a strategic HR consulting firm, in
2001 and in January 2006 he purchased a 50% share in
Online Executive Search Ltd. He has a BA (Psychology &
Marketing) from Auckland University.
Marcus Clark – Director
Marcus has 10 years experience in executive recruitment
gained in large consultancies including 3 years with Sheffield.
He established Online Executive Search 4 years ago. Prior to
entering the recruitment industry, Marcus spent 10 years as
the Managing Principal of a consultancy specialising in
contract commercial management of agribusiness enterprises
owned by offshore investors. Marcus has a BSc (Industrial &
Organisational Psychology) from Canterbury University.
Jo Mills – Associate
Jo has 6 years experience in executive recruitment gained in
large consultancies and in-house recruitment roles, including 2
years with Sheffield and 2 years as an HR Advisor with
OfficeMax (formerly Boise Office Products). Whilst with
OfficeMax she gained extensive experience in managing
large-scale recruitment projects and assessment centres for
customer service and sales staff. Jo has a BSocSci in
Psychology & Sociology and a Graduate Certificate in Career
Development.
Hawon Lee - Associate
Hawon has a Bachelor of Arts in Psychology with First Class
Honours from Auckland University, including being awarded
the Senior Prize for Psychology. She completes her Masters
degree in Industrial Psychology in May 2008. Hawon
manages the New Zealand Staff Turnover Survey and assists
with Recruitment and Human Resources projects.