One lesson that has emerged from the baby boomer retirement situation is simply this: In the future, utilities will need to manage their human resources more carefully and deliberately. This truism translates into some important realities for electric and gas utilities.
First, talent is a scarce resource in the best of times, and from a hiring perspective, the worst of times are nearly upon us. Human resources costs are rising across a wide range of job roles, and they will rise substantially more before they level off.
Second, attracting and retaining talent from among the available pool will require companies to be more flexible, creative, and aggressive than most have been in the past. In the search for talent, successful companies will adapt their policies and develop innovative programs that serve their long-term personnel strategies.
Third, utilities increasingly find their recruitment and retention strategies must address the people whose talent they need, and they must do so throughout their full life-cycle, from grade school through retirement and beyond.
To learn how personnel markets are changing, and how utilities are handling those changes, Public Utilities Fortnightly interviewed several leading HR consultants, including:
• Steve Nissenfeld, vice president and director of energy consulting, the Hay Group, Jersey City, N.J.
• Sasha Lazor, consultant, the Hay Group.
• Andy Talkington, managing partner, Global Industrial Practice, Heidrick & Struggles, Houston.
• Rebecca Harris Mulvaney, senior associate, ICF Caliber, Fairfax, Va.
• Philip Mihlmester, senior vice president and managing director, Energy & Resources, ICF Consulting, Fairfax, Va.
• Brad Kamph, executive vice president, Interliance Consulting, Orange County, Calif.
• Craven Crowell, managing director, Mercer Management Consulting, Boston.
• Bob Shields, consultant, Spencer Stuart, Chicago.
• Shelly Fust, senior partner, Korn/Ferry International, Los Angeles.
Fortnightly: Where do you see compensation heading for skilled workers and engineers?
Talkington (Heidrick & Struggles): If you’ve looked at compensation schemes being paid today for recent graduates, or people with a couple of years of work experience, they have almost doubled in the last few years. Compensation figures are getting very high. This is happening across all types of process industries.
The issue is whether utilities will offer the same as oil and gas companies might pay, given their financial situation and the career stability they can offer. Utilities are finding they need to do so, because of turnover and the need to innovate and bring in new technical talent. Everyone is in the same boat, and the pool is shallow.
Kamph (Interliance): The skills needed in the industry are more valuable than most people understand. One client offered a $40,000 signing bonus for linemen. The pool of people keeps getting smaller, and external industries are hiring key people away because they can offer higher salaries.
Mulvaney (ICF Caliber): It isn’t all about money, though. For an engineer coming out of college, offering a higher salary won’t necessarily draw them to the job. They will be interested in meaningful work and career development.
A new generation of workers is looking for different things compared to what those who are retiring wanted. Utilities have a reputation as a place where you go to work for 30 years and then retire. That’s not necessarily what the younger worker wants.
Mihlmester (ICF Consulting): There’s a life-work balance issue that a lot of industries are starting to deal with in their benefits and policies. Some companies will provide extended paternity leave, not just maternity leave. Some employees would prefer having comp time instead of extra pay for working on a weekend. Maybe it’s not right for every situation, but companies are becoming more flexible as they try to manage recruiting and retention.
Fortnightly: Are companies changing retirement policies or benefits to retain workers?
Crowell (Mercer Management Consulting): Good work is being done to bring back retirees on a part-time basis or as contractors. There are some problems with pensions and union agreements, but companies are working around those issues so retirees can come back and still get their benefits.
Fust (Korn/Ferry): In the long term, it will require changes in tax laws to be able to utilize that retired talent as an effective resource. The way to address this issue is to acknowledge there are some areas where, from a public-need standpoint, you need the ability to tap into those resources without penalizing them for coming back.
Kamph (Interliance): People are talking about making changes to policies, but so far we haven’t seen anything really aggressive. The trend is that people are wanting to continue working longer, because the retirement benefits aren’t what they were.
Instead of changing their policies, many companies are just hiring key people back as contractors at a much higher cost. If they have critical skills and the company needs them, they are worth paying more to keep them involved.
Fortnightly: What do you see utilities doing to prepare for a talent gap in management and executive areas?
Fust (Korn/Ferry): As utilities are doing succession planning, they are recognizing that most of the talent they need doesn’t exist in their organizations, and they have to look outside. The process of evaluating that kind of talent is a pretty large challenge, and with every utility experiencing the same demographic issue, it gets even more difficult.
Talkington (Heidrick & Struggles): More than anything, utilities have increased their sophistication in career-path planning. Their practices are less ad-hoc and more proactive, and as a result they are developing people faster. Younger executives are reaching more senior roles than they have in the past.
Fortnightly: What do you see happening with executive- compensation plans?
Talkington (Heidrick & Struggles): To some extent total pay is going up, specifically compensation at risk and long-term incentives.
Also, employers are finding they have to replace the equity that executives are walking away from when they leave their company to join yours. If you are moving a 20-year career person, they may have hundreds of thousands of dollars in equity built up in unvested options. But the fact is, companies that are recruiting senior leadership are accustomed to dealing with that, and it is less of a retention issue than it was in the past.
Fortnightly: How do companies develop a good strategy for closing the talent gap?
Mulvaney (ICF Caliber): Really examine your organization. Who are the people in key positions? Are they planning to retire in five or 10 years? What skills will be leaving when they retire? Is there already a strategy in place to deal with this?
Any organization taking a future-oriented look should consider not just who is retiring but also what will be needed down the road. What skills will be needed five or 15 years from now? The industry has gone through a lot of change, and changes are continuing. That affects the skills you need.
Talkington (Heidrick & Struggles): It’s a bit of blocking and tackling, and doing it with a lot of discipline. You have to create an attractive career path with a set of opportunities to come in at all levels. You have to offer a very competitive compensation package, which in some cases can be a challenge to the equity of existing employees.
Fust (Korn/Ferry): Companies should view this the same way they would any other strategic process or supply-chain issue. It’s not just an HR problem, but an issue that affects shareholder value and needs to be top of mind for senior executives. From a long-term planning standpoint, it should be elevated beyond HR and into key leadership.
Fortnightly: What is the appropriate role for senior executives and directors? How should they be involved?
Shields (Spencer Stuart): It’s one of the most important things the top management and board members can focus on, because it ensures the lifeblood of the company.
Crowell (Mercer Management Consulting): Senior people need to approve of a strategic plan and monitor it carefully to make sure it gets implemented across the whole breadth of the organization. And they need to make sure there really is a strategy, and all the elements fit into it. There’s a tendency to try to do everything, and if you do that you will find that nothing becomes important. You go nowhere, even though you are overworking your staff.
Fortnightly: What priorities should companies focus on?
Lazor (The Hay Group): Attention needs to be paid to the group that remains. We are working with clients to focus on that group, with training programs, knowledge-retention and efforts to sift potential leaders. It’s important to keep developing technical talent, because it’s what it takes to run the ship, and because you need to pull leaders from that group. These folks are increasingly at risk in the organization, because you don’t know their intentions.
Crowell (Mercer Management Consulting): Knowledge management and knowledge transfer are big issues in the aging workforce. How do you retain the knowledge these people have? Some people are doing a good job using IT systems to help retain that information. Other efforts like mentoring and shadowing with younger employees can help.
Nissenfeld (The Hay Group): Priming the pipeline at multiple spots is a good idea. We are seeing more forward-thinking utilities being more collaborative with universities to reinforce or grow their power-engineering programs. Additionally, companies are using summer internships more aggressively as a way of renewing the pipeline. That kind of collaboration is encouraging the flow of talent.
Shields (Spencer Stuart): You can’t leave any source of talent untapped or under utilized. Companies really need to consider where they might go to find talent they’ve been underutilizing in the past, probably unintentionally. But it’s a Catch 22. If a certain group isn’t well represented in the industry segment, it might not be seen as attractive to them.
Fust (Korn/Ferry): Companies are looking at non-traditional areas. There are synergies with military training, for example, and those avenues might not have been leveraged as much as they might. It is important for utilities to look at all the areas where they can develop talent, and build programs that reach all the way down to grade school.
Mulvaney (ICF Caliber): That is crucial but I don’t see it happening yet. Sometimes a profession needs to go through a rebranding, and ask, “What is our reputation in the world? How should we change our image to be able to recruit the people we need?”
Mihlmester (ICF Consulting): We need to think about models that get involved earlier in the cycle, to get people interested in electric engines or power generation at an earlier age.
Talkington (Heidrick & Struggles): Not only do you need to attract employees, but you have to retain them. One of the best ways is to have a robust and accelerated career path for your best performers. If they know they are on track and doing well, being advanced and groomed, they will be more reluctant to step out.
But if they are in a stagnant hole and don’t feel they are being helped along and being given opportunities, you will see them leave. A compensation package can be a motivator or not, but in the long term they want a high-quality job or the opportunity to excel. If you don’t give them that, you will be bought out by your competitor.