The Great Resignation has become an economic trend as people have chosen to pursue new employment while adjusting to a hybrid work environment. Employees are now seeking more work-life balance, higher pay, and better benefits. Several key risks come into focus when considering the long-term effect of employees shuffling into new roles at different companies.
Gartner calls attracting talent with nontraditional skills the top challenge for internal audit in 2022. A recent report from Protiviti and North Carolina State highlights several top risks related to talent retention and development that should be on your radar as a concern for the organization. The report calls out four interrelated topics that combine to form a perfect storm for talent risk, including employee retention, succession planning, employee upskilling/reskilling, and increased labor costs. This article explores each of these topics and offers suggestions for addressing these in your assurance plan.
1. Employee Retention
Perhaps the most obvious risk when people are changing careers and moving between companies is employee retention. All too often, retention is focused on minimizing disruption from losing senior leaders or controlling the replacement cost for staff workers. However, employee retention risk can have many unseen repercussions in the short term. When addressing this risk, assurance teams should assess redundancy among team members, the level of trust and responsibility placed on each person, and the likelihood that individuals will leave. We should also consider the impact of job movement in other roles outside of simple recruiting costs since most employees have critical responsibilities that are not shared with others.
2. Succession Planning
Succession planning is typically focused on executive positions – and the succession plan is usually clear with individuals selected and groomed for the changes. With most of the movement currently happening in non-executive roles, assurance teams should assess the risk related to succession planning in other critical management positions. What would happen if your company lost a director from the accounting team or a manager in IT security? A succession plan for non-executive positions can reduce disruption if someone chooses to leave.
3. Employee Upskilling/Reskilling
A team includes all the individuals and their skills needed to accomplish an objective. We want redundancy in skills from a risk management perspective, so no single person holds all the responsibility, but this is not always feasible. Managers will often provide training for the team on skills, but these are often broad in scope and lack in-depth training on any topic. With the move to hybrid working, training options have changed to accommodate remote workers with live web-based training, and on-demand training that can be tailored to smaller audiences. Especially as jobs change, employees are more likely to need updated skills training or even reskilling for new and expanded roles. To address the risk that people have missing skills, assurance teams or even people managers can conduct a skills assessment to identify weak spots in the team and set up training to fill the gaps.
4. Increased Labor Costs
We are not just experiencing the Great Resignation — but also the Great Renegotiation. Since companies have so many open positions, job seekers are taking advantage of this time to ask for higher pay and better benefits. They are also able to expand their career search globally for desired remote positions. Those who would rather not leave their current jobs either move around internally or ask for improved employment terms like better pay, treatment, and benefits. Both of these movements are leading to increased labor costs. The risk of increased labor cost is worse if there is no data to support reasonable wage and benefit increases. Risk management can guide Human Resource teams to assess current wages and benefits offered to current and prospective employees against industry and regional ranges. Policies should also guide decision-making when considering one-off requests from top talent candidates to avoid unanticipated increased costs.
Using a Multifaceted Talent Risk Approach
As you can see, talent risk is a complex strategic risk category composed of many different, interconnected risks. The four topics we addressed in this article are linked in numerous ways. We can play out a scenario just to illustrate how decisions are connected. Let’s say you want to increase retention so there can be succession planning, so you put training plans in place to upskill workers, which increases labor costs. Due to increasing labor costs, you can either reduce staff and cross-train employees for redundancy or pass the costs on to customers through increased prices. Expecting employees to take on additional responsibilities when others leave could lead to turnover that might ruin your succession planning. The key to understanding talent risk is through comprehensive assessment and open minded risk management. Considering this risk’s potential short-term and long-term impact, now is the time to add talent risk assessment to your plan.
Kelly Tomlin Hirschfield, CPA, was a Manager of Solutions Advisory Services at AuditBoard. Prior to joining AuditBoard, Kelly spent 6 years with Deloitte in Atlanta leading financial statement audits on both private and publicly-traded clients in various industries including real estate, consumer products, distribution, and manufacturing. Connect with Kelly on LinkedIn.