Leaders wanted

Good workers are always hard to find, but just wait till boomers start retiring. Smart businesses are already preparing for the crunch. Here's how John Murphy has done the math, and it doesn't look good: over the next five years, his company will likely need to replace more than a quarter of its 11,000 employees. Murphy, executive vice-president of human resources at Ontario Power Generation, the Crown corporation that manages provincial electricity supply, says there isn't much he can do to avoid it. The average age of OPG's workforce is 45, its ranks filled with baby boomers who have their sights set on retirement. Many of those leaving the corporation in the next few years will be senior engineers and managers who, after decades on the job, will give up their desks for good--taking valuable skills and experience with them.

It won't be easy to fill those shoes. "We're in an industry that needs very specialized technical skills," says Murphy. For instance, senior positions at OPG's nuclear power plants require about 10 years of training and experience. "At the best of times, that would be a challenge, but the labour market is projected to get tighter in terms of available skills," he says. Moreover, OPG has halted its hiring program several times in the past during periods of restructuring and downsizing, Murphy adds, "so there are large gaps that feed into the demographic challenge we face."

OPG is hardly the only company facing a looming job crunch. Canada--and the entire developed world--is on the brink of sweeping demographic change that will affect many parts of its society, not least the labour force. And corporations are only just waking up to its very real implications.

This year, the oldest members of the Canadian baby boom generation--those born from 1947 to 1966--will turn 57, an age at which most people are downshifting their careers, if not pulling out of the rat race altogether. In 2011, nearly one-fifth of boomers will be 61, and the proportion of the population 65 years or older will begin to expand rapidly, reinforced by a low birth rate and longer life expectancy. What does this mean for Canada's labour force? In 2001, the baby boom generation made up 47% of the labour force, and by the end of the last decade 15% of working Canadians were within 10 years of retirement age. It follows that by 2010, some occupations will begin to experience shortages. In fact, according to a 2001 Conference Board of Canada report, sectors like manufacturing, construction, technology, health care and financial services are already experiencing skill shortages, some due to retiring boomers. One survey of medium-sized and large companies revealed that 83% experienced shortages of skilled labour, and more than 60% expected them to become more pronounced in the future.

The changing demographics have many subtleties. For instance, some argue that changing policies to make it easier for immigrant professionals to gain acceptable Canadian accreditation could help. Then there's the so-called echo generation, born between 1980 and 1995, that's starting to enter the job market. But the echos are a smaller cohort than their boomer parents and, more importantly, they won't be able to step into the senior-level jobs the oldest boomers vacate. Theoretically, younger boomers now in their late 30s and early 40s might be available for those assignments, but, corporations shed many of those Gen X employees during restructuring--they were stuck in dead-end jobs behind the older boomers anyway--and many turned away from corporate-ladder climbing in favour of entrepreneurial career paths. And there aren't nearly enough people in the "bust" generation between the boomers and their children. "There are some significant demographic situations in Canada, particularly companies that have a mature labour force," says Robert Scott, a consultant at PricewaterhouseCoopers. "They're looking at the longer-term plan for replacing those skills as people start to retire."

If businesses aren't careful, they won't have people with the right skills, and the right kinds of new employees will be hard to hire. There is no single pill to cure this condition--a cocktail of remedies is needed, with focused, long-term strategies. Designing a leadership succession plan and placing renewed emphasis on training and development is a good start, as are recruitment and apprenticeship programs. But companies also need to change how workers retire, identifying key people the business can't afford to lose and arranging for them to stay on part-time. They may even want to establish systems to document their informal but valuable wisdom. Corporations may also need to evaluate the state of their pension plans. Thanks to several bad years on the stock market and record-low interest rates, shortfalls are already occurring in some plans; payouts to growing waves of retirees could cause further funding gaps.

It's a lot for companies to grapple with. "It's always a temptation to get distracted with the variety of other issues that are on everyone's plates," says OPG's Murphy. "But if you don't pay close attention, suddenly there's a more rapid need to fill positions because people are retiring." OPG became aware of a potential labour shortage at its nuclear plants more than 10 years ago. Only in the past two years has it identified a more sweeping problem. "The challenges are at every level in the organization," says Murphy.

The annual survey of Canada's best employers conducted by human resource services consultant Hewitt Associates found that 24% of employees at the 142 companies on the list are 10 years or less from retirement. At four large organizations--one in health care, a major retailer, a utility and a municipal government--50% of employee respondents are approaching retirement. "That's an awesome challenge for an organization," says Ted Emond, who manages the annual survey.

So how can companies prepare for the crunch?

GROW LEADERS

Perhaps the most significant find in the Hewitt survey was that 49% of respondents at the most senior levels are within a decade of punching out. Indeed, among management consultants, succession and leadership development are hot topics. "Leadership is the No. 1 thing we're called in for," says Donna Van Alstine, senior vice-president of Right Axmith's organizational consulting practice in Toronto. "Nearly every assignment we have worldwide is about leadership at the moment."

Van Alstine says the main problem is one of corporate structure. Two decades ago, companies had many layers of supervisors and managers through which employees could be promoted. Now, organizations are leaner, and have collapsed the vertical hierarchy in favour of a broader, flattened structure, where managers have more people reporting to them, and fewer rungs to climb on the corporate ladder. That means the gap between rungs is much larger, so promotions come with relatively greater responsibility--something many new managers aren't prepared for.

Van Alstine tells a story about a recent meeting with a CEO who acknowledged he has promoted people onto his team who don't have a clue how to lead--and the layer behind them is just as bad. Part of the problem, she says, is that people get promoted for being technically proficient or for individual contributions, not for showing a propensity to lead. "They're so successful doing that when they get into a stressful situation, they try to muscle their way through," she adds, "doing the work of people that report to them."

The solution is to establish a system of identifying and nurturing potential leaders at an earlier stage of their careers. Training and development can't simply be a matter of sending them out to day-long seminars. People learn far better on the job, says Van Alstine, citing a U.S. report that says at-work coaching brings a 600% return on investment through improvements in productivity, employee satisfaction, quality, customer service and shareholder value. But it doesn't work unless new and potential leaders are allowed to occasionally fail and to learn from others' mistakes--a big cultural shift that can take years to institute.

RECRUIT, REWARD, RETAIN

Maintaining a culture of openness can make it difficult to replace key executives. Karen Flavelle, president of Purdy's Chocolates in British Columbia, took three years to find a new chief financial officer and human resources director who fit the environment. As a vertically oriented company with a manufacturing plant, distribution and a chain of 48 retail stores in B.C. and Alberta, she says, keeping things moving smoothly is critical. "We don't want to make a mistake," says Flavelle, who succeeded her father, Charles Flavelle, in 1997. "It's not good for us if people are coming and going."

Indeed, most people come and stay at Purdy's--the average employee spends nine years at the more than 600-person company. That creates some demographic problems of its own: 45% of Purdy's staff will be eligible for retirement in a decade. But Flavelle is not particularly concerned. In the past two years, Purdy's has drawn up succession plans for store managers approaching retirement. "Demographically, the tides are turning against the availability of people," she says. "We prefer to promote from within. Retail is detail, and so is production. Employees need a huge amount of knowledge of our systems, which are unique."

Purdy's is focused on providing development opportunities for keen employees, like giving plant workers the chance to run a shift--a good test to see who might replace the lead hand down the road or become a warehouse manager. Both Purdy's operations and imaging managers were store managers who proved themselves on special projects.

Lateral job changes are key to keeping employees fresh, and keeping them in the company. Large employers now recognize that talent management is critical. Each year at RBC Financial Group, for instance, 12,000 of the bank's 70,000 employees move to new positions they find through internal job postings. Zabeen Hirji, RBC's senior vice-president of human resources in Toronto, says such job-hopping helps employees provide better customer service, because they learn about different arms of the company.

David Neilly, a performance-and-rewards consultant with Towers Perrin in Toronto, says the workers his company surveys highly value career development opportunities--for themselves and for their managers. Given the choice between hard cash and a better manager, many take the latter. Last year, RBC spent five months doing extensive employee surveys to determine where their priorities lie. "What they're starting to identify is that one size doesn't fit all," says Neilly. "You can't treat all your employees the same. Is someone in their 50s or 60s looking for the same things in their employment deal as someone who's 25?" Clearly not, and that doesn't just affect training and development programs, but also benefits and rewards. Some employees want pay raises, others want better benefits, some just want more vacation time. Such flexibility in career development and compensation helps improve retention.

VALUE OLDER EMPLOYEES

Flexible work arrangements can help a company hang on to potential retirees, and that's important to easing in new managers to take their place. At RBC, retirees can work part-time for 30 months without taking a penalty on their pension. "That encourages people to stay a little bit longer and to transfer some of their skills and knowledge," says Hirji. The policy wasn't imperative at RBC--not a large proportion of its staff is retirement-bound yet--but getting employees and their managers to adapt takes time. "We're trying to build an organizational mindset where that kind of thing is encouraged and accepted."

At Purdy's, "retirement" is almost a bad word. Two years ago, Flavelle brought in a mandatory retirement policy for anyone over 65, but rescinded it after eight months. Now, the company even has a retirement club of employees who want to stay in touch and are occasionally called upon to work at special events during peak seasons.

It's a big difference from pushing older employees out the door with early-retirement packages. "I think what we'll see is performance management being applied much more vigorously around older people," Neilly says. "One of the ways companies are going to hang on to older employees, ironically, is to manage their performance. You may see them working in your operation until 70, so why not manage that asset the same as you're managing a 30-year-old?"

DO MORE WITH WHAT YOU'VE GOT

At some point, the old guys will have to go. That's why many companies have launched so-called knowledge management projects, to document some of the hidden "corporate wisdom" locked within such employees or informally noted in meeting minutes. OPG has placed a high priority on its knowledge management initiative, says Murphy. "Somebody with intellectual capital walking out the door could cause a team of 20 or 30 people to spend several weeks trying to re-study a particular piece of technology to come up with a solution."

In the end, perhaps the surest way to fight the ill effects of labour shortages is simply to improve productivity. Long considered by economists as a critical corporate weakness that was concealed by Canada's cheap currency, low productivity could become painfully apparent with a talent crunch caused by demographics.

OPG is focused on assessing management structures and roles so that if one person retires, she may not have to be replaced. The company has designed its leadership development process especially to groom individuals to take over more than one job (which, by the way, is a great incentive for employees to stay on). And it has trained previously segregated groups of workers--operational, electrical and mechanical--to do non-specialized parts of other jobs to speed up maintenance.

Dofasco hopes to offset retiring employees (as well as improve its competitive position in the struggling steel industry) by upgrading its workers' skills through internal retraining and college programs, and by upgrading the technology in its foundries (at a cost of hundreds of millions of dollars). Ultimately, Dofasco is counting on not having to replace retirees one-for-one.

RETHINK PENSION PLANS

One of the biggest challenges facing companies comes with very few solutions. Under defined benefits plans (DBPs), which have long been favoured by unionized outfits in heavy industry and government--the two groups with the oldest workers--it will become increasingly costly to fund pension payouts. Typically under DBPs, a company commits to paying a pension based on years of service and final salary range. The company's goal is to sock away enough money over the course of the employee's tenure to pay the pension over the final years of her life. But people are living longer, interest rates are low, and the stock market's downturn hit pension funds with big losses. The problem is compounded by policies for early retirement, which push employees out sooner but make it difficult to plan when people will exercise their option.

There often isn't much that can be done. "It's very difficult to get this kind of thing out of a pension plan," says Paul Purcell, retirement specialist with Mercer Consulting. "Companies will face considerable resistance from employees, as well as issues with pension legislation." Purcell argues DBP policies were designed for HR strategies of the past and present, not the future (in fact, some actually encourage early retirement). Some companies may need to phase them out. One option is to replace them with a defined contribution plan, in which the company contributes a certain amount of money into a retirement savings plan, and pension income is based on accumulated contributions and investment returns.

Purcell's approach would be to announce now that DBPs will be discontinued for new employees in five years, but grandfathered for current workers. "The thing is, companies are still happy to have these provisions, because they're still downsizing," says Purcell. "Companies are still doing the things that they won't be able to do in the future, like shrinking their employee ranks through early-retirement programs. Five years ago, I think we would have predicted that we would be in that planning stage now; companies would be working their way through these things. But we're not."

Andrew Wahl, Canadian Business.com, 2004-03-01

Source: Apprenticesearch.com