February 9, 2021
By Blythe J. McGarvie
Grabbing short-term and part-time jobs, or “gigs,” helps many people pay their bills. Certainly, the gig economy reflects only one component of the employment market in 2020. But, it provides an indication of the economic vulnerability that many workers, even those employed at large companies, feel today. Several alternatives, new and old, are on the table in this context. A recent editorial in the New York Times cites a young writer for Comedy Central as wistfully wanting unions to provide stability and wage progress. Given the flexibility, uncertainty, and willingness to work that one finds among the current employee pool, what advantages do private companies have over public companies in hiring good talent, providing stability, and retaining workers?
Usually, the CEOs of private companies are family members or trusted advisors who are not subject to the same short-term thinking as CEOs of publicly traded companies. Jeffrey Sonnenfeld, senior associate dean of leadership studies at Yale University’s School of Management, argues that CEOs have been fired when they should not have been in response to short-term blips or activists who capitalized on a momentary weakness to pursue their agenda. Executives in established private companies do not face those same pressures. This provides a freedom to design and pursue long-term employee relations agenda. The key is to use that freedom to your advantage.
Yet, extensive employee relations programs may not be the answer for every employer, and new options exist to take advantage of a private company’s flexibility in hiring and retaining good people. The idea of a contingent workforce is one alternative. Stanford University professors Michael Bernstein and Melissa Valentine coined a phrase, “the pop-up employer,” which refers to companies that utilize new data algorithms to search, bargain, and contract with qualified individuals.
Eliminating full-time “permanent” employees means that the company has the flexibility to address a particular need and then can set up temporary teams to freelance and fill the need. We need to prepare for temporary teams like Hollywood does when companies cobble together the best director, producer, actors, and staff to make a movie. The difference is that most workers are not seeking celebrity status but rather respect as well as paychecks and benefits.
In this regard, today’s workers vary little from those of previous days. But their shorter-term horizons and expectations of working multiple jobs have conditioned them to be more amenable to change.
A flexible employer can take advantage of this predisposition by paying higher short-term wages and providing training opportunities while preserving flexibility to terminate, reassign, or replace employees. Higher wages and training meet employee expectations for respect and income while predicating such “rewards” on short-term employment commitments, which ensure operational and financial flexibility for the private employer.
Full disclosure and a respect for employee concerns can compensate for the impermanence of employment opportunity. Reputation of the company is one’s most important asset if you want to attract and retain employees—full-time or part-time. Employees care little about grand mission statements but will look to Glassdoor.com to read about how managers treat employees.
Employee turnover has costs for both employees and employers. The Society for Human Resource Management (SHRM) estimated the annual turnover rate at companies is 19 percent. Based on its research, employee replacement costs the company at least 2 percent of a worker’s salary. Despite the flexibility available to privately held companies today, many solid reasons exist for most companies to retain employees.
Rewards and recognition, including the opportunity to develop meaningful skills, help employers to retain the employees they want. A private company can tailor programs in a way that may not be available to public companies driven to increase share price at all costs. Private equity firms have become an ever-present danger to long-term corporate success and long-term employment. They may make investments and purchase entities to keep them “private” for a period of time but will ultimately want to sell their shares to the public or a higher bidder to monetize their original investment. In the process, cost-cutting and deferring investments to dress up the balance sheet may hollow out the company financially and diminish employment opportunities.
The example of 3G and Berkshire Hathaway buying Heinz to merge with Kraft to create the third largest food and beverage company in North America was heralded as the genius deal of the year. The combined company started trading on the Nasdaq in July 2015. However, a month later, the company announced plans to lay off 2,500 workers, 5% of the total employee base. Three months later, the company announced it would lay off another 2,000 workers. The stock price increased from $77.31 at the beginning of trading to a peak of $96.65 per share by February 17, 2017, when the company announced it wanted to buy Unilever and then began its steady drop to a current price (as of January 4, 2021) of $34. In 2019 and 2020, the highest share price was at $43 per share at the beginning of the two-year period. In addition to other cost-cutting moves and write-offs, as well as investigations by the Securities and Exchange Commission over several years requiring restatements, the reputation of the company sunk to new lows with much of its talent seeking other employment.
Relationship building matters to today’s workers. No one expects an employee to stay 40 years at one company, but smart companies create a culture to make employees consider staying. A company called CollegeWise enjoys a near 100 percent rate of retention year over year, mainly due to its founder Kevin McMullin. He implemented an unusual model in which the company makes it a part of “every manager’s responsibility to sit down and have one-to-ones with employees where the manager comes only with questions, and it’s the manager’s job to empathize and to learn.” An employee of today and the future wants to know that he will not be ignored but heard. Unlike an open-door policy that forces the subordinates to take the risks to speak up, the supervisor is trained to listen and learn to find a way to improve working situations.
The adage that trust is built over years, but can be destroyed in an instant has never been truer than now. Private companies can take the lead to establish new practices that build trust, their reputation, and long-standing relationships through flexibility and rewards.
Blythe J. McGarvie has served as a member of the board of privately held Wawa for 22 years and publicly held Apple Hospitality REIT, LQK Corp., and Sonoco Products Co. She has authored two books, including the best-selling Shaking the Globe: Courageous Decision-Making in a Changing World.