The Mutual Loyalty Contract

The Mutual Loyalty ContractAs 2021 comes to a close, companies across all industries are assessing their performances and adjusting their strategies for 2022. Each industry has felt the impacts of the pandemic in different ways, but one critical challenge has impacted them all: talent.

Reassessing Business Relations

Several factors are contributing to the current talent challenge. Some employees, mainly baby boomers, are leaving the workforce earlier than anticipated. Others are reassessing their work and opting for a career change. Additionally, remote work options have opened up opportunities and salary increases, luring talent away from their home regions without having to move.

The “Great Resignation” that we are experiencing may appear to have happened overnight, but the trend has been developing for several years. The mutually beneficial loyalty contract between employer and employee ended when employers eliminated defined benefit contribution pension plans and began downsizing and outsourcing for cost benefits. Large corporations that once safeguarded employees with stability and rewards for loyalty have replaced these employment relationships with cost containment and flexibility options. New defined contribution retirement plans were touted as flexible and transferable ways to save for retirement throughout your career, but they shifted the long-term burden to employees.

Employees heard the message and realized that the loyalty of old was no longer rewarded, creating a workforce ready to learn, build their resumes, and move on. Baby boomers had the luxury of the loyalty agreement, but it all but disappeared for Gen X. Millennials and Gen Z watched as the generations before them experienced the collapse of the loyalty contract and vowed not to repeat that mistake.

Reacting to Talent’s Demands

Companies have been in the driver’s seat for attracting talent for many years. They could make reductions when it seemed appropriate, or they could outsource jobs to cheaper labor markets to reduce costs and improve bottom-line results. They could also ramp up staff to bring on new (or even the same) skill sets as needed. Talent was available when and where companies needed it, and the retention of that talent seemed to be more at the employer’s will. That has changed.

The power now lies in the individual with the skills, experiences, and capabilities that companies need. Some companies are still trying to play by the old rules in recruiting and facing dismal results. Others are trying to take a more active (or reactive) approach by offering remote work options, new benefits, and signing bonuses. Recruiting tactics are important, but the focus still appears to be on recruiting when retention is where even more benefit lies.

According to the Association for Talent Development, poor employee retention will cost organizations $430 billion annually by 2030, and higher retention can increase profits by up to four times. Clearly, retention is a key to successful organizations. So why are companies not more engaged in retaining their talent before the resignation is submitted?

Companies need to understand the reality of the talent challenge that they face today. Boomers will continue to leave the workforce in greater numbers, and Gen Xers are not a large enough pool to fill the gap. Millennials and Gen Zers entering the job market neither expect nor offer long-term loyalty. Based on the experience of the prior generations, they anticipate working short stints to expand their knowledge and then look for the next opportunity. The cycle of attracting, training, and losing talent does not seem to have an end.

How can companies bring back the mutual loyalty contract? And will the next generation of talent buy into it and believe in it? It is incumbent on employers to determine how to even the playing field again. A resurgence of the defined benefit pension plan might be a nice place to start.

If you’d like to discuss this further, please reach out to me at [email protected].

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