As the HR World Churns

As the HR World Churns | Human Resource Executive Online An exclusive survey measuring turnover patterns of top HR and other executives finds the desire to seek opportunities in other companies is increasing, while more companies are reciprocating by hiring talent from the outside.

Wednesday, April 1, 2009
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The recession continues to shove aside the everyday soap opera of work with an ever-expanding Twilight Zone of cost-cutting, layoffs and plain old fear. But a recent exclusive survey finds that, despite the uncertainties of the employment market, turnover in the C-suite appears to be trending upward, as executives search for better opportunities. In addition, most companies appear to be more willing to hire outside talent than promote from within.

Not every executive is leaping from the trench, says one expert, who suggests that some are hunkered down, waiting for better times. But their interest can be piqued if opportunity knocks.

The survey was conducted by Human Resource Executive,® in partnership with Framingham, Mass.-based CXO Media Inc.

While the average tenure of HR leaders appears to be slightly less than six and a half years for the companies surveyed, the pace of their turnover seems to be accelerating, particularly in companies with annual revenues above $100 million.

The fact is, most companies are willing to hire outside talent rather than depend solely on promoting from within. That may be reassuring for some in this foul economy, when many in the HR profession are searching for work themselves, or are just looking across the fence at greener pastures, regardless of the industry.

The Executive Turnover Survey, conducted online last November, polled 265 top HR executives from HRE's subscriber list to find the rate of churn in line-of-business functions, including HR, information systems, finance, manufacturing and sales. About 90 percent of those responding head up the human resource function at their companies.

For the purposes of this article, we've narrowed the focus to highlight the shake, rattle and roil for HR heads, comparing their tenures with that of their C-suite peers. A wide range of industries was surveyed, including manufacturing and distribution, financial services and real estate, transportation, communications, utilities and sanitary services, and wholesale and retail services. Companies ranked by 2007 revenue figures varied from less than $100 million to greater than $1 billion.

In general, the survey found the greater the company's revenue, the greater the churn -- companies earning less than $100 million reported average tenure in HR of 6.9 years, compared to just five years for companies earning $1 billion or more. Not surprisingly, the revolving door seems to be creating quite a breeze for senior executives in finance, in which tenure for companies earning less than $100 million averaged 8.1 years, then dropped precipitously to 6.7 years for companies earning at least $1 billion.

Turnover in information systems appears fairly consistent, with current tenure ranging from 6.5 years for companies earning less than $100 million, to 6.2 years for those with revenues of $1 billion or more.

Yet, when the responses to questions about current tenure are matched against answers regarding the tenure of the office holders' predecessors, it becomes clear that things are heating up in the C-suite in larger companies. This trend is especially defined in both HR and IS, where predecessors in companies earning $1 billion or more stayed an average of 8.6 years and 8.9 years, respectively.

Evolving Pressures

The reason for the increased turnover in both practices? Jeffrey Shuman speculates that much of it has to do with the evolving needs of the functions. The chief HR officer for Harris Corp., a Melbourne, Fla.-based communications and IT company, Shuman says the rate of change, particularly in information systems, occurs at a breakneck pace. The old MIS (or manager of information systems) function that may have begun years ago as an ad-hoc position responsible for computer networking, phone systems and other localized tech functions is as ancient as a 300-baud modem.

"Now, when you look at the dollar volume" required to run the department, "and the urgent, imperative needs that come out of systems ... if a company loses its systems, it could shut down," says Shuman.

Things change, he says, and not everyone is capable of adapting to that change or carrying the increasing workload, either in technology or in the corporate culture.

Not that IS differs from other disciplines, says Shuman. Particularly in HR, he says, the function has evolved into a strategic business partnership from its more administrative quality a generation ago. In fact, it was that old administrative function that inspired Shuman to launch his career in HR, when he worked in operations for Avon Products, the New York cosmetics corporation.

"I remember talking to one of my bosses, back in the day when [HR] was called 'personnel,' " he says. "I said, 'These guys are nice people, but they're an impediment. They're not really helping me.' "

Eventually, his boss threw down the gauntlet, challenging Shuman to work for the personnel department to "show them how to do it." Shuman has been involved in HR since.

Unlike IS and HR, Shuman says, it's easier to judge performance in both sales and finance, because both depend on weekly, monthly or quarterly progress reports. "They live and breathe based on their immediate performance," he says.

Yet, comparing current tenure against previous tenure of these two functions shows another interesting trend: For companies earning less than $100 million, the current tenure of executives is actually outpacing that of their predecessors.

Most notably, while the current tenure for the head of finance in this lower-revenue bracket is about 8.1 years, the predecessor in that office stayed just 6.8 years. In HR, the current tenure is listed at 6.9 years, compared to just six years for the predecessor, and the current tenure for IS averages 6.5 years, compared to six years for the predecessor.

To Stay or Flee

Eileen Finn, head of Eileen Finn & Associates, a New York-based retained-search firm, says many companies prefer to hire outside talent, although she says there are exceptions.

"There are companies that have very defined cultures, such as the pharmaceutical companies," she says. "Very seldom will they go outside to hire a head of HR. They have the culture, they have created relationships, and at that level, they get things done."

But while she sees turnover driven from companies hiring outside talent, Finn says the glum economy seems to have created a dampening effect on the number of candidates who, until recently, might have approached her agency looking for better opportunities.

"I think that, right now, there is a great deal of skepticism and fear, and people are digging their heels in, even if they're unhappy," she says. She says candidates now are more passive than active -- well-qualified executives who aren't picking up the phone to contact her agency for opportunities, but who will answer all the same if an opportunity presents itself.

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That will change, she says, when the economic picture gets sunnier, and those who feel overstressed and underappreciated will head for the exits.

An executive thinking of making a move in this economy, says Shuman, has to consider how easily that move can be executed, particularly if it requires relocation. For some, the cost of selling a house and potentially having to find employment for other family members may outweigh the benefits of a new position.

However, Gregory Hessel, managing director of the human resource practice for executive search firm Korn/Ferry International, says he hasn't seen any passivity among interested candidates, despite the economy, or perhaps because of it.

"Even some of the more difficult searches I've worked on, where the locations are terrible, we've had great candidate pools," he says. "A couple years ago, it wouldn't have been that way."

In some industries that are experiencing a down trend, such as consumer retail, automotive or financial services, Hessel says, executives may still be more inclined to roll the dice and seek opportunities elsewhere.

Considering the survey's finding that most companies are hiring outside talent, that may not be much of a gamble. On average, 63 percent of HR executives were hired away from different companies, albeit in a similar function. Interestingly, companies earning less than $100 million opened their doors to 67 percent of the executives coming in from the outside, while those companies earning at least $1 billion promoted more often from within, hiring 54 percent of the talent from elsewhere.

About half of the executives in finance, 51 percent, were more likely to have been hired from the outside. In manufacturing and sales, executives were more likely to have been promoted into the C-suite, with 65 percent and 51 percent, respectively, scaling the corporate ladder.

The No. 1 reason for the departure of previous top executives in HR (31 percent), sales (27 percent), finance (22 percent) and IS (29 percent) was to pursue other career opportunities, according to the survey. In manufacturing, the highest percentage of previous top executives, 25 percent, retired.

Still, survey respondents indicated that 18 percent of the top HR executives left due to performance reasons. In manufacturing, the lowest percentage of top executives, 6 percent, left due to performance reasons. Performance-related departures in other professions were 17 percent in information systems, 18 percent in finance and 14 percent in sales.

Shuman was hired away from his position as vice president of HR with Los Angeles-based Northrop Grumman about three-and-a-half years ago. His predecessor, who -- by his estimation -- held the position for 18 years, retired. While the ideal for most companies might be to groom talent from within, he thinks the reality that many companies face is a lack of homegrown talent to align with today's shifting strategies.

"The CEO has to ask himself, 'Do I have the right folks on the bus?' If not, then, you've got to bring in your outsiders," he says.

Hessel says companies' desires to promote from within often hinge on having a No. 2 executive who's battle-proven.

"A lot of it just comes down to a real interest in getting people who have the ready-made skill set, who've had exposure already in dealing with the board and [who have] all the communications [skill] that goes along with that position," he says.

Sometimes, though, being the heir apparent doesn't always put you on the fast track to Executive Alley. You may be capable, you may be talented, but, particularly in a large organization, you may become stymied, says Hessel.

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