BPO Attrition/Turnover 20-60%, Retention Initiatives and Recruiting Issues

A Behavioral Event Interviewing 2-Day Workshop which I held, conflicted with attending a CEO forum where the President of Asia Pacific, Mr. David Rizzo of TelePerformance, spoke. An article was written about the gist of his presentation which is at the end of this article.

It raises some troubling issues about the Outsourcing Industry and hiring in particular, and brings out a few questions about the industry and indirectly some of the same issues for other industries, assuming that the article accurately reflected his presentation.

He addresses the need to focus on retention initiatives while continuing to grow! Very commendable.

It is still surprising that he reports that retention rates range from 40-80 percent after at least 6-8 years of high growth in the Business Process Outsourcing (BPO) industry in the Philippines. This means that attrition/turnover is the reciprocal, amounting to: 20-60%. The period of time covered was not reported. But, in the past, about 3 years ago, BPA/P ( The Philippine association for BPO's) had reported turnover from 20-100 percent per year, and that many times half of these numbers were due to people leaving and the other half, people being "asked to leave." Therefore, there has been some improvement (dropping the 100% turnover down to 80%), but not great.

Mr. Rizzo mentions the reasons for the present turnover is due to several reasons:
1) Overnight hours which people are not used to working,
2) Stress caused by customers who may be too challenging to handle because they are angry,
3) Employees find the work too technical,
and
4)  the Company is unable to meet the employee's expectations.

This is amazing given today's technology and methods for Pre-hiring:

Issue #1) Overnight hours which people are not used to working: there are video introductions that can help to address this issue and can be used as "knockouts"  to prevent further interviewing and hiring these kinds of people. Granted, recent graduates and some people may not know if they handle the hours, but it is likely that most know their limitations or the candidates can talk with someone they know in the industry. Also hiring people who have already worked in the industry, these people will know if they can handle the hours.

Issue #2) Stress caused by the customers: many companies use videos to simulate real-life situations and also tests, both verbal reply and written, to find out how a candidate will handle this kind of angry customer. Again these are "knockout" issues before going any further in the pre-hire process and give the candidate a good view about what the position will entail, as well as, if the candidate will like or want to work there.

Issue #3) Employees find the work too technical: there are many skill tests to find out what the candidate may know or at the very least by using assessments, if they have technical capabilities and interests.

Issue #4) The Company is unable to meet the employee's expectations: It would be helpful to better understand exactly what kind of expectations are not being met, since this article is not specific. Once the expectations are known(as they probably vary by company), these can be covered up-front in the Pre-Hire process.

Most of these issues can be uncovered or addressed through good programs of: application and ATS(Applicant Tracking Systems), assessment and skill testing, Behavioral and Critical Incident Interviewing and good benchmarking around each job, based on top performers. These steps will help to "weed out" those that will not make it longer term, all of which should significantly help in reducing turnover, especially in the ranges mentioned as being 20-60 percent.

In past years, the BPO industry identified that one of the major problems they had was not identifying leadership in their pre-hiring process, as there was a gap between hiring good agents and their being able to handle the front-line position. Now, many times companies try to identify 10% of their incoming candidates who also have a good job fit with the front-line manager benchmark also. This process allows them to develop succession planning and training for the next level potential managers early on in the employees' career and development. [Benchmarking around top and bottom performers, can be done and takes a matter of minutes, with the right tool.]

Obviously, good "on-boarding programs" can also help to address these issues by providing a good introduction to the company and the specific requirements of the job, so that new hirees can "opt out" on their own early, saving the company training costs and more investments that will happen in the ensuing months.

Lastly, Mr. Rizzo made the statement: “We are not going to let price pressures get in the way of investing in our people. After all, happy employees translate to happy customers”. This is true to a point, especially in growing "employee engagement." But the reality also arises, in that incurring too many costs CAN affect your competitiveness globally! Hiring Right is probably be the best solution, while providing facilities and benefits, are more like the icing on the cake.

It is hoped that the industry can really address these unsupportable turnover/attrition rates, because these rates lead to extremely high costs. When you consider the rule of thumb that turnover costs run from 3 months to 2.5 years worth of a person's salary, is the company sustainable long-term?

Only time will tell!

Contact center firms urged to invest more
By Louella D. Desiderio (The Philippine Star) Updated March 17, 2012

MANILA, Philippines - Contact centers in the country will have to invest more in programs focused on their employees to encourage them to stay in the company and provide better service to customers, a top executive of a contact center service provider said.

Speaking at the Asia CEO Forum held on Thursday, David Rizzo, president for Asia Pacific of Teleperformance said that investing in retention activities need to be done by contact center firms that intend to continue to grow their business given the number of employees choosing to leave the industry and the high competition among firms in finding workers.

 “It is very critical to focus on retention initiatives to ensure not having to replace the employment pool while growing at the same time,” he said.

He said that employees in contact centers leave for reasons often related to the job.
He cited that some employees opt to leave the business due to the overnight work hours which they may not be used to or the stress caused by customers who may be challenging to handle.
He said that customers who receive an incorrect bill, for instance, may be hard to deal with particularly when they start complaining and taking their anger on the call center agent.
Some employees, he also said, leave the job because they find the work too technical or unable to meet their expectations.

He noted that in the industry, the employee retention rate ranges from 40 to 80 percent.

Given the limited supply of talent available in the market and the high competition among contact center firms for supply of workers, he said, investing in programs that keep employees satisfied with their job becomes even more important.

He said that contact center firms can for instance, provide spaces for recreation in the workplace such as gym, sports facilities and karaoke rooms, which their employees can use.
Contact center firms, he also said, can offer employees who cannot work overnight a daytime shift.
Career management programs, he said, may also be developed by contact centers for their employees.
He said that while investing more in employee-engagement programs may mean additional costs for the company, it is expected to yield results favorable to the company since its workforce is its main asset.

 “We are not going to let price pressures get in the way of investing in our people. After all, happy employees translate to happy customers,” he said.

Contact Center Firms Urged to Invest More - by Louella Desiderio 

Recent article in the WSJ about Fixing Executive Compensation

There is nothing earth shattering in this article but is it good for identifying concise issues. The essentials of including debt in the calculations is an excellent concept, long term growth, and flexible compensation packages (adapting to market changes) are important for CEO and Senior Executive Packages.

However, even beyond these issues, it might have mentioned the need for a pro-active Board that demands financial transparency and accountability, and good external financial audits to highlight problem areas. Human capital growth is also needed for sustainability and should be included in some form. Last, it is essential to identify organic growth from acquisition growth, as acquisitions can hide a number of sins and problems, not to mention, many times adding debt to the corporation.

Here is the article with a hot link to the original article at the end:

• FEBRUARY 27, 2012

How to Fix Executive Compensation

For starters, don't link pay packages just to stock. Tie them to debt as well.

By ALEX EDMANS

The secret to reforming compensation isn't so much looking at how much bosses get paid—but how they get paid.

More in Leadership in Corporate Finance

• The Art of the IPO
• The Case for Offering Guidance on Earnings
• The Pros and Cons of Buybacks
• Why Tech Spending Is Often Exempt From Cutbacks
• Read the complete report .

It's easy to understand why critics focus on the gaudy awards of cash and stock that executives take home. And, yes, it's hard to deny that some bosses get paid a lot more than they deserve. But the structure of compensation is ultimately a lot more important than its level, because it gets to the heart of how managers run companies and create value for shareholders.
Pay packages should give managers strong incentives to run companies correctly, to make them think in the long term and avoid taking excessive and potentially destructive risks. In many cases, they are well-designed and provide CEOs with the correct motivation. But in others, pay packages not only fail to achieve that goal but push executives in the other direction.
There are creative ways—yet simple and easy to implement—to tie executives' fortunes to the long-term health of their companies. Tying bosses' pay to the levels of debt at the business, for instance, will dissuade them from taking risks that might alienate creditors. Preventing executives from selling company stock until several years after it's granted will give them a powerful incentive to think long term. And updating the compensation package to reflect changing conditions in the market and the company will ensure that managers' interests are always aligned with those of the company and its shareholders.
Here's a closer look at those proposals.

Pay Them in Debt

An effective way to deter executives from taking excessive risk is to compensate them with debt-based pay as well as equity. However, many compensation packages feature only cash and equity.

Consider what happens when a boss who gets paid only in stock is facing a big choice that affects debtholders.
Let's say the company has $1 billion in debt but assets of just $900 million. If the CEO liquidates the business, debtholders get 90 cents on the dollar, but equity holders (like the CEO) are wiped out. Obviously, that's not an attractive prospect for the boss.
Now imagine that the CEO has before him a proposal that has an equal chance of gaining $200 million and losing $400 million. Clearly, the project is undesirable from a company-value perspective. However, since the manager holds only equity, he has little to lose by taking it. Stockholders are going to get wiped out anyway, so they're not going to lose more if the move fails. But if it succeeds, the company is worth $1.1 billion—and equity holders have $100 million to share, after the debtholders get paid off.
Looking at things from the debtholders' point of view, though, the move is clearly undesirable. If the boss doesn't take on the plan, they recover 90% of their money. If the boss goes through with it and succeeds, they get an additional 10% back. But if the strategy fails, they collect just 50% total.
Boards of directors, who design pay packages, are elected by shareholders. So, why should they care about debtholders at all? Because if potential lenders expect the CEO to take such gambles, they will demand a high interest rate and restrictive covenants, ultimately costing shareholders. A high interest rate cuts into profits, and restrictive covenants may prevent managers from undertaking desirable investment.

Qi Liu of Wharton and I have shown that the optimal pay package involves giving managers debt-based compensation as well as equity. Contrary to intuition, the CEO's optimal equity/debt ratio typically differs from the company's. If the business is financed with, say, 60% equity and 40% debt, it may be best to give the CEO 80% equity and 20% debt-based pay. The optimal debt ratio for the CEO is usually lower than the company's, because equity is typically more effective at inducing effort. However, the optimal debt ratio is still nonzero—the CEO should be given some debt compensation.
As for what kind of debt to give as compensation, it can take any number of forms. First, defined-benefit pensions and deferred compensation are already frequently used in practice. These instruments have equal priority with other unsecured creditors in bankruptcy, giving the CEO a strong incentive to look after their interests. And they seem to work: The research of Raghu Sundaram and David Yermack of New York University finds that CEOs with large defined-benefit pensions manage their companies more conservatively. Similarly, a paper by Divya Anantharaman and Vivian Fang of Rutgers University and Guojin Gong of Pennsylvania State University finds that debt compensation leads to fewer loan covenants and a lower cost of debt.
Second, compensation can be explicitly tied to debt values. American International Group Inc. used that kind of system in 2010, before its recapitalization, for certain elements of compensation for highly paid employees. In that plan, 80% of the pay was tied to the price of some of the company's bonds, and 20% was tied to the price of its stock. Third, the CEO can be granted actual debt securities such as corporate bonds, just as CEOs typically hold stock and options.

Make Them Wait to Cash In

Another critical change companies should implement is to lengthen the time that executives must wait before they can cash in their shares and options. All too often, stock and options have short vesting periods, sometimes as little as two to three years. This encourages managers to pump up the short-term stock price at the expense of long-run value, since they can sell their holdings before a decline occurs. A CEO can, for instance, write subprime loans to boost short-term revenue and leave before the loans become delinquent, or scrap investment in R&D. This is possible since, in many cases, stock and options immediately vest when the CEO leaves the company.
In a paper with Xavier Gabaix and Tomasz Sadzik of New York University and Yuliy Sannikov of Princeton, we show that optimal compensation packages involve long vesting periods. In particular, the pay packages don't vest more quickly when a CEO leaves a company—the executive must still wait several years before cashing in.
Just how long should a CEO wait? It depends on the kind of company. The waiting period should be longer in businesses where the CEO can take actions with very long-term consequences. It might be seven years or more at a drug company with a lengthy product pipeline. But the wait might be shorter at, say, a commodity chemical company, where CEO decisions usually don't have an impact more than a few years ahead.
Of course, there is a trade-off. If companies make CEOs wait too long to collect, the former bosses might be exposed to risks outside their control, such as regulatory changes that eat into profits. Companies need to find a balance that works best for their situation.

Change to Fit the Times

Even a compensation plan that's well-designed at the outset can fail to keep pace with the market and the company's fortunes. Take the case of a corporation that pays its boss in stock options. If the company hits a rough patch and its shares plummet, an executive's stock options become close to worthless and lose much of their incentive effect. This problem may still exist even if the executive has all stock and no options.

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Let's say the CEO is paid $4 million in deferred cash and $6 million in restricted stock. At the outset, boosting the value of the company by, say, 1% is worth $60,000 to him—a good inducement to put in more effort or drop a costly pet project. But if the share price halves, his restricted stock is now $3 million. So, this incentive is slashed to $30,000.

To maintain the power of the incentives, the CEO must be required to hold more stock after a stock-price decline. How much more? In the paper with Profs. Gabaix, Sadzik and Sannikov, we show that the CEO's stock should remain a roughly constant percentage of compensation.
In the example above, this target was 60%. At the start of the CEO's contract, that meant $6 million out of $10 million total compensation. We call this the CEO's "incentive account." Now that the stock has halved, the incentive account is worth only $7 million—$4 million in cash and $3 million in stock. To keep the equity level at 60%, the CEO must have $4.2 million of stock. This is achieved by rebalancing the CEO's incentive account: exchanging $1.2 million of cash for stock, so that the executive now has $2.8 million of deferred cash.
Since the additional stock is accompanied by a reduction in cash, it isn't given free. This addresses a major concern with the repricing of stock options after company value falls: Repricing rewards the CEO for failure by giving him a lower stock-price target to reach. Note that, even if the board is reluctant to amend the terms of previously awarded compensation by exchanging existing stock for cash, the desired rebalancing can still be easily implemented; next year, the board simply pays the CEO more equity and less cash.
If companies employ the three above principles—debt-based compensation to reduce risk, long vesting periods to dissuade short-termism and rebalancing to ensure incentives at all times—executives will be aligned with the long-term health of their companies. And that will not only help keep individual companies safe, it will reduce the risk of another financial crisis.
Dr. Edmans is a finance professor at the University of Pennsylvania's Wharton School, a faculty research fellow of the National Bureau of Economic Research and a research associate of the European Corporate Governance Institute. He can be reached at reports@wsj.com.

Fixing Executive Compensation 

Ethics, DRUGS and Morality: How they affect Communication, Productivity and Everyday Life- Part II

Drugs in their many varied forms (alcohol, hard drugs, amphetamines and even tobacco) have a myriad of effects on our employees and companies. As mentioned in Part I of this series, 31% admit using drugs or alcohol, and these are for people who admit it. The percentage is most likely much higher.

At a business conference several years ago, a breakout session about the 12 Steps of AA (Alcoholics Anonymous) was held. Originally, I had envisioned this to be how to use the process in other ways within a company. No, it was about actual AA, and it was attended by those who either had been on drugs of some form, or had direct family members who were on drugs. The statistic presented there was 40%. This was a major revelation at the time, because I had never seen this statistic before and it impacted me as to the ramifications that this holds for, CEOs, senior managers and C-Suite professionals and HR departments, which should be staggering if viewed from the proper perspective.

We always are wondering why our people may not be as engaged as we would like, or why our communication messages held with auditoriums of employees, or even chats at the water cooler, seem not to be as impactful as we would expect, and like them to be.

Possibly this statistic and topic may be part of the reason. Of course, some of the problem can be our delivery of the topics or making them relevant to those we are speaking to and/or with. However, if we take this drug statistic and also look at other distractions at work, such as illnesses of parents, children, relatives or even the general health of our employees, not to mention the medication being taken by employees at work, can we begin to see why people may not be as engaged as we like, or as productive as we expect? Might this figure of distracted, low engaged people be as high as 70%?

How much are the various drug forms affecting organizations and corporations? Significantly more than we probably care to know, if we acknowledge this statistic and the implications on productivity! Everything from absences, distractions, worry, stress, and general illness, impacts corporate sustainability, profitability and productivity. Government regulations in many countries now required companies to provide benefits for medical care, in various forms, for existing employees, including mental and support-group coverage for “illnesses.”

So this affects a company financially, from the FIRST day a new employee joins the company!

How do we address this issue from corporate communications, to employee manuals and benefits, and even more importantly assessing this in the pre-hire phase, before even bringing a person into our organization? Is this being done in your company? Is it being regularly communicated into the organization? Is it being reinforced with Mandatory Training Programs?

What do we discuss during the onboarding process? What procedures do we have in place to monitor compliance to existing drug policies and excessive absences? Are these in place within your company? If not why not? Can you afford NOT to address this issue on a regular basis?

The 5 Most Difficult Jobs to Fill in 2012 for the US?

In yesterday's Inc. Magazine, an article identified the 5 most difficult jobs to fill in 2012. According to the writer, they are/will be:
1) Software Engineers and Web Developers - Top Tier
2) Creative design and User Experience - especially for mobile devices
3) Product Management - especially for start-ups or early-stage companies
4) Online Marketing by creating a buzz, and
5) Analytics and Business Intelligence Professionals - identifying what should be measured and then building out the capability.

So do you agree as a CEO or Senior Executive? This is the forecast for the US, but different regions may be having other availability gaps. The link to the original article is below.

The 5 Hardest Jobs to fill in 2012 by Keith Cline

Talent and Skills Shortages Number One Risk in Asia Pacific and 4 Other Risks

In the earlier post about Corporate Risks ( Global Risks to Consider and Recent Analysis by Lloyd's- Has Your Company Considered These? ) that need to be considered. It was identified that Lloyd's had ranked these Global Risks, but they also identified Regional Risks. The  image below came from the report that they assembled for 2011. It is very interesting that Talent and Skills is the Number One Risk for Asia Pacific, given the unemployment rate and educational levels in the region and the flood of youth coming up.

So, CEOs and Senior Managers need to seriously consider this, not only if they are planning to expand in the region, but also if new entries (start-ups) are being planned. It will require expert Succession Planning and Strategic Planning efforts to address this risk issue and the others identified, as well as Coaching, Mentoring, Training and Team Development for key corporate members to help fill this gap.

The BPO industry in the Philippines, identified several years ago, that while the industry could do a good job of hiring and filling entry level positions, when they promoted effective call agents, for example, these people did not have the managerial skills to handle a "Front-Line Manager" position. In many instances they were promoted to their level of "incompetence." So the bottle-neck to growth was not having identified and trained potential new managers soon enough to handle the high influx of new candidates for entry level positions.

Consequently, they changed their processes in Pre-Hire to identify 5-10% of the people considered for the entry level position(s), who had the right IQ and EQ to fit into their organizations, and who had good "job fit" with the Benchmarks/Job Pattern /Performance Modeling for not only the entry level position (significantly reducing turnover), but also for the Front-Line Manager position. They would "mark/follow" these people by observation and possible early training to assume the higher level position. This experience was possibly the early warning signs that Lloyd's seems to be now reflecting in their study, now.

For the Asia Pacific Region, Lloyd's identified the following 5 areas of major risks to be considered or addressed:
    1) Talent and Skills shortages
    2) Currency fluctuations
    3) Inflation
    4) Loss of Customers/Cancelled Orders
    5) Company Reputation Risk

As also highlighted in the area: CEO, Senior Manager, Leadership, Strategic Planning and Charisma , it is essential that CEOs, Senior Managers, and Corporate HR Managers identify at least 3-5% potential Leaders within each level of the organization (bench strength) in order to help address sustainability for the corporation. Without bench strength, just like for a sports team, while the top players are available and not injured, the team does well; but without the organizational depth and strength, it can result in high fluctuations in corporate performance over time.

The question remains: How Well Positioned Is Your Company for the Upcoming Forecasted Risks within the Region - Presently and for the ensuing 5-10 years? The future and investments are yours to make to position the company for growth and profitability! To ignore these risks could be at the peril of the corporation and organization.


Risks - Then and now: what has changed?

Global Risks to Consider and Recent Analysis by Lloyd's- Has Your Company Considered These?

Evaluating risk is critical for any company and industry, and it is a necessary component in any Strategic and Business Plan. Of course, if CEOs and Senior Managers are looking at acquisitions and investments, there are additional kinds of risks that need to be identified, evaluated, determined, and compared to the internal hurdle rate required/desired by the company. Some of these risks are:

    Country (political and financial)

    Industry

    Company

    Competitor

    Geographical (likelihood of hurricanes, typhoons, tsunamis and earthquakes)

    GeoPolitical

    Terrorist

    Utility Interruption

    Cyber

    Environmental

    Global

Lloyd's recently identified various risks in 2011, which have changed significantly from 2009. In 2009 the top risks were: the cost of credit, currency fluctuation (which has moved down to number 4) and insolvency.

In 2011, on a global basis, they have now ranked the areas as:

1) Loss of Customers (because of economic contractions and dwindling number of companies),

2) Talent and Skills Shortages,

3) Company’s Reputational Risk,

4) Currency Fluctuations

5) Changing Legislation

Talent, in particular, is a surprising find given the high unemployment rates around the World. As a result, the link to the entire study is below, as well as including the specific portion on Talent and Skills Shortages which is include below.

To not consider many of these risks, if not all of them, could lead to a major folly. Has your company evaluated and considered these on a regular basis? If not, why not? If nothing else, it leads to thoughtful ruminations, but hopefully much more than that!

"2. Talent and skills shortages

Talent and skills shortages

The prioritisation of ‘talent and skills shortages’ as the second most important risk facing businesses - and one of only two risks respondents felt insufficiently prepared for - begs many questions.
In a time of business mergers and record unemployment, the pool of surplus talent should, in theory, be significant. And yet, at the very top of organisations, there is huge anxiety about the suitability of available staff for the roles required.
Concern over talent or skills shortages could be due to a number of factors, some of which are discussed in the Index. Respondents across all sectors agree this is a significant and widespread problem.
The resulting business risks could include everything from poor product development to inappropriate risk management strategies.
Many sectors are waking up to the risk and taking action. Some companies, for example, are undertaking audits to identify staff at risk of being poached and targeting packages accordingly.
But prevention is just part of the solution and many industries are investing in processes to identify and train the talent they need from scratch."

Risks - Then and now: what has changed?